The Budget is tomorrow, and Ben, a manager in the Real Estate tax team (Euston office) gives us some insight about what changes we can expect in the property sector.
As always, just before budget, the rumour mill goes in to overdrive. One such rumour is that there may be a fundamental change to the capital gains tax regime (possibly aligning the rates with those of income tax). If true it would represent yet another blow to the buy to let market for individuals but of course as with all rumours it needs to be taken with a large pinch of salt until Wednesday’s announcements.
However, we will receive confirmation of how exactly some of the previously announced changes will work, with legislation to be released. The three key changes in the property sector are:
- the 3% additional stamp duty land tax (SDLT) charged on additional residential properties (for both individuals and corporates) from April 2016.
- the gradual reduction of income tax relief landlords obtain on residential property finance costs starting from April 2017. By 2020, landlords will only receive a deduction at the basic rate of 20% rather than at current marginal rates of 40% or 45% (assuming landlords pay tax at those rates).
- how HMRC will choose to take forward the OECD recommendations with respect to corporate interest deductions. The proposals potentially give a far less generous position than the current UK tax system and will have a large impact for industries like real estate where use of loans play a key part in the financial profile.
Finally our team also like to keep our ear to the ground on the commercial issues within the property industry as well as the tax ones. It plays a key point in us understanding our clients key objectives and how we can work together to achieve them. Home ownership, social housing as well as increasingly providing homes for renters continues to be right in the forefront of the political spotlight so we can expect at least some form of announcement for each. We note the help to buy scheme is currently scheduled to finish at the end of 2016 so will there be an extension? Will Sadiq Khan’s championing of renters’ rights as part of his mayoral campaign see more focus on the matter from Whitehall?
All the budget announcements of course sit in the shadow of a looming in / out EU referendum for the UK and this level of uncertainty typically sees investors hold off decisions (such as large commercial property acquisitions) until afterwards. George Osborne will likely be keen not to add to this uncertainty although it will remain to be seen to what extent it stalls deals in the commercial property market (which had a high volume of transactions throughout 2015).
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