Next week, new Chancellor Rishi Sunak will deliver the spring Budget, and there are plenty of rumours around what this will mean for the UK’s tax landscape.
It doesn’t seem likely that major tax cuts will be the order of the day when Rishi Sunak reveals the Treasury’s spring Budget on 11th March. With a government deficit of around £40bn, clawing back money is more likely to feature for the year ahead.
At the moment, there’s talk of cuts to pension relief, abolishing entrepreneurs’ relief and expanding inheritance tax. While none of these measures will be popular, they seem to be reflective of the government’s stance on spending.
Stamp duty cuts would stimulate market
However, when it comes to housing, the government’s position isn’t necessarily clear. Many argue that the housing market needs some form of stimulus to keep it moving. But while the government has improved the situation for first-time buyers, other levels of the market have not benefited.
Now Spectator magazine, which used to be edited by Boris Johnson, is calling on the government to cut stamp duty in its upcoming Budget.
Author Ross Clark writes: “If any tax is going to be cut it is likely to be stamp duty on property purchases, at least those made by owner-occupiers at the lower end of the market.”
He adds that this tax has increased more than any other over the past 20 years. He also argues that current market conditions ought to be perfect for a strong property market. Real incomes are on the rise, employment levels are high, and interest rates have been at rock bottom for months. Yet stamp duty is seen as a major barrier to property investment, for both homeowners property investors.
Tax cuts are “a good thing”
The previous Chancellor, Sajid Javid, has revealed that he would have reduced stamp duty had he continued in his role. He resigned as Chancellor last month after clashing with the Prime Minister. Boris Johnson reportedly ordered him to fire his advisers, but he refused.
Javid commented: “I passionately believe that where you can afford it tax cuts are a good thing and now that we have a majority, we should be much more aggressive on the tax cuts for the long term […] and go much further than our manifesto.
“Sensible fiscal rules for a good government are your best friend. It gives you an anchor…by which to judge all spending and it forces you to make choices because not everything can be a priority.”
Help for first-time buyers
Despite pressure on the government to use its powers to boost the housing market and encourage investment, a general stamp duty cut seems unlikely.
A cut for property investors and second home owners is potentially even less likely. The tax situation for many buy-to-let property investors is already changing due to recent new rules. Mortgage interest tax relief is being replaced with a basic rate tax credit this year, and major capital gains tax changes are set to come in this April.
Such moves have already put some landlords off the buy-to-let market. Others, meanwhile, have had to adapt the way they operate. So it would be an unexpected move for the government to reduce stamp duty for this side of the market.
Paving the way for first-time buyers certainly helps more people climb onto the property ladder. However, homeowners’ ability to progress up the ladder is not being cited as a current priority for the government.
Zoopla joins the protest
Zoopla’s director of research and insight, Richard Donnell, also believes more housing liquidity would boost the housing market. He thinks the government should review its price bands and focus on the core housing market.
“More housing liquidity supports home moves up and down the market. It will boost labour mobility, ease pressure on transport and stimulate spending that can benefit the wider economy.”
He added: “At a national level, figures show that price growth since 2015 has pushed 2.7 million homes into the 5% SDLT band for property valued at £250,000 to £925,000.
“With UK house moves stagnating at 1 million annually and stamp duty costs adding to the expense of a property transaction, the government needs to look at ways to keep Britain moving.”
BuyAssociation will provide a full report of the Budget statement next week. Check back to our news pages for more information. You can also browse our investments page, or sign up to see buy-to-let investment opportunities.