Following months of economic and political turmoil, the Chancellor of the Exchequer, Jeremy Hunt, laid out the Government’s economic plans for the coming months and years. How will these changes impact property investors and the wider housing market?
As UK inflation reached a 41-year high of 11.1% in October 2022, higher than the majority of experts anticipated and a full 1% increase on September, what is Rishi Sunak’s new Conservative Government going to do about the cost-of-living crisis and post-pandemic debt?
Stealth Tax Rises
While Hunt made no direct tax increases, a few tax threshold freezes and reductions will act as tax increases due to inflation for many taxpayers.
The Chancellor made no changes to basic and higher income tax thresholds; however, due to wage increases, many individuals will pay more income tax, and more will enter the higher 40% tax bracket. The basic tax lower threshold remains at £12,571, and the higher £50,271. This is different if you live in Scotland.
Given the economic forecast of recession, this threshold freeze will remain in place until 2027/28 (assuming this Government survives next year’s general election).
For many landlords, surpassing the higher tax bracket is often when limited company structures can offer a tax-efficient alternative. If you’re concerned, you should speak to a professional tax advisor about your options.
In complete contradiction to the Truss-Kwarteng mini-budget, Sunak and Hunt have decided to lower the 45% income tax threshold from £150,000 to £125,140, meaning an estimated 250,000 additional taxpayers will now start paying 45% on income at and above £125,000.
Currently, the tax-free dividend allowance is £2,000. From April 2023-2024, this will reduce to £1,000 and to £500 from 2024-2025.
Capital Gains Tax
Similarly, the Government have decided to reduce the tax-free allowance on Capital Gains Tax from April 2023. The threshold will reduce from £12,300 to £6,000 and then to £3,000 in 2024.
If you’re concerned about the impact of the Dividend and Capital Gains Tax changes, speak to a professional tax advisor to find out how this will impact your financial investment situation.
Stamp Duty Land Tax (SDLT)
The SDLT changes announced in the mini-budget are now only guaranteed until 31st March 2025, when it will be reassessed. On the 23rd September 2022, Kwasi Kwarteng confirmed that the 0% threshold would increase from £125,000 to £250,000, offering purchasers a maximum saving of £2,500 on their stamp duty bill.
Jeremy Hunt has already announced that Truss’ energy price cap will end in April 2023. The average household bill for gas and electricity will increase from £2,500 to £3,000. This freeze will run until April 2024. Ofgem anticipates that without Government intervention, average bills would cost as much as £4,000, so the guarantee is still costing the Government money.
There will be targeted support for those on low incomes, living with disabilities and pensioners.
While not as bad as it could be, another increase will have significant negative impacts on many households’ finances. If you believe your tenants are struggling, or will be after further increases, we recommend having an open and honest conversation with them. They may qualify for financial support via means-tested benefits.
Rising energy costs are putting a renewed focus on energy-efficient homes. With the Minimum Energy-Efficiency Standards (MEES) still waiting in the wings, now is a pivotal time to start making green improvements, or specifically investing in greener buy to let properties, as tenants will favour homes that are cheaper to run.
Other announcements include:
- Rent increases for social housing will be capped at 7% for the next year. This will save the average tenant £200 next year.
- The National Living Wage (for those 23 and over) will increase from £9.50 to £10.42 per hour. This rise of almost 10% will benefit an estimated two million people. This equates to just over £1,600 more for full-time workers annually and is the most significant increase to the National Living Wage to date.
- Pensions will increase in line with September’s inflation rate, 10.1%, from April 2023. Hunt will retain the “triple lock” pension guarantee, which ensures state pensions increase in line with inflation, average earnings or 2.5% (whichever is highest) annually.
- Means-tested benefits, including Universal Credit, will also increase by 10.1%.
17th November 2022