Yesterday saw UK Chancellor of the Exchequer George Osborne make his first Budget announcement of the year, but what will it mean for property investors?
While there is no overwhelmingly positive announcement for property investors, there is nothing to dampen confidence in the continuing viability of the national property market. Supporting homeownership continues to be a focus for this government, while other measures provide a mixture of help and hindrance to residential construction.
Supply will therefore likely remain relatively constrained despite rising demand, so investors can look forward to continued property price growth in markets across the country.
When it comes to property investment, the Spring Budget confirms what we already knew. The key coming change remains the Stamp Duty Land Tax surcharge for buy-to-let investors, with buyers not planning to live in a newly purchased UK property set to see the levy on their new property increase by 3% from 1 April for those properties purchased after the 25th November 2015.
The first of two notable alterations is the extension of the surcharge to large-scale buyers, with those purchasing over 15 properties previously planned to be exempt. Given the importance of large-scale investors in financing new developments, experts expect this will have a negative effect on the prospects of increasing housing supply in the UK.
The second notable change to the SDLT implementation is the increase in the “grace period” for those temporarily owning two UK residential properties, one of which qualifies as their main residence. This will allow homeowners a 36-month period of ownership overlap, up from the initially proposed 18 months – buyers selling one of their properties within this period will be able to claim back the 3% SDLT surcharge paid upon purchase.
A further suppressive effect on house building may be found in the tightening of taxation rules for offshore structures involved in UK property development, with Osborne announcing that new legislation regarding this will be introduced in the Finance Bill 2016.
Supporting homeownership remains a key goal for Osborne. Yesterday’s announcement confirmed measures laid out in the Autumn Statement 2015 that will do just that through a new Lifetime ISA scheme and the continuation of the successful Help to Buy programme.
These are key measures that will increase demand for UK properties by giving a vast demographic of buyers access to the early rungs of the property ladder – a group that plays a key role in investors’ ability to achieve strong returns at the end of their planned investment term.
Other announcements that will affect UK property markets largely revolve around the expected and now further confirmed support for increased house-building and planning simplification. However, given the previously mentioned measures that are expected to depress construction, supply in the medium-term will remain constrained across the country.
Changes to personal income tax were also announced, with the annual tax-free allowance set to rise from GBP11,100 in April 2016 to GBP11,500 in April 2017. The 40% income tax band will also rise to GBP45,000 in April 2017, up from GBP42,385.
A significant personal taxation change that will not affect property investors is the cut in Capital Gains Tax. While the rates will fall from 28% and 18% to 20% and 10%, gains made on residential property will carry an 8% surcharge, leaving property investors in exactly the same position.
A change that will specifically affect property investors is a new GBP1,000 personal allowance for property-related income, which will be added to the general annual tax-free allowance. This will mean investors will be untaxed on income of up to GBP12,500 per year from April 2017.
Two key transport infrastructure projects were effectively green-lighted in yesterday’s announcement. The high speed rail link between Manchester and Leeds, known variously as HS3 and TransNorth, will be going ahead with an initial GBP60 million in funding, while a further GBP80 million of development funding will be committed to take the Crossrail 2 project forward.
The green-lighting of Crossrail 2 in particular promises swathes of new opportunities for investors over the next 10-15 years. Crossrail 1 – recently renamed the Elizabeth Line and set to open in 2018 – has had a profound impact on property markets in London, creating distinct pockets of value for investors. More of the same such opportunities can be expected in the years ahead along Crossail 2’s new North-to-South route, with areas such as Kingston, Tooting Broadway, Hackney Central and Alexandra Palace set to come to the fore.
Growth forecasts for the British economy have been revised down in this Budget, with 2% now expected across 2016, and 2.2% and 2.1% forecast for 2017 and 2018.
Some of this may be down to the looming uncertainty surrounding a potential Brexit, to be voted on by the British public this summer. Osborne committed substantial time during his Budget speech to voice his staunch support for keeping the UK within the European Union, taking the opportunity to highlight the risks inherent in a Brexit and the prospects for lower short-term growth in the wake of a “leave” decision.
While these revised growth forecasts show the economy is not quite as strong as Osborne had previously hoped, the UK remains forecast to grow faster than any other major Western economy. The national job market was announced to have been performing stronger than was forecast, with the employment rate at a record high and a million jobs to be created by 2020.