does the property industry need to fear the Budget?
As with any Budget, there is much speculation as to what measures the Chancellor will introduce on 3 March. A mortgage guarantee scheme, designed to help those buyers with just a 5 per cent deposit, looks set to be on the cards with Rishi Sunak planning to provide a guarantee to lenders.
It has also been reported that the stamp duty holiday will not finish as scheduled at the end of March but will be extended by three months, giving those in the process of buying a property the chance to complete. If the Chancellor does confirm this in his Budget, it will be the right thing to do. Reports of hundreds of thousands of buyers unable to complete in time thanks to another lockdown, delays to conveyancing, mortgage applications and the like, have been well documented.
Stamp duty has become an accepted tax in the normal run of things – a necessary evil if you will – with people budgeting for it as an inevitable part of their property purchase. It is a significant source of income for the Treasury and a few tweaks here and there would further stimulate the property and housing market, to the benefit of the wider economy.
The question is: what next? We would not be surprised if Rishi Sunak didn’t go a step further and abolish stamp duty completely on all purchases up to £500,000. This would greatly assist those who need the concession the most, who can least afford to shell out thousands of pounds in tax when purchasing a property. He should also consider removing stamp duty completely for downsizers in order to persuade them to move and free up larger family homes.
Continued government support
It would be surprising if the Budget is full of surprises as Sunak doesn’t appear to have much wiggle room. The furlough scheme is set to finish at the end of April, having already been extended, and Boris Johnson has said he won’t ‘pull the rug out’ from under the UK economy, suggesting it could be extended further and the can kicked down the line. The truth is that the economy never really recovered from the 2008 recession – artificial financial assistance and stimulus across the board has become a way of life and is likely to need to continue for years. It is also hard to see how interest rates will climb above zero per cent in the next decade; given the level of borrowing the government has taken on, any increase in rates would generate a crippling hike in interest payments.
What would be frustrating for business owners is if the Chancellor increases corporation tax from the current level of 19 per cent to a rumoured 24 per cent. The timing could not be worse – a real kick in the teeth for those struggling to get their businesses back up and running. Even Keir Starmer has spoken out against such a move – and if the Labour leader is championing small businesses rather than the Tory party, then something is out of kilter. People’s livelihoods have been hit hard by the pandemic and a hike in corporation tax would only knock them further. We would say to the Chancellor: increase corporation tax, which is the lowest rate in the G7, if you must but please not now. Maybe next year or even the year after that.
Capital gains tax
It has also been rumoured that the Chancellor is considering increasing the rate of capital gains tax (CGT) charged when an investment property is sold, bringing it into line with income tax. There is a reasonable argument that if you have made profit on a property rising in value, then you should be taxed at a higher rate than is currently the case. CGT is only payable when property is sold, and if no profit is made, or you have suffered a loss, then there is no CGT to pay. When it comes down to it, an increase in CGT is a far easier pill to swallow than a rise in corporation tax. The latter is a tax on growth, which will impact the ambition of business owners.
Pain is on its way – but hopefully not yet
In summary, it is likely that Mr Sunak will heed advice and not do much now. He can’t expect people to deal with the immediate fallout from the pandemic and then hit them with punitive taxes while they are still anticipating the loss of jobs and businesses, losing employees and furlough coming to an end.
That said, there is huge pain to come. The inevitable is being delayed and tax hikes are on their way. But that is an argument for another time, when the pandemic is under control and we are closer to returning to a more ‘normal’ way of life.