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A taxing dilemma for property

Kevin Walmsley

08 September 2016

It is an occupational hazard for Ministers taking office in a reshuffle that they take on unfinished business from their predecessors. The housing market is one of those areas of potentially unfinished business that the UK’s new Chancellor of the Exchequer, Philip Hammond, has inherited, amongst all the post-Brexit furore.

Housing shortages, help for first-time buyers and capping rents may have just been a few of the objectives on the housing agenda, but some suppose that it can’t be possible to achieve all three.

According to a recent article in the Times, a significant ‘aid package’ is required in order to boost home ownership amongst the young. One thing is for sure, Philip Hammond’s predecessor, George Osbourne’s stamp duty surcharge on buy-to-let investments may have  been followed by an increase in first-time buyer lending, but also a reduction in property purchases overall and certainly for the buy-to-let market. There needs to be an awareness of some of the longer term impacts and an increasing view that the additional costs imposed on landlords may filter through to the tenants in a market where the demand for rental properties exceeds supply. In essence, deterring private landlords from investing in property could cause a further shortage of housing and could drive up rents as a result. Taken with a background of landlords facing higher costs and less tax incentives which may also drive up rents as landlords seek to “pass-on” those “costs” and there is the making of a double hit for tenants!

So the new Chancellor’s challenge may be ensuring a balance is achieved. There is indeed somewhat of a dilemma -stifling the buy-to-let industry which may well impact the house building market and the economy overall and a  further squeeze on tenants paying higher rents – against a background of low pay rises will present its own challenges to the economy.

The key here will be deciding which is more lucrative. Could it be the higher stamp duty on expensive homes, or increased demand further down the line? Stamp duty has previously been dubbed as a levy on the well off and acts as a disincentive to move home. Creating a stalling at the upper end of the property market also needs to be avoided – extended homes are not necessarily the long-term answer to the economy is looking for either, and is certainly a departure from the past of “moving up the property ladder”.

While far from perfect, the Help to Buy scheme has assisted many people onto the housing ladder, but reports recently have also shown that it has actually pushed up prices in some areas. George Osborne extended the scheme until 2020 so it would be difficult for Philip Hammond to pull back from that now; but what is clear is that, even with Help to Buy, many people will still be renting and there is an ongoing need for a vibrant rental market.

Philip Hammond will need to keep an eye on the impact of the stamp duty surcharge on buy-to-let properties. If the higher charge feeds through into higher rents for an already vulnerable section of the population, there may well be a need to address the issue. As for higher stamp duty on high-value properties, this could be politically difficult to reverse. But if there is evidence to suggest that it is feeding through and slowing activity further down the chain, then perhaps this may be a bullet that the Chancellor should bite.

Like almost every area of the economy, the housing market could potentially be affected by Brexit in some ways that are obvious and in others that are hard to predict.

If you would like help or advice on any aspect of the property business, Wilkins Kennedy has an experienced team of experts who can help you make sense of the current situation and plan a way ahead.

About Kevin Walmsley

Kevin Walmsley

Kevin works closely with his clients who include individuals, owner managed businesses, larger corporates, partnerships , legal and professional practices and international businesses. The Managing Partner of the Heathrow Office, Kevin serves on the firm’s Management Committee and is a member of the Corporate Finance Faculty, the Audit Faculty and the Solicitors Special Interest Group of the Institute of Chartered Accountants in England and Wales, the Expert Witness Institute and the Institute of Directors.

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