I’ve had a lot of interesting conversations with investors over the past few days about the effects and implications of the mini budget and what’s really stood out us how the Conservative Government under Liz Truss certainly appears to be more pro-business than her predecessors!
But what did the budget include? I don’t doubt you will be aware of the main headlines, which are:
- The stamp duty threshold raised from £125k to £250k
- How first-time buyers do not need to pay stamp duty on the first £425k
- An increase in the property value of which first-time buyers can claim relief, from £500,000 to £625,000
- A reversal in the rise to National Insurance and increase in Dividend Tax
- Abolition of the top rate of tax at 45%
- Lifting the ban on banker’s bonuses
- A cancellation of the corporation tax rise, keeping it at 19%
- The basic rate of income tax cut to 19% in April 2023 (one year earlier than planned)
- Freezing of alcohol duty
- Abolishing the office for tax simplification and repelling IR35
- An ambitious growth target of 2.5%
That’s quite some list that was added to the £2,500 cap on residential energy bills and the six-month cap on energy costs for businesses.
I initially got quite excited when I read about the saving to stamp duty but thinking back to the temporary cut during COVID, buy-to-let properties were not eligible for the full reduction and it appears that this is the case with this change as well.
There is a silver lining however, as stamp duty for second homes is 3% above the residential rate, meaning that investors will save some degree of stamp duty. This change essentially makes the savings during the COVID-19 stamp duty holiday permanent for properties under £250k, with a maximum £2,500 saving as outlined below:
|Band||Up To Sept 23rd 2022||Post Sept 23rd 2022|
|£0 to £125,000||3%||3%|
|£125,001 – £250,000||5%||3%|
|£250,001 – £500,000||8%||8%|
|£500,001 – £925,000||8%||8%|
|£925,001 – £1.5m||13%||13%|
Whilst abolishing stamp duty on second homes would be an extremely welcome move (and one that will help solve the rental crisis), it would probably not be the best of ideas as it would probably further rise the cost of home ownership for everyone.
The permanent change to stamp duty has been absolutely slammed by mortgage companies and solicitors, who have called it a catalyst for stimulating an overheated property market and one further beset with delays to conveyancing. Whether we will see the same impact as the stamp duty holiday which in the end led to buyers paying more than they saved remains to be seen!
I don’t suppose you noticed something missing from the mini-budget, however? Conspicuous by its absence was Section 24 reform.
Before Kwasi Kwarteng took to the stage, landlords were offered a glimmer of hope when Truss commented on how she is not adverse to considering the repeal of Section 24. Unfortunately, nothing was mentioned and I doubt nothing will be changing any time soon!
The reversal in the rise to corporation tax, increase in National Insurance, and reduction to the basic rate of tax were the other main takeaways for property investors. Particularly where the increase in corporation tax would begin to chip away at companies who make just over £4,100 per month in profit before tax!
Whilst all these changes are positive in relation to tax reductions, what is worrying is how the economy has reacted in the short term. See below, for example:
At the time of writing, as the above illustrates, we’ve seen the pound to dollar rate hit a record low, the FTSE100 take a tumble and the Bank of England consider emergency intervention.
This is either reckless action by the new administration or the beginning of a brilliant, long-term recovery plan. I think that only history will tell, however all I know is that we’re now in for a very bumpy ride (even if just for the short term).
For Medway’s property investors, there are always deals out there, and whilst residential property continues to be a strong asset class, it’s important to remember not to buy at the top and wait out any potential drops (and/or mortgage rate rises)!