Budget preview: Government’s revenue-raising measures could impact PRS

The property industry will be hoping to receive clarity on outstanding issues such as the stamp duty holiday, Capital Gains Tax (CGT) and rent grants in the upcoming Budget, set to be delivered by Chancellor Rishi Sunak on March 3.

The Budget will undoubtedly focus on the government’s response to the ongoing COVID-19 pandemic and it is thought the property market could be targeted as a means to raise funds to close the deficit.

However, cautions rental payment provider PayProp, any new fundraising measures should be justified in terms of its impact on future property market activity.

Stamp duty holiday extension could benefit landlords

In recent weeks, there has been strong speculation that the government is considering extending the stamp duty holiday by six weeks, or allowing those sellers who have already exchanged ownership by March 31 to benefit from the stamp duty savings.

Despite calls from the industry for a longer extension and a petition which received well over 100,000 signatures, the government has previously stated that the stamp duty holiday was always intended to be a temporary measure.

“A short extension to the stamp duty holiday could help investors with transactions already in the pipeline to benefit from a significantly lower tax bill. However, merely moving the cliff-edge back by six weeks means thousands of purchasers could still miss out,” says Neil Cobbold, Chief Sales Officer at PayProp.

“Understandably, the Treasury will be keen to return the previous stamp duty threshold to raise revenue to fill the spending gap created by the pandemic, but reimposing the full rate of tax would discourage sales.”

“Bear in mind stamp duty revenue will increase further in April when an additional 2% surcharge is introduced for overseas property purchasers,” he says.

Cobbold adds that although some investors may miss out on stamp duty holiday savings when the deadline passes, the new surcharge on overseas investors could reduce competition and make it easier for domestic landlords to expand their portfolios.

Agents must be ready for Capital Gains Tax rises

It has also been speculated that the government could introduce a rise in Capital Gains Tax rates and lower the number of exemptions.

This follows a report published by the Office for Tax Simplification late last year which suggested higher CGT rates could net the Treasury an additional £14 billion each year.

“Increasing CGT rates is seen as an easy way for the government to increase revenue as it’s a tax paid by relatively few people. However, it affects landlords selling properties and would have a more pronounced impact on our sector than many others,” Cobbold explains.

“If changes to CGT are introduced, the government must take into account the additional burden that could place on the rental market, including the potential to discourage investment and reduce the supply of available housing.”

“There were also significant changes to the CGT system introduced in April last year, so it remains an issue all landlords will be considering carefully when deciding the future of their portfolios.”

Could rent grants for tenants be introduced?

The lettings sector will also be waiting to see if the Chancellor announces a support package for tenants, helping them to pay off arrears built up since the start of the pandemic.

Similar measures have already been introduced in Scotland and Wales, while there is strong cross-industry backing for a support package from bodies such as Propertymark and the National Residential Landlords Association, as well as housing organisations Shelter and Citizens Advice.

“If it isn’t extended again, the end of the furlough scheme in April could cause rent arrears to worsen, impacting landlords’ finances and letting agencies’ management fees,” says Cobbold.

“Throughout the pandemic, letting agents have helped landlords to manage arrears effectively by communicating with tenants and organising affordable repayment plans, but direct support from the government could ease the pressure on all parties and reduce the need for evictions once the ban is lifted,” he concludes.