Autumn Budget: Impact on investors

November 18, 2022

As expected, tax hikes were the order of the day in yesterday’s autumn statement from Jeremy Hunt, but how will the changes impact the property investment landscape?

Plugging spending gaps by raising taxes was the overriding ethos of yesterday’s (16th November) Budget, delivered by new chancellor Jeremy Hunt, who has been in the post for just one month.

The majority of the measures he announced did not come as a shock, and it goes without saying that some were more welcome than others. In terms of actual housing policy, there was a stark absence of information or planning from the Chancellor.

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Stamp duty cuts are now temporary

This tax which is paid on any property purchase above £250,000 affects the majority of property buyers in the country (and from abroad), whether homebuyers or property investors, so this was one of the ‘biggies’ from yesterday’s announcement.

Stamp duty thresholds were overhauled back in September to better reflect today’s housing market, which will bring savings to most levels of the market. The nil-rate threshold before September was £125,000, while first-time buyers’ relief can now be claimed on properties worth up to £625,000 - up from £500,000.

But while the original changes were labelled ‘permanent’ by the then-Chancellor, yesterday it was announced they would end on 31 March 2025. A lot could happen between now and then, of course, but it gives the market slightly more urgency to complete any planned purchases before this point.

Commenting on this, Simon Cox, managing director of Walter Cooper, said: “I’m glad to see the commitment to continuing the stamp duty cut until March 2025. Improving affordability at this time is crucial and any steps we can take to further enable homebuying for the masses is one I welcome.”

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Capital gains tax-free allowance to reduce

Property investors who sell a property (that is not their main residence) are normally required to pay capital gains tax (CGT) on their profits, with the amount you pay calculated based on your income and the size of your gain.

At present, basic-rate taxpayers must pay 18% CGT on any profits they make through sale of an additional or investment property, while higher-rate taxpayers must pay 28%. All taxpayers are entitled to an annual CGT allowance, which allows them to make a certain amount of money tax-free, before the rates kick in.

Yesterday it was announced that the tax-free threshold was set to more than halve from April 2023, from £12,300 to £6,000. In April 2024, this is then set to halve again, bringing the allowance to just £3,000, so any profit made above this amount on the sale of a property investment will be taxable.

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Income tax freeze and threshold change

While income tax rates have been frozen until April 2028, alongside National Insurance and inheritance tax thresholds, the additional rate threshold for income tax has been reduced from £150,000 to £125,140; meaning more people will be liable to pay the top 45% rate on earnings above that amount.

This is something some higher-earning buy-to-let landlords will need to factor in when accounting for their income from rental property returns.

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Levelling up focus to remain

Switching to a more positive note, the government announced that it remained committed to its levelling up agenda, which will have the knock-on effect of continuing to bolster the housing market outside of London.

In terms of infrastructure improvements, this includes the ongoing Northern Powerhouse Rail project, which it described as “core”, along with East West Rail and the new HS2 line which will eventually reach Manchester. The promise of these transport overhauls is already boosting property markets in many parts of the north, with greater levels of investment and regeneration projects to boot.

The government has promised that at least £1.7bn will go towards a second round of Levelling Up Fund awards, after the success of the first round in 2021. It will see direct investment into communities across all parts of the UK.

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Budget could “steady the waters”

Commenting on yesterday’s Budget, John O’Malley, chief executive of Pacitti Jones, said: “It is imperative that the country’s finances are put on the right track to reduce mortgage rates, which are a key driver of house purchases. The Chancellor has had to make some hard decisions but if the new measures steady the waters, a gradual softening of the market is more likely rather than the hard crash some people were predicting.

“Of course, less money in people’s pockets due to tax increases will theoretically reduce likely demand but we are seeing some people looking to downsize to save on extortionate energy bills and softening of prices will provide opportunities for first time buyers.

“Regardless of what is going on in the world, people will always be aspirational and there may be some who will take advantage of any reduction in demand to trade up to their dream home.”

Autumn Budget: Impact on investors

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