Chaos has surrounded the delivery of Chancellor Rachel Reeves’ second Budget.
The Office for Budget Responsibility (OBR) accidentally released full details of the Budget even before Reeves spoke in the Commons.
The Budget’s main headlines are:
Here are the main tax rises in detail:
Of particular relevance to the property industry:
The Chancellor is imposing a Mansion Tax on more expensive properties because – she says – “a Band D home in Darlington or Blackpool pays just under £2,400 in Council Tax – nearly £300 more than a £10m mansion in Mayfair”.
As a result, she is creating in England what she is calling the “High Value Council Tax Surcharge” or Mansion Tax, which means that properties worth over £2m will pay a surcharge of £2,500 and properties worth over £5m will pay a surcharge of £7,500. These will both be paid by the property owners in addition to the current level of council tax, but there will be a consultations on options for “support or deferral”.
Overall, this is expected to raise over £400m by 2031, and Reeves says it will be charged on “fewer than the top 1% of properties”. The tax will come into effect in 2028.
And from April 2027, a 2% increase will be imposed on basic, higher and additional rates of property income tax, increasing them to 22%, 42% and 47% respectively. This is estimated to yield £0.5 billion a year on average from 2028-29. The OBR says: “The costing incorporates a small negative impact as a result of the pass-through of the tax increasing rents and property tax receipts, which is more than offset by a reduction in house prices reducing other receipts.”
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Here is reaction from the industry:
Ben Beadle, Chief Executive of the National Residential Landlords Association: “Despite claims of tackling cost of living pressures, the Government is pursuing a policy that the Office Budget Responsibility has made clear will drive up rents. Almost one million new homes to rent are needed by 2031. But this Budget will clobber tenants with higher costs while doing nothing to improve access to the homes people need.”
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Jeremy Leaf, north London estate agent and a former RICS residential chairman: “Mansion tax change seems more political than anything bearing in mind the relatively little additional revenue to be raised and the likely deferred payment date. As a result, the impact on housing market activity will probably be minimal at worst.
“However, I wish the Government luck trying to re-value all those properties and dealing with the arguments around the ‘pinch points’. As a result, the cost of the exercise could turn out to be higher than the extra sums making their way into Treasury coffers. As is often the case when attempting to analyse the Chancellor’s words on these occasions – it’s just as important what she says as what she doesn’t say.”
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Nick Leeming, Chairman of Jackson-Stops: “What concerns me is the greater economic consequences beyond the Chancellors tax grab, leaving £2m homeowners who are mortgaged having the potential to slip into negative equity as prices realign. We know house prices in London and the South East reflect decades of inflationary growth and chronic undersupply, where as a result, asset-rich and cash-poor homeowners will be disproportionately affected.
“A £2m threshold is arguably too low for these regions where a single blanket threshold fails to recognise regional nuances. What we would rather have seen for council tax is a complete rebanding with greater laddering to avoid cliff-edge rates and continued fiscal drag.
“Few dispute that revaluation is necessary from outdated 1991 values, but a piecemeal approach risks embedding existing imbalances. As it stands, questions will be raised about valuation accuracy, how homes are assessed, and whether this could spark legal challenges. Taking the time to get the revaluation process correct before the 2028 implementation deadline will be absolutely key to its success, where one legal challenge may open the floods gates to others.”
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Lucian Cook, Savills head of Residential Research: “After what must have been the most prolonged exercise in kite flying in the run up to a Budget, the introduction of an annual tax surcharge for properties worth over £2m, at levels somewhat lower than many will have feared, is probably the least worst outcome for owners of prime property.
“However unwelcome any tax increase, the certainty which this provides will allow buyers and sellers to formulate plans which have been put on hold over recent months. This is likely to underpin a short term pick up in market activity, especially given the breathing space offered by a delay in implementation whilst the valuation exercise is conducted.
“Over the longer term the measures are likely to act as slightly greater incentive for older home owners to downsize and, in some cases, heavily mortgaged owners of high value homes to move to a less valuable property pushing some demand out of London into the commuter zone. However, this impact will be tempered by an ability to defer any charges until sale or death which should prevent a rush of stock coming to the market.
“In the more domestic markets, it will temper the size of mortgage those using debt to fund a purchase would otherwise be able to secure. But in reality this will be more dependent on the pace and scale of future interest rate cuts.
“At the very top of the market the policies themselves are not big enough to warrant a change in the demand supply dynamic of the central London market. All of this, combined with the fact that some of the risk at the top end of the market has already been priced in, is likely to mean that, overall, any further impact on prices is relatively modest, although it is likely to be a further drag on the recovery of the prime market.
“However, it is likely to have a disproportionate impact on second home markets which are already dealing with an increased stamp duty surcharge and the doubling of council tax in most cases.”
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Tom Bill, head of UK residential research at Knight Frank: “Until the revaluations take place, buyers and sellers face years of uncertainty, especially around the £2m threshold. Even once completed, new valuations can be challenged, which would prolong the limbo.
“The policy may also raise less than expected, especially because it is deferrable. If opposition parties say they would scrap it, many homeowners will look at the opinion polls and wait it out. When you factor in the cost of carrying out the valuation and the potential lost stamp duty revenue from a stickier market, the sums raised could look like a rounding error for the Treasury.
“More properties will inevitably get dragged into the mansion tax net, which means the proportion of terraced houses, flats and semi-detached homes will grow over the years, particularly in the capital. The term ‘mansion tax’ will increasingly feel like a misnomer.
“Overall, it feels like politics has trumped economics. One the one hand, the policy is designed to keep backbenchers happy and ensure the near-term survival of the Chancellor and Prime Minister. On the other, it throws a spanner into the works of the housing market for not much money in return, which is important in the context of a Budget where spending is front-loaded. The UK already pays the highest percentage of property taxes among OECD countries.”
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Sarah Coles, head of personal finance, Hargreaves Lansdown – “An income tax hike was the most feared change in the Budget – worrying 16% of people, 20% of Millennials, and 25% of higher rate taxpayers, so the Budget made millions of people’s worst fears a reality.
“According to the OBR report the government has extended the freeze in the tax thresholds to 2031 – even longer than had been expected. This comes as no surprise, given it has been such an effective stealth tax already. Fiscal drag has hauled over 6m more people into paying income tax, and 3.36 million more into paying higher or additional rate tax. We’ve had to hand over an extra £89 billion in income tax this year – compared to 2021/22 – as a result.
“It means that every pay rise will mean more people paying more tax, and more tipping over into paying higher rates. Someone earning £50,000 this year will pay £8,165 more in tax over those three years as a result. It’s not just the tax on earnings that’s affected. When you start paying higher rate tax, your personal savings allowance shrinks, from £1,000 for basic rate taxpayers to £500 for higher rate taxpayers, and disappears altogether for additional rate taxpayers.
“You also pay a higher rate of capital gains tax when you cross into paying higher rate tax, and your dividend tax rate rises as you cross each income band. It means everyone, whatever their income, needs to consider the steps they can take to protect themselves.”-
This article is taken from Landlord Today