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July 2015 Budget: key property announcements
Practical Law UK Legal Update 6-616-6369 (Approx. 10 pages)
July 2015 Budget: key property announcements
| Published on 08 Jul 2015 • England, Wales |
An update on the July 2015 Budget proposals affecting property.
Speedread
On 8 July 2015, the Chancellor of the Exchequer, George Osborne, delivered the second budget of 2015 and the Conservative party's first budget after winning the General Election on 7 May 2015.
This budget was always going to be a budget about reducing the country's deficit rather than doing more to tackle the housing supply and business rates issues that the property industry has been calling for.
The changes to the inheritance tax regime will be welcomed by those whose family home will no longer be caught by the tax. However, while the middle classes may have benefited in respect of their main residence, as landlords they face a major scaling back of tax breaks over the course of this Parliament as George Osborne seeks to "level the playing field between buy-to-let and buy-to-live". The government's announcement may force already high rents to rise further as buy-to-let borrowers look to offset loss of income.
The government provided further details on the Help to Buy: ISAs (originally announced in the March 2015 budget) which will be available for first-time buyers to start saving from 1 December 2015. Savers could receive a maximum £3,000 bonus on £12,000 of savings. On the other hand, support for the Mortgage Interest scheme will be converted from a benefit into an interest-bearing loan so that homeowners repay the financial support they receive. The Council of Mortgage Lenders has already stated that this change could have wide implications and it will need time to consider them and work through the practicalities and logistics.
The government's plans for extending Sunday trading were not as prescriptive as we were led to believe prior to the budget: it will be dealt with at a local level.
The government continues to invest in infrastructure, with roads being a particular concern, and build on its efforts to develop the so-called Northern Powerhouse. It will devolve further powers to Greater Manchester and will work towards devolution deals with Sheffield, Liverpool and Leeds.
However, the main message to come out of this Budget was that the welfare bill is still too large, and measures need to be taken to continue to reduce the deficit and the strings on the public purse need to be kept taut. The social housing sector has been called up to play its part.
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July 2015 Budget
On 8 July 2015, the Chancellor of the Exchequer, George Osborne, delivered the July 2015 Budget.
This update analyses the key implications for the property industry. For an analysis of other aspects of the July 2015 Budget, see Further reading.
Housing
Support for Mortgage Interest
Support for Mortgage Interest (SMI) provides support with mortgage interest payments for homeowners receiving certain income-related benefits. SMI is currently available after 13 weeks at 100% of eligible mortgage interest on mortgages up to £200,000.
The government has announced that:
- From 1 April 2016, the SMI waiting period will return to the pre-recession length of 39 weeks, although the capital limit will remain at £200,000.
- From April 2018, SMI will change from a benefit to a loan. The loan will be required to be repaid on the sale of the house or when claimants return to work.
For more information on SMI, see Practice note, Help for residential borrowers struggling with mortgage repayments.
(July Budget Report, paragraphs 1.156 and 2.114 and Policy Costings, page 56.)
Help to Buy ISA
In the March 2015 Budget, the government announced the Help to Buy: ISA. The intention was that first-time buyers who chose to save through a Help to Buy: ISA would receive a government bonus which would be calculated and paid when they bought their first home. This could provide first-time buyers with a maximum bonus of £3,000 on £12,000 of savings.
In the July 2015 Budget, the government has announced that the Help to Buy: ISA will be available for first-time buyers to start saving, as from 1 December 2015. From that date, first-time buyers will be able to:
- Open their Help to Buy: ISA account with a one-off deposit of £1,000.
- Deposit a maximum of £200 per month into their account.
(July Budget Report, paragraph 1.231.)
Tax reliefs
Restricting finance cost relief for landlords
Buy-to-let landlords can deduct their costs (including mortgage interest) from their profits before they pay tax, giving them an advantage over other homeowners. Wealthier landlords receive tax relief at 40% and 45%.
The government has announced that it will restrict the relief on finance costs that landlords of residential property can get to the basic rate of income tax. This means that individual landlords will not be treated differently based on the rate of income tax that they pay.
The restriction will be phased in over four years, starting from April 2017.
This follows the recent warning from the Bank of England that the rapid growth of buy-to-let mortgages could pose a risk to the UK's financial stability.
(July Budget Report, paragraphs 1.190, 1.191 and 2.59 and Policy Costings, page 21.)
Wear and Tear Allowance
Currently, landlords of residential furnished properties can deduct 10% of their rent from their profit to account for wear and tear, irrespective of their expenditure.
From April 2016, the government will replace this Wear and Tear Allowance with a new relief that allows all residential landlords to deduct only the actual costs of replacing furnishings.
Capital allowances will continue to apply for landlords of furnished holiday lets. For more information, see Practice note, Capital allowances on property transactions.
(July Budget Report, paragraphs 1.192 and 2.58 and Policy Costings, page 22.)
Rent-a-Room relief
Rent-a-Room relief is designed to help individuals who rent out a room in their main residence. The relief has been frozen at £4,250 since 1997.
From April 2016, the government will increase the level of Rent-a-Room relief from £4,250 to £7,500 a year.
