Downing Street Boris Johnson

How is the property market expected to feature in the Spring Budget?

A few big announcements that will impact the property market are expected in the Spring Budget. Buyers, sellers and property professionals are awaiting a decision on the stamp duty holiday deadline.

Chancellor Rishi Sunak will deliver the annual Spring Budget on Wednesday 3 March just after midday. The Spring Statement, which is a mini-budget setting out the country’s financial situation and plans for the year ahead, will likely include some important announcements impacting the property market.

As the COVID-19 pandemic is putting a toll on public finances, many are expecting tax rises. There are rumours circulating about potential announcements about the stamp duty holiday, capital gains tax and other tax reform. Rishi Sunak will also likely announce proposals for financial support.

The Treasury has pledged: “The Budget will set out the next phase of the plan to tackle the virus and protect jobs and will be published alongside the latest forecasts from the Office for Budget Responsibility (OBR).”

Stamp duty holiday deadline

Many will be eagerly awaiting an announcement on the stamp duty holiday deadline during the Spring Budget. Announced in July, the stamp duty holiday has meant buyers haven’t had to pay any stamp duty on homes worth £500,000 or less. This applies to residential property. However, second home-buyers and buy-to-let investors have still had to pay 3% stamp duty.

This tax holiday has provided the opportunity for buyers to save up to £15,000. Since the announcement, the property market has been booming with a record volume of transactions. However, this has put mounting pressure on conveyancers, lenders and surveyors and has led to buyers and sellers facing significant delays.

The stamp duty holiday deadline is 31 March. Property buyers who were expecting to complete before then could face unexpected tax bills. This could also lead to a substantial number of property transactions falling through.

Rumours of a six-week extension

The Telegraph has recently reported that Rishi Sunak is considering a six-week extension to the stamp duty holiday to allow more time for existing deals to complete. The government has hinted they will make an official announcement on this during the Spring Statement.

According to Rightmove, a six-week extension through to the middle of May could benefit 120,000 to 160,000 transactions in England. If 160,000 make it through, this could save buyers £1bn in total. However, with a six-week extension, there will likely still be some buyers who will be unable to complete in time.

Tim Bannister, resident property data expert at Rightmove, explains: “We know the stamp duty holiday was intended as a temporary stimulus for the market, but the delays we’ve seen in the home-moving process have been through no fault of the buyers and sellers who agreed a sale last year and who are now desperately trying to get their deals over the line.

“The delays have been a result of the huge number trying to go through, along with the many challenges of the people involved in the process working from home. If there was a six week extension it should give the majority of the sales from last year the chance to complete in time.”

Capital gains tax reform

Property tax changes are also expected to be announced at the Spring Budget. Last summer, Rishi Sunak asked the Office for Tax Simplification (OTS) to assess whether the capital gains tax is fit for purpose. The OTS called for an increase to capital gains in line with income tax rates. A decrease in the annual allowance exempt from capital gains was also recommended.

The National Residential Landlords Association (NRLA) has said a rise in capital gains tax could freeze the rental market. Ben Beadle, chief executive of the NRLA, says: “Increasing Capital Gains Tax would reduce churn in the rental market undermining the flexibility it has always been good at providing.

If these changes to capital gains come into play, landlords and investors will need to adapt and change the way they do business. This may lead to buy-to-let landlords hanging on to property investments for longer. However, many landlords will likely focus on annual income instead of capital growth.

There is speculation that a hike in capital gains tax rates could take immediate effect. If it is phased in gradually, some landlords and investors may sell up before the changes come into effect. However, recent research by Barrows and Forrester revealed 57% of landlords plan to stick with their property investments no matter what happens with capital gains.

Other potential tax changes

Rishi Sunak will likely announce numerous different tax changes in the Spring Budget. This may include inheritance tax or income tax reform. There are rumours circulating about a one-off wealth tax as well. The Wealth Tax Commission proposed a tax for individuals with assets worth over £500,000, or £1m for a married couple.

There will likely be a range of announcements in the Spring Budget that will impact the property market. Many of the UK’s homebuyers, landlords, investors, sellers and property professionals are eagerly awaiting the announcement on 3 March.

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