The latest Budget – Rishi Sunak’s first as Chancellor following his dramatic promotion – is set to take place on Wednesday (11 March).
Government departments often joust for funding and spending pledges before the Budget, the biggest fiscal event of the year, and this year has been no different. Sunak is expected to announce a significant amount of money for public spending, to aid the government’s plans to level up the country, but he is also now anticipated to outline measures designed to protect the economy against coronavirus.
The new Chancellor, who replaced Sajid Javid in the recent government reshuffle having previously been his de facto second in command at the Treasury, is set to scrap a £3 billion tax break for businesses – known as entrepreneurs relief – in order to boost infrastructure spending across the country.
The North and the Midlands, in particular, will be targeted as Boris Johnson and his government look to shore up the votes they unexpectedly received at the last general election, when Labour’s so-called red wall was smashed apart.
But as well as greater infrastructure spending, Sunak will come under pressure – as all Chancellors do – to reform stamp duty, increase housebuilding and support the property industry at large.
Here, we zone in on some of the predictions and wishes of the property market ahead of Wednesday’s main event.
‘Stamp duty changes a quick win’
Henry Verrill, head of valuations at estate agent Nested, says changes to stamp duty land tax would be a quick win for the Prime Minister and would help to continue the much-talked about ‘Boris bounce’.
“It is quite possible that the Chancellor will cut the rates of stamp duty to help boost the housing market - perhaps at the lower end to help first-time buyers,” he said. “This has regularly been cited by industry professionals as one of the main obstacles holding the market back, but we expect that foreign nationals and second home owners will continue to be penalised as part of Boris’s pitch to level up.”
When it comes to increasing the supply of new homes, Verrill says Nested expects to see some technical measures to release land for housebuilding and ‘to help local authorities and housing associations fund more building schemes’.
“This could form a part of the expected major infrastructure project package to be announced,” Verrill added. “Boris likes to build things – this was a key focus in his time as Mayor of London.”
Verrill also expects some further incentives for buyers. “The Queen’s Speech announced that the government would ‘take steps to support homeownership, including by making homes available at a discount for local first-time buyers’. The Conservatives have pledged to give at least a 30% discount to this group of aspiring homeowners. Detail on this at the moment is scarce, but this might form part of a compelling giveaway for first-time buyers.”
‘The government should focus on solving the lack of supply’
Investment company Killik & Co believes the Chancellor – who at the age of just 39 is the second youngest to hold the position after George Osborne – will place a key focus on the government’s Queen’s Speech pledge to support greater homeownership, including its proposed discount homes scheme for local first-time buyers.
Tim Bennett, head of education at Killik & Co, believes this is the wrong thing to be concentrating on. “The government should focus on solving the lack of supply when it comes to suitable properties for first-time buyers, rather than introducing yet more measures (on top of schemes such as Help to Buy and Lifetime ISAs) that effectively only stimulate demand and therefore drive up prices.”
“Opinions are divided on what will be included in the Budget”
Jamie Gray, director at Portsmouth-based NEXA Properties, says as soon as the date for Rishi Sunak’s first budget was confirmed as March 11 2020, conjecture in the press began about what stamp duty changes he may disclose on Budget day. But he reckons it’s far from clear what will be in there, although it’s obvious what definitely won’t.
“Some are asking if Sunak will impose what was promised in the Conservative manifesto, with the 3% additional stamp duty surcharge on non-UK resident buyers. I have certainly heard in the estate agent community that foreign buyers are trying to rush through their sales in prime central London (Park Lane/Mayfair, etc) before March 11 to ensure they don’t get hit with a new tax,” Gray said.
“Or will he go even further, and will we see a reappearance of Boris Johnson’s hitherto specified aim of eliminating stamp duty below £500,000, consequently theoretically saving homebuyers many thousands of pounds?” Gray wonders.
He believes, however, that opinions are divided on what, if anything, will be included in the Budget.
“Most believe that the extra 3% for foreign nationals is an almost certainty, and if it isn’t implemented straightaway, it will be in the Autumn Statement. Many believe the Chancellor could also decide to repay the favour to those in the North who turned the election map ‘blue’ on the evening of December 12 with actions to enhance the housing market north of the M62 with stamp duty changes. The best way he could do that is to raise the threshold from the current £125,000.”
During Boris Johnson’s Tory leadership campaign back in May 2019, the now Prime Minister said he wanted to expand the threshold at which you begin paying stamp duty from £125,000 to £500,000.
“When you consider seven out of eight residential sales in 2019 were for homes below £500,000, that would have a considerable effect,” Gray continues. “If the stamp duty threshold had been raised to £500,000 in 2019, then 700,400 homebuyers in England would not have paid any stamp duty tax.”
That said, the cost to the Treasury would be significant. According to Savills, if all properties below £500,000 were exempt, the government would lose £2.22 billion in tax receipts.
“Of course, this could be made up with extra tax on empty properties or increasing the second homes stamp duty levy from the current 3% to say 5%, which would raise an additional £1.12 billion on top of the current £1.68 billion it raises for the Treasury,” Gray says. “Yet it would have a negative effect on buy-to-let landlords buying additional homes.”
What almost unquestionably won’t happen, Gray adds, is the earlier idea – mooted by Johnson and former Chancellor Javid in their respective leadership bids - of switching the stamp duty liability from homebuyer to home seller.
“This would stall the property market, would probably cause political fallout among 688,300 homebuyers who paid stamp duty last year alone and make homes ‘appear’ more expensive as house sellers would inflate the asking price to try and recoup some of the tax, yet ultimately could be seen as ‘re-arranging the deckchairs on the Titanic’.”
Gray believes the 3% additional surcharge for foreign buyers is almost certain, but a reluctance by the government to rock the boat and dampen the ‘Boris bounce’ seen since December should ensure that is the only significant change to stamp duty.
“I also doubt any changes will be made to first-time buyer stamp duty relief, as 22% of all property transactions in 2019 were to first-time buyers, and whilst it cost the Treasury (or saved the first-timer buyers) a total of £539 million in Stamp Duty relief (an average of £2,411 each), the government are keen for first-time buyers to get onto the housing ladder.”
Ultimately, he concludes, we can only wait until Sunak opens his red leather box on Wednesday to find out for sure.