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What the budget means for UK property investments

by Nikki Dale -

Overall good news for all in the Chancellor, Rishi Sunak’s 2021 Spring Budget.

In the lead up, there were largely positive expectations, especially surrounding job support and general taxes.  Of course, there were the prior leaks on stamp duty land tax holiday likely extending, and a government-backed 5% deposit home buyer scheme – essentially the Help to Buy replacement.  However, there were still worries around a Corporation tax rise and Capital Gains tax.

What we think has been taken from Wednesday 3rd March budget announcement is all government measures and support are steering the UK away from a negative bound sentiment in the property market.

  • The economy is set to rebound thanks to rapid vaccine rollout, getting back to its pre-pandemic peak by the middle of next year.
  • Extending rescue measures takes support for households, businesses, and public services to over £350 billion.
  • Generous tax incentives for business investment add to the recovery over the next two years.

The UK’s Spring Budget

The budget that was dubbed ‘the most influential budget in a generation’, but what does it mean for UK households, businesses and in particular, property investors?

The Chancellor, Rishi Sunak certainly did not let the UK down, with extending the Coronavirus support scheme and keeping his promise ‘he’ll do whatever it takes’.

He reminded Britain that so far, £280 billion of support has gone into protecting jobs, keeping businesses afloat and helping families get by.

Borrowing and GDP shrinkage is at record highs outside of war time.  However, thanks to the vaccine roll-out the UK can “look to make a swifter and more sustained recovery” said the Chancellor.

Repairing the profound damage

While prospects are brighter and stronger, the chancellor’s made a clear point that repairing the profound and long-term damage of the coronavirus will take time.  The OBR still expect in five years-time the UK economy will be 3% smaller than it would have been. The OBR forecast that the UK economy will grow 4% in 2021; 7.3% in 2022; 1.7% in 2023; 1.6% in 2024; 1.7% in 2025.

Building Back Better: A three-part plan to recovery

Announcing a three-part plan which covered:

  1. Support the British people and businesses.
  2. Fixing the public finances.
  3. Building the UK’s future economy – ‘building back better’

The OBR (Office for Budget Responsibility) now expect the economy to return to its pre-covid level by the middle of next year, six months earlier than previous believed.  This means faster growth and unemployment should stay lower.  Unemployment is forecast to peak at only 6.5%, opposed to the previously predicted 11.9% (July 2020), that is only a 1.4% increase – which is amazing considering the crisis and recession over the last 12-months.

Protecting and creating jobs is at the forefront

Furlough will be extended to the end of September 2021 – no change to the terms until July 2021, when they ask a contribution of 10% from the employer – under certain criteria.

Support will also be extended for the self-employed income support, with a fourth and fifth grant, depending on loss of income.  And newly self-employed people, that have now filed a tax assessment – over 600,000 more people – can now claim the fourth and fifth grants available.  £33 billion was said to have been spent on supporting self-employed income.

The National Living Wage, from April 1st will rise to £8.91 an hour.

Low-income households will continue to receive the universal credit uplift of £20 per week – this will continue for another six months.

Read Article: Deeper dive into the Spring Budget business support schemes

Why protecting jobs helps the property market?

Great news for the property market too.  Because of these government interventions, ONS predict unemployment will halve what it would have been in terms of people (circa 1 million people). This really helps stabilise the property market as the more people who can afford their rent and afford their mortgages, means less people being possibly forced to ‘panic sell’ – which naturally puts a real negative bound sentiment on the market.

Stamp duty holiday extension

The SDLT holiday has supported the housing sector hugely. It was introduced last year as a way to stimulate the property market – which is exactly what it did.

As anticipated the stamp duty holiday has been extended until the end of June 2021 for the £0 – £500,000 bracket.  And in an effort to help the housing market further Sunak announced from the end of June to the end of September this year, the SDLT holiday will continue for home buyers purchasing properties in the £0 – £250,000 bracket.

With Halifax and Nationwide indices showing a property boom since Summer 2020 – ironic but pleasing – the taper off of the stamp duty holiday means it doesn’t fall off a cliff edge and helps keep the boom going.

Turn generation rent into generation buy

A new mortgage scheme to help buyers get onto the property ladder with only a 5% deposit will be launched. It’ll start from April and several major lenders have already agreed to take part, including Lloyds, Barclays and HSBC.  Lenders provide mortgages to home buyers with only a 5% deposit and their security is the Government backs part of the loan.

This is a welcome replacement to the ‘Help to Buy’ scheme which was more restricted to new build properties for first time buyers.

Unfortunately, the new scheme doesn’t apply for buy to let purchases, as it’s the Government’s incentive to turn generation rent into generation buy.

Tax threshold frozen

The Conservative party did make a manifesto commitment to not raise income tax, VAT and national insurance and they haven’t done that.  They’ve in fact kept the thresholds the same, so essentially the bands are frozen for this year.

Lifetime Pensions Pot

Good news for those investing in commercial property using a SASS or SIPP.  There is no change to the lifetime pension pot allowance.

Corporation Tax change will rise to 25% in 2023

Corporation Tax, which is relevant to property businesses, especially if they’ve incorporated their property portfolios into a Limited company.  The announced increase, to 25%, won’t happen until 2023, and there are several ifs and buts. However, generally it applies to companies with profits of more than £250,000 or there’ll be a tapered approach for companies with between £50,000 – £250,000 of profit.

READ MORE: How does the Corporation Tax benefit low profit companies. Plus the Spring budget 2021 business-growth schemes.

Generally, all good news for property investment and the property market. With stamp duty being tapered and not falling off a cliff, this will only support the property market.

There were many predictions where annual houses prices will fall this year, especially if the Stamp Duty Holiday ended, but with this approach we may continue to see continued growth in house prices in 2021.

And with all the government support, bounce back loans and grants, realistically we may not see the negative bound sentiment that was also being feared for 2021.

Also, with the introduction of the Leeds Infrastructure Bank it all sounds rather promising.  And property investors can be delighted – but vigilant until the next budget – that no changes were made to Capital Gains Tax.

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