Budget 2016 Round-up for Property Buyers
A week on from the Budget and the dust seems to have finally settled. The new sugar tax might have grabbed a few headlines, but the biggest story, in an otherwise rather unexciting Budget, was the chancellor’s climb down over his proposed cuts to disability benefits.
As I said, there wasn’t a huge amount to get the pulse racing, but let’s take a look at a few announcements that will affect the property market.
Lifetime ISA (LISA)
Stamp Duty on Buy-to-Let
The industry has been talking about the Treasury’s plans to increase stamp duty on second property purchases since they were announced in last year’s Autumn Statement. In a nutshell, landlords and owners of second homes will have to pay an additional 3% in stamp duty across all bands from April 2016, unless the transaction is for the sale and purchase of their main residence.
Prolific buy-to-let investors were hoping to be exempt, but they’re not. In addition, landlords are soon to experience changes in income tax rules, where interest payments will no longer be tax deductible.
One minor amendment from what was announced in the Autumn Statement is that sellers will now have 36 months, instead of the proposed 18 months, to claim back any extra stamp duty they paid between buying and selling their personal residential homes. However, this is a very small benefit and won’t do much to counter the negative impact this change will have on the buy-to-let market.
Capital Gains Tax (CGT)
More bad news I’m afraid… Although CGT is being reduced from 18% to 10% for basic rate taxpayers and from 28% to 20% for higher rate taxpayers, gains from residential property will not be subject to the lower rates. However, gains from commercial property will be.
It was announced there’ll be less stamp duty to pay on smaller commercial properties (those worth up to £1 million), so we may well see professional property investors making the move from residential to commercial over the coming months.
Annual Tax on Enveloped Dwellings (ATED)
Gains from ATED will also be charged at the higher CGT rate of 28%, which makes sense as ATED is payable by companies that own UK residential property. Last year, only qualifying properties worth more than £1 million were subject to ATED (it was £2 million the year before that), however, a new £500,000 threshold has been introduced this year with a £3,500 charge.
The threshold for ATED has been halved 3 years running and the rate has increased by a whopping 34% since 2015. It looks like it’s not just private landlords who are feeling the pinch!
Budget 2016 In Summary
The Budget has been seen by many as one for the young and for higher earners, with everyone in the middle being largely ignored. Now that George Osborne has admitted he made “a mistake” about cutting disability benefits and scrapped his proposal, it seems residential buy-to-let investors are emerging as the group that’s been hit the hardest.
Let’s end on a positive… It appears small businesses stand to gain the most, with cuts to business rates for half of all commercial properties in England. As of 1st April 2017, Small Business Rate Relief (SBRR) will be permanently doubled from 50% to 100%, and thresholds will be increased so more businesses can receive greater relief.
This is a real bonus, not just for the businesses themselves, but for local development and employment prospects.
If you’d like to discuss any queries or concerns you might have in relation to property matters following the budget, please get in touch with our expert mortgage advisers. We’ll do what we can to help.