UK Budget 2017 – Stamp Duty changes (and other animals)

Hawk & Chadwick

Alasdair Gravestock Du Melville - Director

Alasdair Gravestock Du Melville – Director

Today was budget day in the UK, which is the day where the chancellor of the exchequer decides on what the financial and fiscal rules the government will be playing to, and the tune we’ll also be dancing to as a nation of businesses, homeowners and students.

Put simply, today is the day where tax is raised or lowered, where benefits are increased or reduced, and where small changes can have a big impact.

My feeling on this budget is that it has distinct shades of Alistair Darling’s 2010 budget with similar changes focusing on Stamp Duty and Cider…curious similarities…but besides that, what does that mean for property, and what does it mean for Herts, Beds and Bucks?

To go through a punch by punch set of changes and effects will probably leave you as bored of reading it as it will make me to write it, so I’ll try and condense it into some easy to read major points for you.

I’ve whipped the main highlights out below, with a full summary of the changes announced at the end of the article.

 

Stamp duty and housing

  • Stamp duty to be abolished immediately for first-time buyers purchasing properties worth up to £300,000
  • To help those in London and other expensive areas, the first £300,000 of the cost of a £500,000 purchase by all first-time buyers will be exempt from stamp duty, with the remaining £200,000 incurring 5%.
  • 95% of all first-time buyers will benefit, with 80% not paying stamp duty
  • Reduction will apply immediately in England, Wales and Northern Ireland although the Welsh government will have to decide whether to continue it when stamp duty is devolved in April 2018
  • It will not apply in Scotland unless Scottish government decides to follow suit
  • £44bn in overall government support for housing to meet target of building 300,000 new homes a year by the middle of the next decade
  • Councils given powers to charge 100% council tax premium on empty properties
  • Compulsory purchase of land banked by developers for financial reasons
  • £400m to regenerate housing estates and £1.1bn to unlock strategic sites for development
  • Review into delays in developments given planning permission being taken forward
  • £28m for Kensington and Chelsea council to provide counselling services and mental health support for victims of the Grenfell fire and for regeneration of surrounding area
  • New homelessness task force

Personal taxation and wages

  • Tax-free personal allowance on income tax to rise to £11,850 in line with inflation in April 2018
  • Higher-rate tax threshold to increase to £46,350
  • Short-haul air passenger duty rates and long-haul economy rates to be frozen, paid for by an increase on premium-class tickets and on private jets
  • National Living Wage to rise in April 2018 by 4.4%, from £7.50 an hour to £7.83.

 

So, right off the bat the big headline is that Stamp Duty has been abolished for first time buyers purchasing any property priced from £0 up to £300,00 (if you find a property priced at £0 do keep it to yourself, or it won’t be around for long) and in London there’s a little extra help, although buyers will still have to pay 5% SDLT (Stamp Duty Land Tax) on the £200k difference, presumably for the privilege of living in the capital.

The government claims 80% of first time buyers won’t pay any stamp duty at all, which on the face of things sounds smashing, but it still means that there’s no change for those who don’t qualify as a first-time buyer.

If you want to know what a First Time Buyer is, I’ve been kind enough to look it up for you!  Defined in the Finance Act 2003, Paragraph 6, A first time buyer is thusly explained as;

“an individual who has not previously purchased a major interest (e.g. a Freehold or Leasehold interest of 21 years or more) in a dwelling in England, Wales or Northern Ireland, or its equivalent elsewhere in the world.”

So…pretty much exactly what you’d expect.

This is a bit of a cheat motion in many ways and as a vendor I wouldn’t get too excited – it does open up your market share a little to a few more buyers, but we’ve still got the problem that the prices are a little too high for many to afford. More on that later.

300,000 homes have been promised, but unless you watched the full response from the leader of the opposition Jeremy Corbyn, you won’t have noticed his damning riposte that the government had already promised to build a similar number of new homes, yet not a single brick has been laid to date, so whether this will prove to be another empty promise remains to be seen – don’t hold your breath.

A big incentive for Landlords has been revealed with Local Authorities having the power to charge 100% council tax premiums on empty properties, which should be an incentive for Landlords and Property Owners with vacant dwellings to fill them or sell them.

Another interesting matter here that has great impact is the single line change that allows compulsory purchase of land purchased by developers – often termed ‘land banking’ where companies or developers will buy up former industrial sites, fields, derelict residential and so on, and then sitting on it for years while the value increases or the planners are worn down, before either building something that the community doesn’t need or want at a massive profit, or squeezing out smaller occupiers (often residential) to then sell the land on to large buyers such as Tesco. This may, in theory at least, free up some land for residential development, which I imagine will tie in with the other announcements on identifying sites for strategic development.

I have also included the elements of personal taxation and wages, since these small changes will also have an impact, even if minimally noticeable. The government have given us all a little more money to take home each year before the taxes kick in (unless you enjoy a bottle of White Lightning on the odd weekend) and the national living wage has also increased.

Now, let’s put all of these ingredients into a big bowl, give it a stir and pop it in the oven on gas mark 4 for 30 minutes and see what we’ve got.

