Budget 2024: First Thoughts
As a prelude to the General Election, Jeremy Hunt may or may not have pulled sufficient rabbits from his hat to nudge the general public’s dial depending on their own personal politics.
There was undoubtedly a lot in his statement which will please some and anger others. The cut to national insurance rates will make the headlines, as will the fuel duty freeze, changes to non-domiciled status, higher thresholds for child-benefit payments, and the increase in the VAT threshold.
But what about housing. Has the Chancellor done enough to satisfy private landlords?
Not this one.
There were three substantial announcements with the potential to impact landlords specifically.
First, was the extensively trailed abolition of the furnished holiday lets (FHL) regime, essentially sharing the pain and detriment created by George Osborne’s section 24 with the holiday sector under the auspices of increasing supply of homes.
The NRLA has long argued that the attractiveness of the FHL tax regime, relative to the PRS since 2015, was a lure tempting much needed stock away from our sector. However, surely if the goal is to increase supply in the PRS the solution is to improve its lot rather than drag FHL into our tax-mire. Granted this may deter further losses of homes, but it’s highly unlikely to tempt landlords back into long-term lets. Particularly where the landlord moved into holiday lets because the property finances did not stack up after section 24.
The second point focussed on SDLT. As Mr Hunt began to speak for one brief moment I thought he may have listened and was about to abolish the additional property levy, but I shouldn’t have gotten my hopes up. In fact, he announced the abolition of the multiple dwellings relief for investors purchasing more than one property in a single transaction. This is not a widely used relief, its removal is unlikely to have a destabilising effect, but at a time when the Treasury says it wants to encourage investment it seems odd to remove a fiscal tool which may help make a small number of properties more cost effective to bring to the market.
Finally, the main event. The moment we had all been waiting for. The Chancellor announced a cut to Capital Gains Tax on the sale of residential property. Property gains, the one type of gain which attracts a higher rate of tax relative to other assets, will be taxed at 24 per cent, down from 28 per cent for higher earners.
Happy days surely? We have argued for years that this extra taxation has a perverse impact on the market and is actually holding back natural disposals of stock, locking-up funds that might otherwise be reinvested. This must be a major victory for common sense.
Perhaps. Perhaps not.
A cut is certainly to be welcomed. The rate for gains from residential property should never have been set 40 per cent higher than for other chargeable assets. Reducing the rate to 24 per cent is an improvement, but it’s not the whole story.
Over the last few years, the Government has been steadily reducing the annual tax free amount of gains an individual can realise before CGT kicks in. In 2022/23 it was £12,300, today it is £6,000, from April it will drop to £3,000. This means that a landlord disposing of property and realising a gain will still likely pay more tax at 24 per cent than they would have two years ago even with the CGT rate at 28 per cent.
For example:
Terry sells a property in 2022, realising a gain of £10,000.
He is a higher rate taxpayer so will pay 28 per cent on any chargeable gains.
He has a tax-free allowance of £12,300. Therefore, his gain attracts no CGT.
June on the other hand sells a property in April 2024, realising the same £10,000 gain.
As a higher rate taxpayer she will now pay 24 per cent on any chargeable gains.
She has a £3,000 tax free allowance, so attracts CGT on £7,000 of her gain. Therefore, her CGT bill is £1,680.
A tax cut of 4 per cent, results in a four-figure tax hike.
In fact, only property gains of more than £67,000 will attract less CGT after April 2024 than they would have two years ago. And even then, the benefit is marginal at best.
Overall, this Budget statement does nothing to address supply. There is no move to undo the messes created by s24 or the consequences of the SDLT levy. Nor is there any mention of committing to further uprating local housing allowance to keep up with inflation.
Frankly, it is little more than another missed opportunity.