Autumn Budget 2017

Housing is key, but no silver bullet will fix the crisis

Kersten Muller Kersten Muller

The Chancellor’s headline theme in the budget was housing, culminating in the stamp duty land tax (SDLT) relief for first-time buyers, which increases the exempt amount from £125,000 to £300,000 for properties under £500,000. The government claims this will benefit 95% of first-time buyers who pay SDLT. But the devil is always in the detail.

Many, myself included, predicted some form of SDLT relief for first-time buyers, although we did not expect the relief to be so generous. We were pleased to see this measure central in a strategic, cross-departmental package of housing measures, recognising that no single silver bullet can fix the housing crisis.

SDLT relief for first-time buyers

The Office for Budget Responsibility (OBR) forecasts that the SDLT relief will encourage as few as 3,500 additional residential transactions a year by first-time buyers, despite costing HM Treasury more than £3 billion by 2022-23. Furthermore, the OBR estimates that the measure will increase house prices by around 0.3%. Some may question the wisdom of this measure, given the findings of the 2011 HM Revenue & Customs report into a previous SDLT holiday for first-time buyers, which concluded:

“[SDLT relief for first-time buyers] has not had a significant impact in terms of improving the affordability of residential property for FTBs [first-time buyers]. It is estimated that most of the buyers who benefitted from the relief would have purchased property in its absence anyway.”

Perhaps the £3 billion could have been better spent elsewhere, Disappointingly, the Private Rented Sector (PRS) was barely given a mention except for two further reviews. The first into lease tenure length and the other into exploring options on providing financial guarantees to support developers (mainly housing associations) to create PRS schemes.

Given renters feel the housing crisis most acutely, we would have welcomed more support for options other than the dream of home ownership.

Overseas investors in UK property

Although housing clearly took centre-stage, there were some material changes tucked away in the detail:

  • Overseas investors in commercial property will be subject to UK tax on gains accrued from April 2019
  • Those investors, Non-Resident Landlords (NRL), will be subject to UK Corporation tax from April 2020, rather than income tax

We were expecting an announcement on bringing corporate NRLs within the scope of corporation tax (instead of income tax) on their property income, however, taxing gains on commercial property in the UK was a surprise. Coinciding with Brexit, we  question whether this gives the right signal to overseas investors that the UK is open for business.

The rationale for raising tax from overseas investors could be understandable, but we need to remember that overseas investment in commercial property supports large employment in the UK and brings wider economic benefits. Increasing the cost of investing in the UK when relatively low GDP growth is forecast could have a significant impact on the wider economy.

Institutional investors

We welcome the news that institutional investors, such as pension funds will benefit from an exemption from tax on gains on commercial property, alongside real estate investment trusts (REITs) which are already exempt from tax on gains. The question is whether this announcement will cause a big shift in investor base.

But this is politics, where theatre plays an important role and headlines are everything. Markets move on confidence, which is based on public perceptions. Time will tell whether the Chancellor’s policies will help shape a vibrant economy.