 

Well, it’s not a dogs dinner….yet.

The average prices in the areas we deal with are generally high, so the stamp duty changes will only really apply to smaller one and two bed properties in areas such as Watford, Hemel Hempstead, Luton, Dunstable, Chesham and so on.

In real life terms it means a saving for buyers (since it’s the buyer who pays the stamp duty, remember that!)  of approximately £5000 on their purchase, which may mean some vendors try to claw this back from them by increasing prices, but the most likely battleground will be those properties currently priced at £305,000 to £320,000 who may consider dropping their price to win over the interest of first time buyers and widen their market appeal, which would certainly be a smart move in a softening market.

If you’re in this boat, do consider that next April we have the start of the Section 24 changes to the Finance Act which will see greater costs to Landlords, as well as their purse strings tightening due to the 3% additional Stamp Duty levy which is already in place, so our advice is to work hard with your agent between now and April to get a sale agreed, because as Spring kicks in next year we’re likely to see many landlords giving up the game and taking their ball home, which will mean a spike in smaller units available on the market – and when supply increases, without an equal increase in demand….economy 101 kids, prices will fall, meaning that unless you’re in a high demand high value area, you’ll be risking racking up some tangible losses. The time to sell if you’re valued below £350,000, is now – beat the rush, be aggressive and don’t sit around with agents who aren’t proactively selling your property – and it’s up to you to ask them exactly what they’re doing and how many calls they’re making.

For higher valued property owners, you may wish to take a longer term view – this budget alteration is relatively good news since the dip lower in the market may ripple upwards and you’ll feel a tremor, but it should only be temporary. The reason I say this is because I believe the government are trying to open the bottom end of the market and get first time buyers onto the ladder, which will ensure deals of smaller properties will be going through, and that in turn should provide the next level up some mobility in the market. If this works, then properties that have currently been stagnating and waiting for a buyer will see renewed interest after a time, and things should get moving again.

BUT (there’s always a but, I know) be careful to price correctly. Now is not the time to make hay and assume that some mug will pay you 10-20% more than your property is worth. Those days are over, and you just need to look at the age of some listing and the reductions that have happened – don’t listen to the media, look at what’s going on outside – houses aren’t selling like hotcakes now. They were earlier in the year, and a great deal of recent valuations have foolishly been based on sale prices from June and July – big mistake. The market landscape has changed and we’re no longer on a power burn to the stratosphere. It’s cooled off and we’re gliding – there’s more property available, there are less upwardly mobile buyers (hence the budget changes) and the market will not sustain prices from the land of dreams and unicorns – you must crunch the numbers and take a commercial view. If you need to sell before Spring, you need to be realistic and reduce. If you can’t do it, then stop torturing yourself and hold on until January/February then contact us to re-evaluate the prices then.

The overall issue remains that prices are higher than many can afford, and are consistently increasing, which sounds fantastic, until we look at the fact that people aren’t really getting any wealthier and pay isn’t going up at the same rate, meaning the gap is slowly widening. Sooner or later, the deposits required by mortgage lenders stretch beyond the reach and capability of the ordinary saver, so the buyer pool effectively dries up – sure, the buyers are there and absolutely willing, but they just can’t afford the property prices. The inevitable result is that prices stagnate, stall, and eventually fall.

A savvy owner with any intention of moving in the next 6-12 months needs to be really alert and on the ball in order to make the right choices, and you also need to be aware that there is a great deal of misinformation out there – frustratingly some of it is being spread by agents just parroting something they’ve read without any real intelligent analysis.

Landlords equally need to consider the changes coming up, and examine whether expanding, holding, or reducing your portfolio is the right move.

For tailored, personal advice on how the budget and the market will affect you, call our offices and ask for me directly and I will be more than happy to guide you through your options.

Written by – Alasdair Melville, 22 Nov 2017

 

 

 

 

Full list of changes;

 

Stamp duty and housing

  • Stamp duty to be abolished immediately for first-time buyers purchasing properties worth up to £300,000
  • To help those in London and other expensive areas, the first £300,000 of the cost of a £500,000 purchase by all first-time buyers will be exempt from stamp duty, with the remaining £200,000 incurring 5%.
  • 95% of all first-time buyers will benefit, with 80% not paying stamp duty
  • Reduction will apply immediately in England, Wales and Northern Ireland although the Welsh government will have to decide whether to continue it when stamp duty is devolved in April 2018
  • It will not apply in Scotland unless Scottish government decides to follow suit
  • £44bn in overall government support for housing to meet target of building 300,000 new homes a year by the middle of the next decade
  • Councils given powers to charge 100% council tax premium on empty properties
  • Compulsory purchase of land banked by developers for financial reasons
  • £400m to regenerate housing estates and £1.1bn to unlock strategic sites for development
  • Review into delays in developments given planning permission being taken forward
  • £28m for Kensington and Chelsea council to provide counselling services and mental health support for victims of the Grenfell fire and for regeneration of surrounding area
  • New homelessness task force

