Space and Time Budget Update

Space and Time Budget Update

As has become customary, we’ve taken a look at the most salient points for our clients from today’s budget statement.

For the property sector, the major take away from today’s budget will be the change to capital gains tax, which will fall from 28% to 20% at the higher rate, or from 18% to 10% at the basic rate. Contrary to widespread speculation ahead of the budget (and contrary to an earlier version of this blog- my apologies), this change specifically excludes residential property. So rather than the shot in the arm for the London property market that many were anticipating, the tax cut does not incentivise those who own multiple properties to sell one or more of them and create supply into the market. Rather, by continuing to tax gains made on residential property at the higher level, the ruling seeks to ensure that profiteering from rising property prices is kept to a minimum and that property is treated as a home, rather than as a commodity. Coupled to the SDLT surcharge coming into effect on April 1st, the nett result of this change is that the government is making it more expensive to get into the landlord business, and making most other investments more attractive by comparison.

The threshold for paying tax at the higher rate will rise from £42,385 to £45,000 from next April, while the lower threshold for paying any income tax at all will rise to £11,500. Although no doubt a welcome change for those who will benefit, it is perhaps unlikely that the prospect of paying ever so slightly less tax in a year’s time will have people beating a path to your door.

At a more local level, the halving of the supplementary charge on oil and gas producers is expected to have a substantial impact on Scottish fossil fuel production and the communities that depend on it.
Naturally this should eventually have positive consequences for the Aberdeen property market in particular.

Other points to note include a renewed interest in infrastructure in the North of England, including a scheme to widen the M62 and a road tunnel between Manchester and Sheffield. The much-discussed sugar tax will also impact on manufacturers, retailers and consumers alike, while the increase in the minimum threshold for business tax from £6,000 to £15,000 will be welcomed by many small businesses. There will also be a “Lifetime ISA” which encourages saving among those under 40 by gifting a £1 tax-payer funded contribution for every £4 saved.

The Office of Budget Responsibility has predicted that the Lifetime ISA will have an indirect impact on house prices, because the scheme will allow savers to withdraw 100% of their savings to fund a first-time house purchase up to a value of £450k. This impact has been quantified by the OBR at 0.3% on average house prices, so its impact in real terms will be negligible, particularly given the numerous other variables that could influence prices during the time in which we might expect it to take the average saver to put away even the cost of a deposit. Other ‘non-budget’ news today will include the scheduled meeting of the US Federal Reserve Bank, who will be taking a view on US interest rates. Originally expected to increase from 0.25% to 0.5%, the figure is now anticipated to remain unchanged following the slowing of the Chinese economy and the global slump in oil prices.

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