George Osborne has today delivered the first all Conservative budget since 1996. Against the backdrop of a large deficit, we look at the main provisions which could impact the property industry.
The Government has announced that it will launch a help to buy Individual Savings Account in the Autumn. Despite this, according to the Guardian, housebuilding and property shares have been hit by the various other measures unveiled, in particular the measures to restrict mortgage tax relief to the basic rate for buy-to-let landlords and the proposal that, from April 2017 anybody who has been resident in the UK for more than 15 of the past 20 tax years will be deemed UK-domiciled for tax purposes.
The Chancellor announced that rents in social housing are to be reduced by 1% a year over next four years. This measure comes at the same time as the government has announced the extension to the right to buy. In the National Housing Federation’s response to the budget, David Orr, chief executive of the National Housing Federation, said: “Given changes to working age benefits, a cut in rents over the next four years will be a real help for some tenants, but will massively constrain housing associations’ ability to meet the shared ambition of themselves and government to drive housing growth and new jobs. At the very least 27,000 new homes will not now be built, though that figure could be much higher. The right to buy for housing association tenants further compounds this.”
The government announced plans to restrict the relief on finance costs that individual landlords of residential property can get to the basic rate of tax. In its response, the Council of Mortgage Lenders director general, Paul Smee, who described the move as “radical” emphasised how important the phasing over 4 years is and said “We will need to understand whether this will have a behavioural impact on higher-rate buy-to-let landlords, but a four-year timetable does at least reduce the risk of sudden market shocks.”
Energy and Renewables
The government will remove the Climate Change Levy (CCL) exemption for renewably sourced electricity from 1 August 2015. There will be a transitional period for suppliers, from 1 August 2015, to claim the CCL exemption on any renewable electricity that was generated before that date. The government will discuss the details of this transitional period with stakeholders over the summer and autumn, to determine an appropriate length for it.
The review will consider the CCL, Carbon Reduction Commitment and their interaction with other business energy efficiency policies and regulations and a consultation will follow in the autumn. Melanie Leech, Chief Executive of the British Property Federation said: “We would caution, however, that property owners have a strong desire for clear policy and regulation on energy efficiency and carbon reduction. Any changes made to the policy landscape as a result of the review, should strike a balance between deregulation and the market efficiency and be provided by clear targets and incentives”.
Sunday trading laws are to be devolved to mayors and local councils. This has been welcomed by the British Property Federation, whose chief executive, Melanie Leech, commented: “The way we shop has changed beyond all recognition in recent years and Government has struck the right balance between being alive to that and ensuring any further liberalisation of shopping hours is well managed. Longer hours will not suit all places, but equally should not hold other places back. Devolving the decision to a local level and those who know what will be best for their area, in this instance, therefore makes perfect sense.”
Private Rented Sector
According to the Chancellor, Buy-to-Let landlords currently have an advantage because they can offset mortgage payments against income. To balance the imbalances in the tax system, the Chancellor has announced:
- Tax relief for second mortgages set to be abolished – restricting relief on finance costs that landlords on residential property can get to the basic rate of income tax, phased in over 4 years, starting from April 2017, re-addressing the balance between buy-to-let landlords and homeowners.
- From April 2016, the government will introduce a new system enabling all landlords of residential property to only deduct costs they actually incur.
- Increase the Rent-a-Room relief from £4,250 to £7,500 a year from April 2016
The bank levy is to be phased out and replaced with an 8% surcharge on bank profits.
Inheritance tax threshold increased (estates up to £1m passed on free of inheritance from 2020-21)
The government has confirmed that it believes that a modern infrastructure network is vital and that it will increase its investment in improvements to the national road networks. To ensure future roads investment is sustainable and work towards achieving the infrastructure to help the economy, the Chancellor announced:
- The Creation of a Roads Fund by reforming vehicle excise duty (VED). From 2020-21 all revenue raised from VED in England will be allocated to the new Roads Fund and invested directly back into the strategic road network.
- New Road Investment Strategy to be published
- New Rail Investment programme
- CrossRail 2
Devolution – “Ensuring a truly national recovery”
With “One Nation” in mind, the Chancellor announced a “rebalancing of the British economy based on investment across the regions, growth driven by the private sector, and further devolution to increase local decision making” with an focus on putting “power into the Northern Powerhouse”.
The intention is to build the Northern Powerhouse and back the Midlands as Britain’s engine for growth, shifting the balance of power from London, including:
- Creating a Land Commission for Manchester and directly elected mayor, with ongoing talks with other regions including Liverpool, Leeds and Sheffield
- County devolution for Cornwall
- Sunday trading – Consultation on devolving powers on Sunday trading to city mayors and local authorities.
Whilst supportive of the devolution announcements, the British Property Federation urges caution and Melanie Leech, its chief executive, warns that “It is critical, however, that we don’t get stuck in a constitutional quagmire and fixate on elected Mayors. The key to success and attracting investment is to have a coherent, positive vision for an area, creating a place where people can live, work and play, and this is not dependent on having a Mayor in place.”
What wasn’t Big in the Budget?
- No reform of permitted development rights, despite much anticipation. This might be covered in the planning reforms, expected to be announced on Friday 10 July.
- There was very little mention of business rates and their reform.