What does the Budget mean for property?
The Chancellor of the Exchequer, Philip Hammond, has delivered his first and last Spring Budget. If you’re a landlord, a homeowner, you’re saving to get on the property ladder, or you’re renting in London, read Portico London estate agent’s summary of how the Budget will affect you…
I’m a landlord – how am I affected?
Landlords across the country will be glad that they have not been dealt any new blows in the Spring Budget – but unfortunately the Chancellor will not be reversing the additional stamp duty charge or the mortgage interest tax relief changes expected to come into effect next month.
Currently landlords are able to deduct all their mortgage interest (and other property costs like estate agents fees etc) from their rental income before they calculate their tax bill. But as of April 6th, relief will be set at 75%, and will be gradually reduced until it is replaced with a flat 20% tax relief in 2020.
If you have a large buy-to-let mortgage, it’s imperative you sit down with your accountant, digest the new mortgage interest changes and make sure you’ve accounted for them. If you don’t have a mortgage or if you’re a lower rate payer, good news: you will not be affected at all.
The changes are certainly a hit for the buy-to-let brigade, but property investment can still be extremely profitable in 2017 if you invest smartly and make the most of record-low interest rates. Moreover, Philip Hammond did offer an olive branch (albeit a small one) to landlords as he announced that the amount you can earn in profit before tax is payable will increase from £11,000 to £11,500 from 6th April, then to £12,500 by 2020.
Think twice about setting up a limited company
As a result of the imminent mortgage tax relief changes, a large number of landlords have been setting up – or considering setting up – a limited company to pay less tax. This is because, unlike individuals, limited companies can still benefit from the full mortgage interest deduction as mentioned above.
But the Chancellor has clearly hinted that he doesn’t want landlords forming companies to dodge the tax hit, announcing in the Budget that the tax free dividend allowance for company directors will be slashed from £5,000 to £2,000 from April 2018. The dividend allowance cut will cost basic-rate taxpayers £225, higher-rate taxpayers £975 and additional-rate taxpayers £1,143.
Tax rise for the self-employed
The Chancellor also made it crystal clear he’s determined to make the taxation system more equal for employed individuals, company directors and the self-employed, proclaiming a 1% rise in Class 4 National Insurance (NIC) from April 2018, and a further 1% hike from April 2019.
Furthermore, he plans to announce more changes to “reduce the gap to better reflect the differences in state benefits”. We’d advise to think very carefully therefore if you’re planning on setting up a limited company – it may not be the best move.
Instead, a better idea may be to cut your interest costs by re-mortgaging and getting an up to date rental valuation on your property. Your lender will therefore have to recalculate your LTV, and a lower LTV ensures a better interest rate and a larger selection of lenders.
I’m saving to get on the property ladder – how am I affected?
The Office for Budgetary Responsibility released its predictions for house price growth together with Hammond’s Budget – stating UK house price growth will fall by almost half by 2019. According to their predictions, house prices will drop from an annual inflation of 7.6% in 2016 to just 4% in 2018. Then, in 2019, growth will edge upwards to 4.4%, rising to 4.6% in 2021.
“We’ve already seen the start of this in prime central London with the first year on year price drop since the crash in ‘98. It’s likely this will have a ripple effect across London in the coming years, and price growth will start to slow. But as the OBR has predicted, price growth will not slow for long as this is primarily due to a chronic lack of supply; money is as cheap as it can be to borrow at the moment, so if you are hoping to get on the property ladder in London, this may be the perfect opportunity to grab a good deal and enjoy the security of owning a home.
Unfortunately nobody can predict the future, so if you’re in a position to buy today then don’t hesitate; remember you’re buying a home first and an investment second.” Mark Lawrinson, Regional Sales Director, Portico.
Did Hammond announce any new saving initiatives?
Not really, unfortunately. For savers desperate to get on the ladder, Hammond did confirm the promised National Savings & Investments 3-year bond (which he’s talked of in his Autumn Statement), stating that as of April this year the account will pay a fixed rate of 2.2% on deposits of up to £3,000.
Experts in the savings industry have slammed the initiative however, saying savers would earn just “£6 a year more than they could get on the open market.” Anna Bowes, Director of independent savings advice site, SavingsChampion.co.uk.
Thankfully there are lots of initiatives already available for those looking to invest in bricks and mortar:
- The Lifetime ISA launches on the 6th April. For every £1 you save into the account, the Government will contribute another 25p and it’s all tax-free. The annual contribution limit is £4,000 which puts the maximum Government bonus available at £1,000 a year
- The Help to Buy ISA means the Government will boost your savings by 25%. So, for every £200 you save, receive a government bonus of £50. The maximum government bonus you can receive is £3,000
- Help to Save, set to launch in April 2018, will give lower-income savers who can save £50 a month a tax-free bonus of up to £1,200
I rent property in London – how am I affected?
Renters across London were waiting patiently for news on when letting agent’s fees were to be banned – but unfortunately Hammond failed to mention the ban in his Budget.
As a result, we still don’t have an exact date for when these changes will be brought into effect, but the consultation will allegedly take place in the next couple of months. We’ll keep you updated.