There have been mixed messages surrounding Tuesday’s budget, with most criticism predictably coming from those now sitting on the opposition benches.
Whilst everyone was expecting tough measures, those announced are unlikely to have a major impact on the recovering property market. The Stamp Duty tax break for first time buyers up to £250,000 remains in place, which is good news. The two main changes concern Capital Gains Tax and VAT.
CGT is rising with immediate effect from 18% for basic rate taxpayers to 28% for higher rate taxpayers. This nevertheless remains well below the 40% it used to be until just three years ago. This is unlikely to affect the majority of homeowners as in the UK, unlike many other countries, we enjoy tax exemption from any appreciation in the value of our principal residence.
However, second home or buy-to-let owners will need to take this new regime into account when deciding whether or not to sell. An important consideration is that any gain is actually added to income for CGT purposes and could well tip a basic rate taxpayer into the higher rate bracket.
The good news is that this change is immediate. Had the chancellor decided to implement this from eg. the next financial year, there would have been a flood of properties entering the market in order to avoid the hike, thereby undermining prices.
VAT is to rise from 17.5% to 20% from January. This 2.5 point rise is again unlikely to affect property prices as it will only apply to certain costs of sale such as removals, solicitor’s fees, and estate agency fees. The actual figures involved are relatively nominal, and are unlikely to prompt people to sell as a direct result. At Blakes we’ll be absorbing the difference for all our existing selling clients for a whole year in any event!
Thursday, 24 June 2010
Wednesday, 23 June 2010
Property industry escapes lightly in Budget
The property market was both a winner and a loser in yesterday’s Budget, with most estate agents breathing a sigh of relief that it could have been worse.
The existing Stamp Duty regime remains in place, with the Chancellor impervious to calls for its reform. However, the £250,000 Stamp Duty break for first-time buyers escaped unscathed and the tax clampdown on furnished rental holiday homes will not go ahead. The capping of housing benefit could affect the supply of private rental accommodation in this sector.
However, most focus was on the rise in Capital Gains Tax, from 18% to 28% for higher-rate taxpayers, and its effect on the buy-to-let market.
This was despite the fact that at 28% CGT is still considerably lower than the rates of three years ago, of up to 40%, before Labour introduced the flat 18% rate.
One unexpected complication will be who is caught by the rise.
Tony Bernstein, tax partner at financial group HW Fisher, warned: “On the surface, it appears that the 28% rate will only affect higher earners whereas in reality, people on lower incomes could also easily be caught by it. The 18% CGT rate for people on basic rate tax will increase to 28% if the gain, when added to their income, pushes them over the threshold into the higher rates of tax.”
The Chancellor had been subject to intense lobbying from landlord and property groups, including ARLA, who argued that buy-to-let landlords should be exempt from any CGT rises for fear it would damage the lettings market.
Yesterday, a disappointed Ian Potter, operations manager of ARLA, said: “The planned rise of CGT may not be as extreme as many had anticipated, but it still comes with little consideration for the needs of landlords. Because of this, the Chancellor risks driving those landlords paying the higher rate of tax from an already very fragile housing market, at a time when they should be actively encouraged to stay and, ideally, further invest.
“In particular, neglecting to include rollover relief is a big gamble, as many landlords will now be penalised by CGT – and hit by Stamp Duty – when they sell one rental property and purchase another. This may further disincentivise some landlords from remaining in the Private Rented Sector (PRS) and negatively impact the overall supply of rental property.
“The PRS represents an extremely important part of the housing market, providing much-needed flexible and affordable housing to the UK. With this rise in CGT, the Government is taking a huge risk in destabilising the future supply of homes to the UK.”
But Louise Somerset, tax director at RBC Wealth Management, said: “There was some talk before the Budget that landlords should not suffer from the increase in CGT rates, but this was always wishful thinking. There is no good reason why an investor in property should be taxed differently to an investor in quoted shares, and the Chancellor clearly recognised this.
“Of course, this is going to leave a lot of buy-to-let investors who were relying on making a profit on the sale of their properties with a big headache when it comes to paying off interest-only mortgages in the future.”
However, David Whittaker, managing director of Mortgages For Business, said the rise in CGT was a major blow: “By increasing CGT, the Government is taking money out of the economy,” he said.
