News Article

Steven Kirupai, Managing Director of Brighton Homes offers his views on the Budget news for property portfolio owners.

This year’s Spring Budget has been one of the most important ones of recent years.  Hotly anticipated, I believe is the expression. Accompanied by much speculation and conjecture, rumours about what it may contain were rife from fairly early in the year.  And no wonder.  The Coronavirus pandemic hasn’t gone away.  At least, not yet.  Whilst effective vaccines are rolling out at a rate we can all surely be proud of, Covid-19 has hit every sector of the economy – and every area of our lives – super-hard. 

What’s more, it’s been extraordinarily expensive.

Rescue packages don’t come cheap. According to the Office of National Statistics, government borrowing is now an eye-watering £270.8 billion, with our national debt standing at £2.3 trillion.  Yes, you did read that right.  These are figures that our brains may struggle to process, and whilst the Bank of England may be a benevolent creditor, our economy as a whole is weakened by this huge deficit. 

Some books need to be balanced.  This obligation must be paid back.

Although the Office of Budget Responsibility is now forecasting a 4% growth in the economy during 2021, this should be set against a whopping 10% contraction of GDP during 2020. 

Where has this left the rental property sector?  Before we turn to the Budget, let’s have a look at where we are.

The (Property) State of the Union

 Despite Covid-19, and the restrictions it has brought us (not least the strict social distancing rules now in place in property viewings), the rental market in and around Sussex remains relatively buoyant.

 For would-be property investors in Brighton, Zoopla is cheerfully reporting a dramatically increased demand for homes in Brighton and Hove – often with “extra space” keywords through their search engine, such as “garden”, “parking”, “garage” and even “sea view”.  A better quality of life for the WFH generation.  That’s “working from home” – but I expect you know that already.

 However, uncertainty around Brexit and the rules allowing Europeans to live, work and travel around the UK may affect the numbers of people willing to invest in property. So, we’ll need to be aware of that.

 As I’m sure you’re already aware, the government extended its ban on evictions earlier in the year, meaning that cases to evict cannot be heard in court until August 23rd at the earliest.

Demand for rentals is still high but again, there could be a knock-on affect if people’s incomes continue to be affected by the pandemic.  Lower earnings equal lower rents: or rather, it could be harder to put rents up.

How the Budget Could Affect YOUR Buy-To-Let Business

You don’t need me to tell you that landlords have been hit pretty hard in the last few years with a whole range of swingeing tax measures.

Last year’s budget, for example, introduced a decreased window for landlords to declare taxable profits to just 30 days from the sale date (down from 22 months).  The result? A spike in fines for late filings.  Plus, landlords can no longer claim tax relief in mortgage interest payments.

Therefore, no doubt you’ll be interested in the outcomes from this year’s Budget:

Corporation Tax – Buy to Let Investors Beware

It’s not great news.   

If you have incorporated your business, you will start to lose out in 2 years’ time.  Should you file profits of over £50,000 as a limited company, from April 2023 the tax you will pay HMRC on your profits will go up from 19 per cent to 25 per percent from April 2023.

The uncomfortable fact is that in 2020 a record number of landlords went “limited” and will now be penalised for it.  Why? Because buying a rental property via a limited company meant that you could continue to offset your mortgage interest against your profits.  And now, it’s “difficult” again.  Are you one of these people?

There’s other 2021 Budget news on:

Stamp Duty – More Positive Outcomes

If you are buying a property, the stamp duty holiday on properties up to £500,000 will be extended form March 31st to June 30th.

Then, from July 1st, the holiday will start to taper off, only applying to properties of up to £250,000 until the end of September.  This is much better news – and certainly if you have any property sales that have been agreed in recent weeks. 

The extension will really help to alleviate the current bottleneck of property transactions currently going on.

The result? You could be saving up to £15,000 on your stamp duty bill.

Capital Gains Tax – An Ominous Silence?

Rumours of an increase in CGT rates (the tax charged when an investment property is sold and currently at a long-time low of £12,300) being brought in line with income tax have proved just that: it’s not happening, for the time being. 

It would appear that former rental properties have flooded into the sales market, however, just through reports and gory gossip.

(To balance this, first-time buyers could at last be getting a fairer piece of the pie.  Lots of properties means lower property prices.)

This upturn would have meant that landlords would be surrendering a much, much larger proportion of their profits, should they sell them – raising a substantial £14bn for the Treasury, according to the splendidly named Office of Tax Simplification.  If you’re a higher rate taxpayer, you could have been paying double.

And, you still may do.  Apologies for the bad news.

CGT could be the subject of what journalists are starting to refer to as “tax day” proposals” – possible radical changes to be announced on March 23rd.  Watch this space.

Mortgage Loans

The government has announced guaranteed 95% mortgage loads for property buyers from next month.  However, it’s not thought to apply to investment purchases.  But worth knowing anyway.

So, there we are... 

Pluses and minuses, swings and roundabouts, perhaps. Here at Brighton Homes, anecdotally, there’s been more ups than downs; we’re pleased to have seen an increase in movement of people – not least down from London – people who are keen to embrace the current trend towards home working.  And, all the great benefits that living in Sussex can offer.

Still, rental demand outstrips supply, but good reliable tenants are more essential than ever in stressful times like these.  Do feel free to get in touch with us.  We have Covid-secure policies in place, as well as stringent tenant-checking processes, and much else besides.  You really will be in safe hands.