As the clock struck 12:30GMT on Wednesday 16th March 2016, the Chancellor of the Exchequer took to the floor of Parliament to deliver this year’s Budgetary statement, addressing policies that affect both this tax year (1st April 2016) and next (April 2017), and while some things came as quite a shock, others were not all that unexpected, as Osborne spent the lion’s share of his 50-plus minute speech elaborating on previously-announced intentions.
What affect will the Budget have on the housing market?
Particularly in the investment market, investors were waiting with bated breath for further details of the not-so-eagerly-awaited hike on the Stamp Duty Land Tax (SDLT) due on all buy-to-let and second homes. But alas, this didn’t come—certainly Mr. Osborne broached the controversial topic, but gave it no more than a cursory mention. Yes the stamp duty increases on all non-owner-occupied homes were going ahead as planned on April 1st 2016, but no other details were afforded in the direction of expectant investors.
In November 2015, Osborne controversially introduced in his annual Autumn Statement the intention to implement an additional 3% levy on all buy-to-let and second homes on top of the residential stamp duty already in place. Four months after the initial announcement, many expected the new Budget to shed some additional light on these new tax rates, but all we know for sure in the wake of Osborne’s speech is that the buy-to-let stamp duty tax is in fact going ahead as planned.
While crucial kinks still need to be ironed out before the awaited April 1st implementation date, it seems that investors have no choice but continue waiting for more concrete details surrounding their new buy-to-let stamp duty bill (which are expected to come in a matter of weeks before the new stamp duty comes into effect).
By far the winners in this year’s Budget from a property perspective are commercial investors, who can now benefit from a reduction in Capital Gains Tax (a tax payable on any capital appreciation earned from a property’s increase in value when you sell). Although residential CGT will remain fixed at its current state (higher-rate taxpayers taxed 28% in CGT and basic-rate taxpayers taxed 18%), the Budget has announced significant reductions for commercial CGT, reduced to 20% and 10% respectively and due to take effect in the next 3 weeks to coincide with the new tax year.
Furthermore, Stamp Duty has once again been tampered with, but this time for commercial property—as of midnight from the day of the announcement, commercial stamp duty rates will be as follows:
• Commercial property up to £150,000—0%
• Commercial property up to £250,000—2%
• Commercial property over £250,000—5%
According to Osborne, this change in commercial stamp duty will see a massive 90% of companies paying the same amount of tax or less (in what has been professed “a big tax cut for small firms”), but the 9% who will pay more as a result of these announcements are expected to collectively bolster the Treasury by more than £500m per year.
Other areas targeted in the Budget
Clearly Osborne’s main focus was the boosting of enterprises in the UK, with a number of policies announced to further the productivity of British businesses, particularly Small/Medium Enterprises (SMEs). The current corporation tax, which the Chancellor himself described as “distortive and unproductive”, will be progressively reduced in a roll-out scheme that will eventually cap corporation tax at 17% by 2020.
The sun was certainly shining on SMEs in this Budget, as the burden on business rates was further reduced through the doubling of the Small Business Rate Relief (a policy that will see over 600,000 small businesses paying no business rates at all), and the switching of business rates from its current indexation of RPI to be consistent with the main inflationary measure, which is currently CPI (a move alone that will save businesses over £370m). The self-employed also received a nod from the Chancellor in the form of the abolition of Class 2 National Insurance contributions, a policy set to affect over 3.4m self-employed workers (amounting to a real saving of £134 per person).
This leads on to individuals who, in lieu of any real policy regarding housing, unaffordability and pensions, had to content themselves with the only other major economic policy that Mr. Osborne introduced in this Budget: savings reforms. Almost as an afterthought, the Chancellor finally acknowledged the country’s growing generational gap by introducing a Lifetime ISA available for all UK adults under 40. Already given the affectionate moniker LIsa, this new Lifetime ISA will from April 2017 see savers able to contribute up to £4,000 a year and receive a 25% Government bonus. Osborne sees this as a means to allow a more streamlined and flexible savings vehicle for either buying a home or retirement. This comes hand-in-hand with the increase of the ISA allowance to £20,000, which will also be rolled out in the next tax year.
And of course, no Budget would be complete without mention of the Northern Powerhouse. Interspersed with all other economic policy, George Osborne confirmed the green light has been given to HS3, the highly-publicised high-speed rail network aiming to connect Leeds and Manchester, as well as other transportation improvements that come under the remit of the Northern Powerhouse (the £161m improvement of the M56 and the £75m improvement to other Northern road links like the A66 to name just a few).
Throughout, Osborne’s rhetoric was inherently positive—“fundamentally strong economy”, “150,000 more jobs than expected”, “lower inflation”, “unemployment falling”—which was all welcome news, especially his somewhat surprising announcement that Britain will be reporting a £10bn surplus by the fiscal year 2019/20. However, it seemed hard to make a natural connection between this positive economic outlook and the solutions outlined in the Budget, which seemed to address little of the country’s real problems.
Osborne’s focus was inherently fixed on increasing productivity and enterprise, almost at the detriment of all other important issues on the agenda. Buy-to-let stamp duty was barely on the Chancellor’s radar, nor were issues around the rising house prices and the current unaffordability crisis.
One thing was very clear though: George Osborne is a firm believer in harnessing the collective power of the country to work towards a bigger and better Britain. And the Northern Powerhouse will be the key to unlock this more connected, economically-balanced country. The chancellor’s mantra throughout his speech was that we should “act now so we don’t pay later”—but the question remains, does this Budget show that we are doing enough?