“In the property market the liquidity pool is still relatively parched. A healthy property market tends to mean a healthy economy. But by taking more cash out of the pockets of these investors, the Government is threatening to stunt the growth we expected to see in 2011.
“The rise in CGT combined with the income tax that landlords already pay on rent means a double blow for these investors. They’ll be left asking what they did to deserve such punishment. Professional property investors will now have to work much more efficiently in order to maximise the amount of money they are able to take home from their portfolios.”
However, many estate and letting agents were delighted that the CGT hike was not as bad as it could have been – 40% or even 50% had been mooted – and were pleased the change was implemented so quickly.
David Smith, senior partner at estate agents Carter Jonas, said: “The rise in CGT is unlikely to have a detrimental effect on a property market that is still in the early stages of a recovery.
“Although tax rises are never good news, what the Government has achieved by announcing an increase in CGT immediately, has avoided panic-selling by landlords and people with second homes, which could have seen the market flooded with properties as investors desperately tried to sell before the higher rate tax kicked in.”
Peter Rollings, managing director of estate agent Marsh & Parsons, said: “The market now knows where it stands and I don’t believe it will curtail the investment decisions of those wanting to invest in the London property market.
“In London, there is incredibly strong demand for rented accommodation, particularly from young professionals and international workers who prefer the flexibility of renting. In May, almost one in five purchases (19%) were made by investors in central London and we must avoid unfavourable conditions that discourage investment.”
Unhappiest at the Budget was the construction industry, which felt it would suffer a knock-on effect from the tax and VAT hikes.
Phil Westerman, head of construction at tax firm Grant Thornton, said: “As consumers now face an increase to their tax bill and a rise in VAT, this will undoubtedly lead to a fall in the confidence they need to make larger-scale purchases. Many will question if now is the right time to buy, if they have the funds to do so and if their jobs are secure.”
The existing Stamp Duty regime remains in place, with the Chancellor impervious to calls for its reform. However, the £250,000 Stamp Duty break for first-time buyers escaped unscathed and the tax clampdown on furnished rental holiday homes will not go ahead. The capping of housing benefit could affect the supply of private rental accommodation in this sector.
However, most focus was on the rise in Capital Gains Tax, from 18% to 28% for higher-rate taxpayers, and its effect on the buy-to-let market.
This was despite the fact that at 28% CGT is still considerably lower than the rates of three years ago, of up to 40%, before Labour introduced the flat 18% rate.
One unexpected complication will be who is caught by the rise.
Tony Bernstein, tax partner at financial group HW Fisher, warned: “On the surface, it appears that the 28% rate will only affect higher earners whereas in reality, people on lower incomes could also easily be caught by it. The 18% CGT rate for people on basic rate tax will increase to 28% if the gain, when added to their income, pushes them over the threshold into the higher rates of tax.”
The Chancellor had been subject to intense lobbying from landlord and property groups, including ARLA, who argued that buy-to-let landlords should be exempt from any CGT rises for fear it would damage the lettings market.
Yesterday, a disappointed Ian Potter, operations manager of ARLA, said: “The planned rise of CGT may not be as extreme as many had anticipated, but it still comes with little consideration for the needs of landlords. Because of this, the Chancellor risks driving those landlords paying the higher rate of tax from an already very fragile housing market, at a time when they should be actively encouraged to stay and, ideally, further invest.
“In particular, neglecting to include rollover relief is a big gamble, as many landlords will now be penalised by CGT – and hit by Stamp Duty – when they sell one rental property and purchase another. This may further disincentivise some landlords from remaining in the Private Rented Sector (PRS) and negatively impact the overall supply of rental property.
“The PRS represents an extremely important part of the housing market, providing much-needed flexible and affordable housing to the UK. With this rise in CGT, the Government is taking a huge risk in destabilising the future supply of homes to the UK.”
But Louise Somerset, tax director at RBC Wealth Management, said: “There was some talk before the Budget that landlords should not suffer from the increase in CGT rates, but this was always wishful thinking. There is no good reason why an investor in property should be taxed differently to an investor in quoted shares, and the Chancellor clearly recognised this.
“Of course, this is going to leave a lot of buy-to-let investors who were relying on making a profit on the sale of their properties with a big headache when it comes to paying off interest-only mortgages in the future.”
