House building and home ownership
Greater than £2bn will be going directly to house builders – controversially perhaps not to build social houses for rent but to pour into houses for sale.
This is great news for property development companies who will have opportunities for industry growth and will be better able to offer employment and apprenticeships.
It was announced that 400,000 affordable new homes would be built across England including 200,000 starter homes by 2020-2021. A focus on help to buy and shared ownerships was clear with a new London help to buy scheme announced which will enable first time buyers with a 5% deposit to obtain an interest free loan of 40% of the value the property.
The incentives will certainly help to drive property sales – however with property prices continuing to rise, it is likely that new homes will still be out of reach for many. Property developers will also need to consider their own marketing strategies to enable their properties to be sold swiftly.
It was announced that the small businesses rate relief scheme has been extended for another year although no mention was made as to exactly how the business rates will be reformed which many in the property industry were expecting. Business rates are currently based on 2008 valuations, which was before the financial crisis really hit and are arguably now out of date. It appears that this will be deferred for until the next budget.
Phasing out of uniform business rates will certainly mean that local authorities can be more competitive and flexible to attract investment and business.
Capital gains tax
From 2019, capital gains tax will need to be paid within 30 days of the disposal of residential property. This is a significant change for tax payers who currently do not need to pay capital gains tax until the January following the end of the tax year that the property is sold.
This is likely to cause both tax payers and their advisors an administration headache, as well as a cash flow implication, as ensuring that the computations and necessary reliefs are calculated correctly within 30 days will be extremely challenging.
Record keeping going forwards is also going to need to be much tighter in order to be able to easily establish the original costs of acquisition and professional fees incurred.
This announcement is in line with the recent changes that will now see non-resident taxpayers being taxed on gains on residential property.
There were also many unanswered questions such as whether there will be any reliefs for capital losses made prior of after the disposal, whether the annual exemption will remain unchanged and able to be utilised and whether any capital gains tax paid will be able to be reclaimed in the future once the end of the tax year final tax Returns have been submitted if there are available losses.
The 3% increase on stamp duty charged on additional properties purchased from April 2016 is a further kick in the teeth for property investors following the announcement in the Budget that they will be subject to higher tax payable on their rental profits as a result of tax relief on mortgage interest being restricted to the basic rate of income tax.
For landlords, particularly for those with significant portfolios that they intend to hold for the longer term, it is going to be important that the way their property portfolio is structured is looked at very closely as it may not now automatically be the case that it is more tax efficient for properties to be held personally.
The combined impact of restricting income tax relief for mortgage interest, lowering corporation tax rates and the 30 day rule for capital gains tax payments being applicable to individuals but not companies, may mean that holding the properties in a limited company structure is a more desirable option.
Stephanie Levin is a partner at Shelley Stock Hutter