OnTheMarket.com looks at how George Osborne’s 2016 Budget will affect the residential property market.
Lifetime ISA with £1,000 government bonus
From April 2017 anyone between the ages of 18 and 40 will be eligible for a Lifetime ISA. If saving the maximum of £4,000 a year, the government will provide an annual bonus of £1,000 up to the age of 50. There is no monthly maximum contribution, so savers can put away as little or as much as they choose up to the limit of £4,000 per year.
The money can be used to save for a deposit on a first home or to save for retirement. Those using the Lifetime ISA to buy property can spend up to £450,000 on a home, but they have to be first-time buyers. Savers can withdraw the money any time before turning 60 but the government bonus will be lost and a five per cent charge incurred. Some commentators have said the scheme was not so appealing for those who already owned a home because the cash would need to be tied-up until they were 60 to receive the bonus.
Savers who also have a Help to Buy ISA will be able to move their money into a Lifetime ISA. If they have both types, they can only use the bonus from one of them to buy a home. The Help to Buy ISA scheme is due to end in November 2019 and is less generous than the Lifetime ISA.
Buy-to-let stamp duty
Since November there has been strong lobbying from those within the property industry that the proposed three per cent stamp duty surcharge on buy-to-let homes should be abandoned. Following last year’s Autumn Statement when the plans were announced, Lucian Cook, Savills UK Head of Residential Research, said the extra charge would “further suppress transactions and prices in the prime central London market.”
But yesterday Chancellor George Osborne reconfirmed that the increase will not only go ahead as announced but will also affect large-scale investors despite a suggestion made in November that the rule would not apply to those with 15 properties or more.
Jeremy Leaf, former chairman of the Royal Institution of Chartered Surveyors, said yesterday: “As it stood, the three per cent stamp duty hike from April unfairly favoured large investors at the expense of smaller landlords.
“In announcing that the new stamp duty rates on additional properties will apply to larger investors too, the Chancellor has balanced it so it is not helping either group, but in doing so he compromises the chances of improving supply.”
The funds which will be raised from the stamp duty increase will go towards funding community building projects.
Capital gains tax reduction
The Chancellor has slashed capital gains tax from 28 per cent to 20 per cent and these changes will apply from April 6. However, this move will not help landlords or those who own several properties because capital gains on residential property and carried interest (profits made by executives in private equity investment firms) will still incur the existing tax rate. Capital gains tax applies to all residential property other than the main home.
Lucian Cook, Savills UK Head of Residential Research, said: “Keeping the old rates of CGT on residential property will make it more difficult for existing buy-to-let investors – who face a cut in income tax relief on interest payments – to reorganise their portfolios towards better performing property.
“It will also act as a longer term disincentive to invest in residential property compared to other asset classes, which may put further pressure on the supply of private rented homes against the backdrop of rising demand. That may well put upward pressure on rents.”
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