However, David Whittaker, managing director of Mortgages For Business, said the rise in CGT was a major blow: “By increasing CGT, the Government is taking money out of the economy,” he said.
“In the property market the liquidity pool is still relatively parched. A healthy property market tends to mean a healthy economy. But by taking more cash out of the pockets of these investors, the Government is threatening to stunt the growth we expected to see in 2011.
“The rise in CGT combined with the income tax that landlords already pay on rent means a double blow for these investors. They’ll be left asking what they did to deserve such punishment. Professional property investors will now have to work much more efficiently in order to maximise the amount of money they are able to take home from their portfolios.”
However, many estate and letting agents were delighted that the CGT hike was not as bad as it could have been – 40% or even 50% had been mooted – and were pleased the change was implemented so quickly.
David Smith, senior partner at estate agents Carter Jonas, said: “The rise in CGT is unlikely to have a detrimental effect on a property market that is still in the early stages of a recovery.
“Although tax rises are never good news, what the Government has achieved by announcing an increase in CGT immediately, has avoided panic-selling by landlords and people with second homes, which could have seen the market flooded with properties as investors desperately tried to sell before the higher rate tax kicked in.”
Peter Rollings, managing director of estate agent Marsh & Parsons, said: “The market now knows where it stands and I don’t believe it will curtail the investment decisions of those wanting to invest in the London property market.
“In London, there is incredibly strong demand for rented accommodation, particularly from young professionals and international workers who prefer the flexibility of renting. In May, almost one in five purchases (19%) were made by investors in central London and we must avoid unfavourable conditions that discourage investment.”
Unhappiest at the Budget was the construction industry, which felt it would suffer a knock-on effect from the tax and VAT hikes.
Phil Westerman, head of construction at tax firm Grant Thornton, said: “As consumers now face an increase to their tax bill and a rise in VAT, this will undoubtedly lead to a fall in the confidence they need to make larger-scale purchases. Many will question if now is the right time to buy, if they have the funds to do so and if their jobs are secure.”
Monday, 21 June 2010
Asking prices are way too much says Rightmove
Asking prices for houses edged up just 0.3% over the last month, Rightmove reported this morning, and will have to be slashed – not merely trimmed – if the properties are to sell.
It said that in real terms, because of inflation, house prices are in fact already falling. But there is still a huge gap between asking prices and what is actually achieved.
Rightmove warned that the market is beginning to turn as unsold stock per branch jumped from 71 to 74 in the last four weeks.
With a surplus of properties on the market – Rightmove says there has been a 22% rise in new sellers since the suspension of HIPs – the portal says that sellers everywhere other than in hottest of hotspots will have to cut their prices.
The average asking price for a property on Rightmove now stands at £237,767 – around £60,000 more than actual mortgage-agreed prices recorded by Halifax and Nationwide.
Rightmove commercial director Miles Shipside said new listings are now up 56% on a year ago and that there was a post-HIP party atmosphere.
He added: “Estate agents will get more selective about what price they are willing to market at, and the commitment of sellers to doing what it takes to achieve a sale.
“Serious sellers in all but the most popular hotspots are going to have to reduce their asking prices unless buyer demand recovers after the World Cup.”
He said that might sound like good news for first-time buyers, but warned of the continuing mortgage drought.
It said that in real terms, because of inflation, house prices are in fact already falling. But there is still a huge gap between asking prices and what is actually achieved.
Rightmove warned that the market is beginning to turn as unsold stock per branch jumped from 71 to 74 in the last four weeks.
With a surplus of properties on the market – Rightmove says there has been a 22% rise in new sellers since the suspension of HIPs – the portal says that sellers everywhere other than in hottest of hotspots will have to cut their prices.
The average asking price for a property on Rightmove now stands at £237,767 – around £60,000 more than actual mortgage-agreed prices recorded by Halifax and Nationwide.
Rightmove commercial director Miles Shipside said new listings are now up 56% on a year ago and that there was a post-HIP party atmosphere.
He added: “Estate agents will get more selective about what price they are willing to market at, and the commitment of sellers to doing what it takes to achieve a sale.
“Serious sellers in all but the most popular hotspots are going to have to reduce their asking prices unless buyer demand recovers after the World Cup.”
He said that might sound like good news for first-time buyers, but warned of the continuing mortgage drought.
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