Given that this was effectively George Osborne’s fourth budget in 12 months, you could be forgiven for wondering what on earth he was going to tweak next.
In many ways, the Spring Budget 2016 was more of the same. Where the housing market is concerned, a clear thread has run through the last few budgets. The Chancellor is sticking to his strategy of penalising anyone who is deriving significant profits from UK property, from overseas developers to domestic landlords. The idea is to create more opportunities for first-time buyers, making the housing market a more level playing field.
It wasn’t all bad news for investors, however. The Chancellor has clarified exactly who will be affected by the stamp duty changes, giving a boost to landlords and holiday-home owners who simply want to replace their main residence. Here, we outline the main points to take away from the government’s plans.
Capital gains tax
In a surprise move, the Chancellor has cut both the higher and lower rates of capital gains tax, to 20% and 10% respectively. There is one exception, however. CGT will still be charged on residential property at the old level, meaning, in effect, an eight percentage point surcharge. In a continuation of Osborne’s campaign against landlords, they will not benefit from the changes.
In his Autumn Statement, Osborne announced a hefty 3% stamp duty hike on all additional property purchases, in force from April 2016. The Budget revealed one significant change from the original proposal which is likely to give thousands of prospective buyers a boost. If the property being purchased is to be the buyer’s main residence – regardless of how many additional properties they own – the new charges will not apply. Pages and pages of worked examples and possible scenarios published by the government illustrate the subtle differences which will nudge people in and out of the 3% surcharge territory. Someone who owns a holiday home, but is selling their main residence and buying a new main residence will, for example, be exempt. To fully understand your stamp duty liability, it’s more important than ever to get in touch with a mortgage broker.
The period during which those who have an overlap between two properties can claim a refund on the higher rate has also been extended from 18 months to 36 months – giving some welcome breathing space to buyers.
It was originally expected that company landlords – where more than 15 properties are owned, or the additional properties are held in a company structure – would be exempt from the higher rates. Following government consultations, the Budget confirmed this will not be the case. Company landlords will have to pay an extra 3 percentage points on each stamp duty band from April 2016 onwards.
Buying through a company vehicle may still make sense for some investors, however, as the cuts to mortgage interest relief will not apply – something which would arguably have hit landlords much harder than increased stamp duty. Lenders are looking to increase their offerings in this sector in anticipation of increased demand.
Osborne’s biggest Budget crackdown was on overseas developers who move their profits abroad. Henceforth, any profits derived from the development of UK property by non-residents will be subject to UK corporation tax. Typical tax planning for anyone looking to develop property in this country used to involve setting up an offshore company in Jersey, Guernsey or the Isle of Man, taking advantage of the Double Tax Treaties in place between these jurisdictions and the UK. In a major overhaul these have been amended with immediate effect, to ensure any profits arising from UK property development are taxable in the UK.
The property sections of the Budget 2016 were not the headline-grabbers, but nor were they insignificant. One thing is certain; layers of complex tax changes have made the market ever-trickier to negotiate alone. For expert guidance and advice, please do get in touch with one of our specialist advisers.