Autumn Budget Summary for Local Homeowners, Landlords and Tenants
The Chancellor, Jeremy Hunt, gave his Autumn Budget 2022 at lunchtime, intending to deal with inflation and keep mortgage rates down for homeowners. In this short and sharp post, I wanted to touch on what this would mean specifically for landlords and homeowners in the Derby area thinking of buying and selling...
Part ONE
a summary of the key points:
- Minimum wage is rising to £10.42 per hour, an increase of just under 10%. The government is also raising benefits and pensions in line with inflation from April (a 10.1% rise) and making one-off payments to people claiming some state benefits, including Universal Credit. Around 8 million households will receive up to £1,100.
- While energy prices will be capped until April 2024, the average amount paid will increase to £3,000 per year from April. Rents are also likely to go up as landlords pass on their increased costs to tenants – especially if more landlords quit the sector.
- Local councils will be allowed to increase council tax by up to 5% without needing to call and win a referendum, up from 2.99% currently. Landlords who include council tax in the rent, usually those letting out houses in multiple occupation (HMOs), may need to raise rent to cover tax increases.
- The Capital Gains Tax annual exemption will be halved to £6,000 from April 2023 and again to £3,000 in April 2024. This will mean that landlords face bigger tax bills when they choose to sell, but could also encourage them to hold onto properties – potentially slowing the rate at which they are leaving the sector.
- The threshold for inheritance tax will be frozen for two additional years. The threshold had already been frozen until 2025/26, but will now stay put until 2027/28.
- Income tax thresholds are also being frozen, and the top 45% additional rate will kick in at an income of £125,140, down from £150,000. High-earners will see their tax bills go up, and rapid wage and rent growth will push more into the higher rate (£50,271 and over) – even though it may be a real-terms pay cut with inflation running high.
- The dividend allowance will be cut from £2,000 to £1,000 in 2023, and then to £500 in 2024.
- Properties will be revalued for business rates, and the government will provide a £13.6bn business rates support package. Chancellor Jeremy Hunt pledged that two thirds of properties “won’t pay a penny”.
In the medium term, the government is betting that this Budget will calm the markets, tame inflation and limit interest rate rises. If they’re right, a more stable economy could allow the housing market to recover again.
Part TWO
In previous articles about our local property market, I touched on the muted plans from 2020 to increase the Capital Gains Tax (CGT) headline rate. Instead, in the Budget, the CGT relief allowance has been cut from £12,300 to £6,000 for the next tax year (2023/4) and then cut again to £3,000 for 2024/5.
Therefore, if you are a basic rate taxpayer, you will end up paying £1,134 extra in CGT after April 2023 (and £1,764 if a higher rate taxpayer) and a further extra 50% on top of those figures in tax year 2024/5.
Only second homeowners and landlords pay Capital Gains Tax on the difference between the price you paid for the property and the price you sold it for. It is not paid on any gain of your principal residence. This will be unwished-for news for local landlords and second-home owners. Even if you have no intentions of selling your portfolio in the next five to ten years, there are things you could be doing now to reduce your CGT liability in the future. However, there are various reliefs that landlords can apply to HMRC for that will reduce the CGT liability. If you would like some names of good local Derby accountants, drop us a line, and we can suggest some for you.
Is it worth selling your rental property now? Well, the average conveyancing time for UK property from sale agreed to exchange of contracts is 19 weeks, which takes us to 30th March 2022…all to save £1,764 …all at a time when rents have rocketed by 19% in the last two years.
Stamp duty cut to stay - yet only until 2025. Kwasi Kwarteng's cut to stamp duty in England announced in his September Budget will remain until 31st March 2025. Jeremy Hunt stated because housing activity will be slower in 2023/4, the stamp duty cuts announced in Kwarteng’s mini-budget will remain in place for the next two years and four months.
This means that the price of a property before stamp duty is paid will stay at £250,000, up from the previous level of £125,000 until March 2025, then drop down to the old rates. This will be good news for home buyers and landlords in the coming years.