Increased costs and uncertainty for many residential and commercial property investors
Kersten Muller, Partner, Real Estate Tax, Grant Thornton UK LLP commented: “Today's Budget brought a welcome reduction to capital gains tax rates (down to 20% and 10% for higher rate and lower rate taxpayers respectively). Of course, these don't apply to disposals of residential property.
“It is clear by now that the Chancellor does not want to encourage residential property investment through the tax system, undoubtedly in the hope that this will improve conditions for potential home owners. It remains to be seen whether these measures will address the supply/demand imbalance that has been driving up prices. Small plans were announced to unlock house building on brownfield sites under the Starter Homes Land Fund but this is only enough for 30,000 new homes, falling way short of targets for 2020. So, first time buyers are still priced out of the residential property market because the economies of poor supply and strong demand mean homes are still unaffordable for the many.
“We are disappointed that the additional 3% SDLT charge for residential properties will also apply to portfolio purchases - at a time when the UK needs institutional investment into homes, this will add additional cost. Our concern is that some or all additional costs will also be reflected in higher rents for families.
“Today’s Budget also contained a surprise increase to SDLT on higher value commercial property transactions. The top rate has increased to 5% on properties in excess of £250k and there is now a 2% charge on leases where the net present value of the rental payments is in excess of £5m. The changes will take effect from midnight and are expected to raise an additional £2.6bn over 5 years.
“This tax raise impacts all commercial property purchases over £1m (the threshold where the changes will result in additional tax). A large number of commercial property owners are pension funds and any decrease in value could effectively amount to a hidden charge on Britain's pension pots.”