Financial and Professionals Services Group, Smith & Williamson, have conducted a study among property professionals which revealed that Stamp duty and land tax reform is the most pressing issue the industry wants the Chancellor to tackle in tomorrow’s budget.
Calls for the 3% surcharge to be removed
More than two out of three respondents to the poll of surveyors, investors, developers and other construction professionals told researchers that reversing the 3% surcharge on second homes and buy-to-let properties should be a key priority for the Chancellor ahead of his Autumn Budget. However, the stamp duty surcharge has become a significant money spinner for the Treasury. By the end of Q3 2017, around £2.6bn had been collected since the surcharge was implemented in 2016. While the property market is thirsty for reform, the Chancellor may be reluctant to cut Treasury income by abolishing the surcharge – so tomorrow may not offer much cause for celebration.
London market ‘stalling’
The 3% stamp duty surcharge has hit the London market particularly hard, causing prices to stall. Smith & Williamson point out that while stalling the market by preventing buy to let and second homes may have been one of intentions behind the charge, it seems unlikely that the government was aiming solely to make £1m+ homes more affordable.
Meanwhile, James Morton, Director of high-end London estate agent Benham & Reeves is keen to point out that it isn’t only the wealthy that buy expensive homes in the capital:
“Exorbitant Stamp Duty rates, which ignore the income of the Buyer, often means only the wealthy can afford to move easily – to me that’s entirely illogical!
“It isn’t only wealthy people that buy homes in London, 40% of nurses and young teachers in London are expected to leave within the next five years because of high housing costs. Stalling the higher end of the market traps families in homes that are too small and results in lower availability at the bottom end of the market too. London is being hit disproportionately by the surcharge and it’s not even like the City directly benefits from these taxes – hard-working Londoners have had enough.”
Other stamp duty changes
The survey revealed the property sector would also welcome other changes to the stamp duty regime, which estate agents claim are deterring homeowners from downsizing. Spiralling residential prices mean downsized properties could easily be worth more than £1m, which could generate stamp duty costs of in excess of £40,000.
45% of respondents said stamp duty relief for buyers downsizing should be a priority.
Lower VAT rate for repairs
The survey also revealed support for measures such as offering a reduced rate of VAT for repairs and maintenance work to all residential properties, with more than 40 per cent of respondents ranking it as a key priority.
Support for this proposal may have been driven by the scrapping of the ‘wear and tear allowance’, which allowed buy-to-let landlords to deduct 10% of rental income from their profits to cover maintenance costs. Instead, landlords must now reclaim the actual cost of expenses, making VAT charges a more important consideration.
One in three respondents said they would also welcome an extension of the Enterprise Investment Scheme and Venture Capital Trust tax relief for residential development. Relief is currently restricted to trading companies, excluding many real estate investors. Extending tax relief to investment in residential development could incentivise developers to help meet the government’s ambitious house building targets.
What is expected for Buy to Let?
Despite all the thirst for urgent reform, it seems the property market is bracing themselves for even more bad news for Buy to Let landlords, who are still reeling from news that the burden of letting fees in England will soon be passed on to the tenant.
Rebecca Wilkinson, corporate tax director and property sector specialist at accountancy firm, Menzies LLP, believes that after a series of hard hitting changes affecting buy to let landlords, the best that they can realistically hope for is no further changes.
However, nobody in the sector is holding their breath.
Philip Hammond has already told the Sunday Times that the budget will announce plans for the construction of 300,000 new homes a year, promising the government would do “whatever it takes” to get homes built, including underwriting loans to construction firms, and getting planning permissions built instead of “banked” to push up prices. However, the £5billion figure he will allocate to housing schemes is substantially less than the £50billion demanded by his own colleague Sajid Javid. He has not yet disclosed what proportion of these homes will be affordable or social housing.
Help to Buy
Many are predicting that tomorrow will see the Chancellor confirm the £10bn Theresa May promised to extend the Help to Buy scheme.
U-turn on Universal Credit
The Sunday Times claims that Ministers are poised to finally slash the six-week wait for universal credit payments – reducing the wait time to 31 days, which should bring reassurance to Landlords who are experiencing serious arrears from benefit claimants as a result of the controversial new system.