Last week, George Osborne stepped up to deliver his latest Summer Budget. While it was the introduction of a new living wage that grabbed most of the headlines, there were some notable changes that directly impact homeowners, landlords and the property market.
Inheritance Tax Changes
Firstly, Inheritance Tax will be revamped. As it stands, Inheritance Tax of 40% is charged on estates above the tax-free allowance of £325,000. With around one in five homes in Edinburgh selling for more than that level, it’s a tax that potentially impacts a large number of people in the City. Under the new rules, which will come into effect from April 2017, everyone will have a ‘family home allowance’ meaning that they can pass their home on to their children or grandchildren tax-free.
This ‘family home allowance’ will be added to the current Inheritance Tax threshold of £325,000. In very simple terms, the changes mean that less estates will incur Inheritance Tax in the future and will be welcome news for a lot of homeowners.
Landlords Hit With Tax Relief on Buy-to-Let Mortgages
There was less welcome news for landlords in the Budget. The chancellor announced that the rate of tax relief that landlords enjoy on mortgage interest payments – which currently stands at 40 or 45% – is to be reduced to 20% by 2020. The Government believes this will address the advantage landlords have over other homebuyers, and will also help to reduce demand from buy-to-let investors making it easier for buyers to secure a home to live in at a reasonable price.
Additionally, from April 2016 landlords will lose the ability to get tax relief via the “wear and tear” allowance, which allowed them to claim 10% of the rent on furnished properties as a cost to cover ongoing improvements to furnishings. Instead, only costs actually incurred for replacing such items will be able to be deducted. The idea here is to ensure tax relief is only provided for costs that are actually incurred while, in theory at least, giving landlords an incentive to improve furnishings, thus raising the standard of rented accommodation.
What neither initiative does, of course, is to address the fundamental issue facing the property market; namely that the supply of properties is simply not sufficient to keep up with demand. If we take Edinburgh as an example, the rate at which we have been building homes in recent years is only around a third of what would be required to keep up with projected growth in household numbers.
Inevitably, that will start to exert an upwards pressure as we move forward, and as we’ve often said, it is this lack of housing supply that needs to be addressed as we move forward. That means much more than simply stimulating house building activity of course. Any new housing developments will also need to be supported by creation of the schools, libraries and other amenities that communities require to thrive and it will be important that politicians at a local and national level work together to achieve this to maintain the long-term health of the housing market.
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