Autumn Statement – What Does it Mean for Landlords?
Published on November 30, 2022 by Sarah Mac
This month’s Autumn Statement focused on the government’s plans to stabilise the economy.
The chancellor, Jeremy Hunt, announced an estimated £30 billion in spending cuts and £24 billion in tax rises with a view to lessening the effects of the recession. He began his speech by outlining the government’s priorities for the statement, which were ‘Stability, growth and public services’, adding that protecting the vulnerable was also important.
But amidst the tax rises and spending cuts, could there be doors opening for property investment? Here’s how the Autumn Statement 2022 could affect buy-to-let landlords and the rental market.
Capital Gains Tax
The widely anticipated reduction to the tax-free allowance for Capital Gains Tax (CGT) finally became a reality, with the level being reduced from £12,300 to £6,000 from April 2023, and to £3,000 from April 2024.
This means that landlords will have to pay more tax on profits made when selling buy-to-let properties.
CGT is charged at 28% on residential property, compared to 20% on other assets. Despite fears that these rates would be increased, no such announcement was made, possibly because an increase may have prompted a huge selling-off of rental properties.
Research shows that almost 50% of landlords have sold a property in the past year, or are planning to do so in the near future. Changes to the CGT threshold could lead to more landlords holding on to their properties, which may balance rental demand and supply.
Stamp Duty
The indefinite Stamp Duty cut announced in September will end on 31 March 2025.
This means that buyers will continue to benefit from a Stamp Duty exemption on the first £250,000 of a property purchase for over two years. The threshold will then return to £125,000.
Buy-to-let landlords seeking to expand their portfolios will still have the 3% Stamp Duty surcharge to pay.
The Treasury believes that time-limiting the Stamp Duty cuts will help to “strengthen public finances”, whilst protecting the businesses and jobs that depend on the housing market short term.
Income tax
Although income tax rates haven’t increased, freezes on tax thresholds will mean a “substantial tax increase” for many people.
The threshold for income tax (£12,570) will be frozen for a further two years until April 2028. The main National Insurance and Inheritance Tax thresholds have also been frozen until 2028.
The business of freezing thresholds is known as a ‘stealth tax’. This is because, whilst the rate at which people pay tax remains the same, they end up having to pay more tax as income and property prices increase.
In terms of higher earners, those with incomes over £125,140 will now pay 45%, whereas before the threshold was £150,000. Around 250,000 taxpayers will be affected by this change, which will cost around £580 per year. Of those that already pay the additional rate, over 600,000 could see their tax bill increase by over £1,200.
Renters
In terms of the stability of renters’ income, there is good news in terms of the energy price guarantee having been extended to April 2024. However, households will see their energy bills rise again in April 2023 as the price cap goes up from £2,500 to £3,000 for an average household.
To help people’s income keep up with inflation, the National Living Wage will be rising by 9.7% next year, and pensions and benefits will be rising by 10.1%. The pension triple lock will also stay in place.
Unemployment is, however, forecast to rise from 3.6% to 4.9% in 2024, before falling to 4.1%. Job losses may affect some tenants’ ability to cover rental payments, which is always a worry for landlords.
However, to ease difficult times for employers, the government will freeze National Insurance Contributions thresholds, and will also offer a business rates support package. What’s more, VAT won’t be raised. It is hoped that this measure means fewer people will end up unemployed.
Are there opportunities ahead?
Whilst the Autumn Statement has brought with it a number of difficult compromises, it could potentially open up opportunities for the real estate sector.
Firstly, as government departments face heightened financial pressure, there will be an added incentive to release assets or sites for sale or redevelopment.
Secondly, with the state unable to fund the entire infrastructure needed for the development of the economy and society, there will be a growing opportunity for the private sector to step in, should it so desire.