Alcohol, tobacco and fuel

  • Tobacco will continue to rise by 2% above Retail Price Index (RPI) inflation, equivalent to 28p on a pack of 20, while the minimum excise duty on cigarettes introduced in March will also rise
  • Duty on hand-rolling tobacco will increase by additional 1%
  • Duty on beer, wine, spirits and most ciders will be frozen, equating to 1p off a pint of beer and 6p of a typical bottle of wine
  • But duty on high-strength “white ciders” to be increased in 2019 via new legislation
  • Fuel duty rise for petrol and diesel cars scheduled for April 2018 scrapped
  • Vehicle excise duty for cars, vans and motorcycles registered before April 2017 to rise by inflation
  • Vehicle excise duty for new diesel cars not meeting latest standards to rise by one band in April 2018
  • Tax hike will not apply to van owners
  • Existing diesel supplement in company car tax to rise by 1%
  • Proceeds to fund a new £220m clean air fund for pollution hotspots in England

Personal taxation and wages

  • Tax-free personal allowance on income tax to rise to £11,850 in line with inflation in April 2018
  • Higher-rate tax threshold to increase to £46,350
  • Short-haul air passenger duty rates and long-haul economy rates to be frozen, paid for by an increase on premium-class tickets and on private jets
  • National Living Wage to rise in April 2018 by 4.4%, from £7.50 an hour to £7.83.

The state of the economy

  • Growth forecast for 2017 slashed from 2% to 1.5%
  • Forecasts for 2018, 2019, 2020 and 2021 revised down to 1.4%, 1.3%, 1.5% and 1.6% respectively.
  • Productivity growth revised down by an average of 0.7% a year up to 2023
  • Annual rate of CPI inflation forecast to fall from peak of 3% towards 2% target later this year
  • Another 600,000 people forecast to be in work by 2022
  • £3bn to be set aside over next two years to prepare UK for every possible outcome as UK leaves EU

The state of the public finances

  • Annual government borrowing £49.9bn this year, £8.4bn lower than forecast in March
  • Borrowing forecast to fall in real terms in the subsequent five years from £39.5bn in 2018-19 to £25.6bn in 2022-23.
  • But projected borrowing has been revised up for 2019-2020, 2020-2021 and 2021-22, compared to March, due to the weaker economic outlook and expected lower tax yields
  • Public sector net borrowing forecast to fall from 3.8% of GDP last year to 2.4% this year, then 1.9%, 1.6%, 1.5% and 1.3% in subsequent years, reaching 1.1% in 2022-23.
  • Debt will peak at 86.5% of GDP this year, then fall to 86.4% next year; then 86.1%, 83.1% and 79.3% in subsequent years, reaching 79.1% in 2022-23.

Welfare and pensions

  • £1.5bn package to “address concerns” about the delivery of universal credit
  • Seven-day initial waiting period for processing of claims to be scrapped
  • Claimants to get 100% advance payments within five days of applying from January
  • Typical first payment will take five weeks rather than current six
  • Repayment period for advances to increase from six to 12 months.
  • New universal credit claimants in receipt of housing benefit to continue to receive it for two weeks

Business and digital

  • VAT threshold for small business to remain at £85,000 for two years
  • £500m support for 5G mobile networks, full fibre broadband and artificial intelligence
  • £540m to support the growth of electric cars, including more charging points
  • A further £2.3bn allocated for investment in research and development
  • Rises in business rates to be pegged to CPI measure of inflation, not higher RPI, a cut of £2.3bn
  • Digital economy royalties relating to UK sales which are paid to a low-tax jurisdiction to be subject to income tax as part of tax avoidance clampdown. Expected to raise about £200m a year
  • Capital gains tax relief for overseas buyers of UK commercial property to be phased out, with exemptions for foreign pension funds
  • Charges on single-use plastic items to be looked at
  • £30m to develop digital skills distance learning courses

Education and health (England only)

  • £40m teacher training fund for underperforming schools in England. Worth £1,000 per teacher
  • 8,000 new computer science teachers to be recruited at cost of £84m and new National Centre for Computing to be set up
  • Secondary schools and sixth-form colleges to get £600 for each additional pupil taking maths or further maths at A-level and core maths at an expected cost of £177m
  • £2.8bn in extra funding for the NHS in England
  • £350m immediately to address pressures this winter, £1.6bn for 2018-19 and the remainder in 2019-20
  • £10bn capital investment fund for hospitals up to 2022
  • No extra funding for nurses pay but a guarantee that if future pay rises are recommended by independent body, there will be new money

Nations/infrastructure/transport/regions/science

  • £320m to be invested in former Redcar steelworks site
  • Further devolution of powers to Greater Manchester
  • £1.7bn city region transport fund, to be shared between six regions with elected mayors and other areas
  • £30m to improve mobile and digital connectivity on TransPennine rail route.
  • £2bn for Scottish government, £1.2bn for Welsh government and £650m for Northern Ireland executive
  • Scottish police and fire services to get refunds on VAT from April 2018
  • Young person’s railcard extended to 26-30-year-olds, giving a third off rail fares

 

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First posted November, 2017