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Budget 2021: What it means for home buyers and property investors.

04 Mar 2021 | 5 min

Yesterday (March 3rd), Chancellor of the Exchequer Rishi Sunak outlined the Treasury’s Budget for the next financial year, with the COVID-19 pandemic continuing to dominate headlines.

As a result, Mr Sunak’s Budget speech unsurprisingly centred on how his department has been supporting, and will continue to support, British families and jobs.

Outlining the scale of the problem – a 10% economic contraction and the highest peacetime borrowing on record – it’s hardly surprising that Mr Sunak didn’t dwell too long on how it would all be paid for, for fear of putting the brakes on fragile business confidence. So he said now was “not the time” for firm targets, and made it clear it would take many governments – and many decades – to settle the debt.

He reiterated last week’s commitment from Prime Minster Boris Johnson towards the ‘cautious but irreversible roadmap’ out of lockdown, and announced with a smile that the Office for Budget Responsibility was predicting the economy would be back at its pre-pandemic levels by mid-2022.

Watching with interest, we’ve picked out some of the salient points of how our customers are likely to be affected.

First-time buyers

One of the bigger announcements is surely aimed at keeping the housing market buoyant, and was the promise of a Government-backed mortgage guarantee for lenders who provide 95% mortgages – with well-known high street brands already signed up to begin offering these next month. While not limited to first-time buyers (as far as we could tell), Mr Sunak stated his aim was to “turn Generation Rent into Generation Buy”, so it’s clearly aimed primarily at them.

There was no mention, however, of how lenders might be encouraged to modify their lending criteria to account for issues many Brits have faced over the last year – such as recent changes to employment, missed payments, and the like.

Together will continue to make common-sense decisions based on borrowers’ individual circumstances.

Self-employed

Many of our customers are self-employed, so there was good news for them in the form of two final payments through the Self-Employed Income Support Scheme. A welcome change to the scheme means a further 600,000 newly self-employed people may be able to claim, provided they have submitted a tax return.

Home movers

Since July last year, the Stamp Duty exemption for homebuyers has been extended from the first £125,000 of the purchase price to the first £500,000. This has proved very successful in stimulating the housing market, and this exemption was scheduled to end on March 31st.

As anticipated in some quarters, Mr Sunak announced an extension to this holiday to prevent transactions already in the pipeline from falling through. The current deadline of March 31st will be extended to June 30th, and beyond that a smaller exemption (up to the first £250,000) will apply until the end of September. The exemption should return to the normal £125,000 thereafter.

Business owners

Mr Sunak announced changes to Corporation Tax effective from April 2023, giving businesses time to prepare for new rates and ensure recovery and investment isn’t stifled in the short term.

The tax will become progressive, with higher profits attracting a higher rate – so smaller businesses making up to £50,000 will continue to attract the current 19% rate. Businesses making profits over £250,000 will pay a new 25% rate, with other businesses falling somewhere in the middle.

And because Corporation tax applies only to profits, unprofitable businesses are exempt from paying any tax by default.

Mr Sunak also announced that business rates relief for the hospitality, retail and leisure sectors will continue beyond the end of March, when it was due to expire, and instead end in June. For the remaining nine months of the tax year, these same businesses will receive reductions of up to two-thirds of their bill, subject to some limits.

Some commentators had expected Mr Sunak to set the scene for an online sales tax all retailers may have to pay, but prior to the Budget it was announced he has delayed a final report on a review of business rates – a key part of his promise to ‘level the playing field’ between the high street and online retailers – until later this year.

Mr Sunak announced a continuation of the reduced rate of VAT (currently 5%) for hospitality, holiday accommodation and attractions for a further six months over the busy summer period, and ending in September. An interim rate of 12.5% will then run from September until the end of March 2022, before returning to the full 20% rate.

Property developers

Mr Sunak did not make any reference to the cladding scandal in the Budget, but Housing Minister Robert Jenrick announced on 10th February the Government’s further plans to remove unsafe cladding by investing an additional £3.5 billion.

The Government will soon be consulting on a new policy known as ‘Gateway 2’, a levy that will apply to residential developers who seek permission to develop certain high-rise buildings in England.

A new tax will also be introduced for the UK residential property development sector in 2022, which is expected to raise at least £2bn over the next ten years to help pay for cladding remediation costs.

Landlords

A sigh of relief for landlords, who must have been happy to not be mentioned at all in Mr Sunak’s keynote speech. After several years of punitive change in taxation and regulation, it was all quiet.

Even a rumoured new 2% Stamp Duty levy for overseas buyers did not materialise.

Property investors

Capital Gains Tax is not covered by the Prime Minister and Chancellor’s so-called ‘triple lock’ tax freeze on income tax, national insurance and VAT, and before the Budget, Stefan Wagstyl for the Financial Times reported that “those with unrealised capital gains might be advised to cash in and take a tax hit now, as any future CGT changes will be in one direction – up.”

However, Mr Sunak instead announced a freeze on several tax thresholds and allowances – including inheritance tax and the personal Capital Gains Tax allowance – until April 2026.

Possibly even better news was Mr Sunak’s big ‘rabbit in the hat’ moment, which came with the announcement of the creation of a number of new Freeports.

This new UK-wide policy will also extend to Scotland and Wales, and Mr Sunak was able to announce the location of eight new Freeports in eight of the nine regions of England – following through on promises to rebalance investment towards smaller and (often impoverished) coastal communities.

These special economic zones have different rules that make it “easier and cheaper to do business”, and will encourage investment.

These are far from a new invention but Mr Sunak promised a “unique approach”, with simpler planning rules, infrastructure funding, cheaper customs with favourable tariffs or duties, and lower taxes to encourage building. All of this may mean they be worth investigating as possible ‘boom towns’.

These are, going clockwise:

  • Teesside (around Middlesbrough and Stockton-on-Tees), in the Northeast.
  • Humber (encompassing Hull and Grimsby) on the Yorkshire/East Midlands border.
  • Areas around East Midlands Airport, near to the West Midlands/East Midlands border.
  • Felixstowe and Harwich in Eastern England.
  • Thames (presumably around the former Freeport of Tilbury) for London.
  • Solent (centring on the former Freeport of Southampton), in the Southeast.
  • Plymouth, in the Southwest.
  • Reinstatement of the former Freeport of Liverpool, in the Northwest.

In further good news for the Northeast, Mr Sunak also announced a new Treasury office in Darlington – which, in addition to the Teesside Freeport, will reinforce investment away from London.

As we recently wrote, property in the Northeast is among the cheapest in the country, so now could be a good time to investigate this area for potential investments.

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