(July Budget Report, paragraphs 1.193 and 2.60 and Policy Costings, page 12.)
Business rates
On 8 July 2015, the government published further information on the action it is taking to improve the administration of business rates, including the appeals system, and on tackling business rates avoidance.
The government has also published a consultation on the possible introduction of a business rates relief for local newspapers, requesting views on a number of aspects of the proposal.
(July Budget Report, paragraphs 1.244, 2.155, 2.156, Summary of responses to the interim findings of the government’s review of business rates administration, Business Rates Avoidance: Summary of Responses and The case for a Business Rates Relief for local newspapers.)
Taxation
SDLT
In the July 2015 Budget, the government confirmed its intention to:
- Introduce a seeding relief for Property Authorised Investment Funds (PAIFs) and Co-ownership Authorised Contractual Schemes (CoACSs).
- Alter the SDLT treatment of CoACSs investing in property so that SDLT does not arise on the transactions in units.
These measures were previously announced in the March 2015 Budget. For more information, see Legal update, March 2015 Budget: key business tax announcements: SDLT seeding relief for PAIFs and co-ownership ACSs.
These intended changes are subject to resolving potential tax avoidance issues.
(July Budget Report, paragraph 2.154.)
IHT
In the July 2015 Budget, the government announced proposed changes to the inheritance tax (IHT) regime.
Foreign-domiciled persons (non-doms)
The government has announced that it plans to alter:
- The tax treatment of foreign-domiciled persons (non-doms), who are resident in the UK for long periods.
- The rules on what constitutes a UK domicile at birth.
The government also announced specific changes to how inheritance tax (IHT) affects non-doms. Of particular interest to those advising on property transactions is the announcement that, from April 2017, IHT will be payable on all UK residential property owned by non-doms, regardless of their residence status for tax purposes. The new regime will also catch property held indirectly through an offshore structure.
The government intends to consult on the proposals later this year.
For more information on the detail of these provisions, see Legal update, July 2015 Budget: key private client tax announcements.
(July Budget Report, paragraph 2.90 and Policy Costings, page 27.)
Main residence nil-rate band
The government has followed up on its 2015 manifesto promise to reduce the IHT burden arising as a result of high property prices by introducing a transferable main residence allowance in April 2017.
This allowance will take the form of a new transferable nil-rate band, which will apply when a person's main residence is passed on death to direct descendants, such as a child or grandchild. The allowance will increase annually from its introduction, as follows:
- £100,000 in the tax year 2017-18.
- £125,000 in 2018-19.
- £150,000 in 2019-20.
- £175,000 in 2020-21.
This is in addition to the inheritance tax nil-rate band, which is set at £325,000 for the estates of individuals. As with the current nil-rate band, any unused main residence nil-rate band will be transferred to a surviving spouse or civil partner. The main residence nil-rate band may even be available after the property is sold, in certain circumstances.
There will be a tapered withdrawal of the main residence nil-rate band for estates with a net value of more than £2,000,000.
For more information on these provisions, see Legal update, July 2015 Budget: key private client tax announcements.
(July Budget Report, paragraphs 1.219-1.221 and paragraphs 2.88-2.93.)
IPT
The government has announced that, from 1 November 2015, the standard rate of insurance premium tax (IPT) will be increased to 9.5%. The current rate of IPT is 6%.
The change is subject to a four month concessionary period that will begin on 1 November 2015 and end on 29 February 2016. During this period, premiums received that relate to policies entered into before 1 November 2015 will continue to be liable to IPT at 6%. From 1 March 2016 all premiums received by insurers will be taxed at the new rate of 9.5%, regardless of when the policy was entered into.
The new rate represents more than a 50% increase on the current rate of IPT, which will increase insurance costs. Although the new rate of IPT is still low compared to some other European countries, the change will result in additional expense for both commercial and residential properties.
(July Budget Report, paragraphs 1.209 and 2.133 and Policy Costings, page 23.)
Social housing
Pay to stay
Social housing tenants with household incomes of £40,000 and above in London, and £30,000 and above in the rest of England, will be required to pay a market, or near market, rent for their accommodation.
The government aims to make such tenants pay a fair level of rent, or make way for those whose need is greater.
Local authorities will repay the rent subsidy that they recover from high income tenants to the Exchequer, contributing to deficit reduction. Housing associations will be able to use the rent subsidy that they recover to reinvest in new housing. The government will consult on and set out the detail of this reform in due course.
(July Budget Report, paragraphs 1.154 and 2.45.)
Review of lifetime tenancies
The government will review the use of lifetime tenancies in social housing to limit their use and ensure that households are offered tenancies that match their needs. This should help ensure the best use is made of the social housing stock.
(July Budget Report, paragraphs 1.155 and 2.46.)
Reduction of social sector rents
The government will reduce rents paid by tenants in social housing in England by 1% a year for four years from 2016-17 to 2019-20, reducing expenditure on housing benefit and universal credit.
(July Budget Report, paragraphs 1.140 and 2.44 and Policy Costings, page 53.)
