Changes were expected from George Osborne within the 2014 Budget however, there was a disappointing reaction as in reality the measures confirmed are those that had already been hinted at in the run up to the budget. The main changes will see more homes fall into the tax net as the government aims to deter investors from avoiding stamp duty, inheritance tax and leaving houses unoccupied. The governments failure to overhaul the stamp duty system came as a disappointment for many. With the inbalance between wages and the cost of living the ability to save for a deposit is now more difficult than ever. With the added cost of stamp duty land tax, the re-structure of the system may have assisted the bottom end of the market enabling more transactions and freeing up stagnant chains.
For investors, the new procedures include extending the band at which homes are charged 15% stamp duty when wrapped in a corporate envelope. Two years ago a charge of 15% was introduced for those buying property worth more than £2m through a company, this will now apply to all homes sold for more than £500,000 in a company capacity. Many foreign investors have tried to avoid the tax when buying property by using a holding company. When a company buys a property it is usually because the buyer wants to remain anonymous, the government is trying to prevent this within the new bracket. Transaction levels of properties between £500,000 and £1m have been 12.7 times the number over £2m over the past 5 years. However the Treasury is working on the assumption that only 12,000 homes out of an estimated 1,000,000 (1.2%) in this price bracket with pay the charge.
As a result, the tax take from the measures is forecast to be small (reaching just £90 million by 2018/19). We do not therefore anticipate a significant impact on the market.
More importantly, by extending the scope of these charges there is a real incentive for overseas owners who might have used such an ownership vehicle, to let out their property, thus contributing to London’s need for more homes.
It has been made clear that the change will not affect rented properties, in a bid to leave buy-to-let untouched. Families trying to get on to the property ladder have seen prices rise, mainly due to a lack of new homes being built. Another plan included in yesterday’s budget was the extension of the help-to-buy scheme, which will run for four more years until 2020, helping to fund 120,000 new homes. The scheme offers an equity loan for people looking to buy a new home for less than £600,000. The scheme is currently supporting 30% of private sales in the new homes sector and has been particularly important in lower value markets where a lack of equity has restricted transactions across the market as a whole.
In respect of the Help to Buy phase 2 which relates to the mortgage guarantee scheme and which has been far less supportive of house building will end on 31st December 2016.
Initially, we expected the budget to be a hard-hitting one, with cuts across the board, so it is welcomed that the cuts have not impacted too meaningfully upon the property market.