Transport and infrastructure
Northern Powerhouse
Devolution
The government:
- Will devolve further powers to Greater Manchester. This will include powers over fire services and planning and a Greater Manchester Land Commission will be established (July Budget Report, paragraphs 1.284 and 2.37).
- Is progressing further devolution deals with the Sheffield City Region, Liverpool City Region, and Leeds, West Yorkshire and partner authorities. These will be agreed in parallel to the forthcoming Spending Review (July Budget Report, paragraphs 1.283 and 2.38).
Transport for the North
The government will:
- Establish Transport for the North (TfN) as a statutory body with statutory duties. This will be supported by £30 million of additional funding over three years.
- Accelerate TfN’s work programme by appointing an interim Chief Executive and executive team for TfN by autumn 2015 and a Chair by the end of 2015.
- Work with TfN to introduce Oyster-style smart and integrated ticketing for bus, tram, metro and rail services across the region.
- Work with TfN to bring forward plans to transform east-west rail and road connections via TransNorth and options for a new TransPennine Tunnel. A prioritised list of scheme options will be produced by the 2016 Budget and an interim report will be produced for the forthcoming Spending Review.
(July Budget Report, paragraphs 1.301 and 2.40.)
Road connectivity
The government aims to improve road connectivity in the north by:
- Upgrading the A628.
- Making the A61 a dual carriageway.
- Upgrading the final stretch of the M1/A1 route between Newcastle and London to motorway. The government will also consider whether the A1(M) North of Leeds should be renamed as the M1.
(July Budget Report, paragraphs 1.302 and 2.39.)
Mersey tolls
The government is considering an extension of Mersey Gateway bridge toll discounts to residents of Chester West & Chester and Warrington. A final decision will be made in early 2016. The government will also work with relevant local partners to review the tolls on the Mersey tunnels.
(July Budget Report, paragraphs 1.303 and 2.31.)
Transport
Roads
The government will:
- Create a new Roads Fund to invest in the strategic road network. This will be funded from 2020-21 by the revenue from vehicle excise duty (July Budget Report, paragraphs 1.236, 1.250, 1.251, 2.146 and 2.187).
- Produce a second Roads Investment Strategy before the end of this Parliament for the period 2020-25 (July Budget Report, paragraphs 1.252 and 2.188).
Railways
The government:
- Has appointed Sir Peter Hendy, formerly the Commissioner of Transport for London, as the new Chairman of Network Rail. The government has asked Sir Peter Hendy to produce, by autumn 2015, a sustainable rail investment programme.
- Has asked Sir Peter Hendy and Mark Carne, Chief Executive of Network Rail to continue with the work started in Network Rail to devolve more power to route managers closer to the front line (July Budget Report, paragraphs 1.255 and 2.191).
- Will change the way the government channels public money through the industry, directing it through the train operating companies instead (July Budget Report, paragraphs 1.255 and 2.192).
- Run a further round of the New Stations Fund with up to £20 million in total available for projects (July Budget Report, paragraphs 1.298. 1.307, 1.317 and 2.31).
- Set up a dedicated body to concentrate on realising value from public land and property assets in the rail network (July Budget Report, paragraphs 1.255 and 2.193).
- Has asked Nicola Shaw, Chief Executive of High Speed 1, to advise on the longer-term future shape and financing of Network Rail which will be concluded before Budget 2016 (July Budget Report, paragraphs 1.256 and 2.190).
Asset management
Central government estate
The government will:
- Recruit a shadow Chair to develop and implement a new commercial approach to asset management of the central government estate.
- Provide funding for the delivery of this programme.
(July Budget Report, paragraph 2.18.)
Local Authority assets
In the 2014 Autumn Statement, the government committed to expanding the One Public Estate programme to those English local authorities with a significant asset base. The July 2015 Budget commits a further £6 million to this programme to ensure that local government rationalises its estate.
(July Budget Report, paragraph 2.26.)
Enterprise Zones
The government announced:
- It will hold a bidding round for a new programme of Enterprise Zones during this Parliament.
- It supports the extension of the Birmingham Enterprise Zone which will help Birmingham build on the government's investment in HS2 and provide further benefits for the city.
(July Budget Report, paragraphs 1.288, 2.29 and 1.310.)
Sunday trading
The government will consult on devolving powers on Sunday trading to city mayors and local authorities to ensure that local areas have a greater say over their own economies. The consultation will look at allowing mayors or councils to extend Sunday trading for additional hours within parameters that they would determine.
(July Budget Report, paragraphs 1.289 and 2.28.)
Coastal community fund
The government will continue to support community‑led growth in coastal areas and the July 2015 Budget extends the Coastal Communities Fund by at least £90 million until 2020-21. This is subject to confirmation of future funding arrangements, which will be determined at the forthcoming Spending Review.
(July Budget Report, paragraphs 1.290 and 2.30.)
Sources
- HM Treasury: Summer Budget 2015 (8 July 2015).
- HM Treasury: Chancellor George Osborne's Summer Budget 2015 speech (8 July 2015).
- HMRC: Summer Budget 2015 HMRC overview (8 July 2015).
- HM Government: Summer Budget 2015: Policy Costings (8 July 2015).