Bloomberg Tax
March 18, 2021, 7:00 AM

What Does the U.K. Budget Mean for Property Investors?

Alpa  Bhakta
Alpa Bhakta
Butterfield Mortgages Limited

On March 3, U.K. Chancellor of the Exchequer Rishi Sunak delivered the 2021 Spring Budget. While this may have been only his second budget as Chancellor, Rishi Sunak has been making regular announcements—an unprecedented number, we are told—throughout the pandemic to support businesses, consumers and communities adversely affected by Covid-19.

Perhaps the most noteworthy of these updates was the summer economic update on July 8, 2020. Then, a number of temporary relief measures were brought forward to stimulate investment activity. This included the introduction of a temporary Stamp Duty Land Tax (SDLT) holiday for domestic and international buyers of property in England and Northern Ireland. I have previously written about the holiday here.

The Spring Budget offered an ideal opportunity for the government to revisit many of the short-term financial support schemes it had introduced over the previous 12 months and explain how it will help the country address the challenges posed by Covid-19. From unemployment, to government borrowing and mounting public debt, overcoming the financial complications posed by the coronavirus pandemic will take years, not months. The Chancellor was keen to stress this point: he delivered a budget that provided further immediate support as the U.K. transitions out of lockdown, while promoting consumer spending and investment activity, but also citing longer-term plans to cut borrowing and raise taxes.

Among the many policies announced, it was particularly interesting to see the government focus on the U.K. property market as a key pillar of its recovery strategy.

Stamp Duty Holiday Extended

The most prominent reform in property to come from the budget was the extension of the SDLT holiday. Originally due to expire on March 30, the holiday will now remain in place until June 30, 2021.

What’s more, the conditions of the holiday remain the same—all property transactions taking place in England and Northern Ireland will remain exempt from paying the tax on the first 500,000 pounds ($695,000) of a purchase. This relief is available to both domestic and non-U.K. residents.

Since its introduction, the SDLT holiday has been a notable success. This is reflected by the rise in house prices; an indicator of capital growth and, more generally, market demand. According to the Office for National Statistics Releases, average U.K. property prices grew by 20,000 pounds to reach 252,000 pounds at the close of 2020. This represents an 8.5% increase on pre-pandemic prices recorded in 2019.

The Chancellor also announced that the holiday will not come to an abrupt end, as some had initially feared. Instead, from July 1, 2021, the nil rate band for SDLT will stand at 250,000 pounds, before finally returning to the standard level of 125,000 pounds on October 1, 2021.

It is hoped that by extending this relief, house price growth and transaction levels will consistently rise. These reforms provide the ideal conditions for investors seeking new property investment opportunities.

International Buyer Surcharge Remains in Place

However, while the holiday does extend to non-U.K. residents, any prospective international buyer will be subject to a new SDLT surcharge from the beginning of April 2021.

In last year’s budget, the government confirmed that a 2% SDLT surcharge would be introduced in April 2021 for overseas buyers of property in England and Northern Ireland. At the time, it indicated the Conservative Party was acting on promises it had made during the 2019 General Election campaign; namely, the policy would ensure U.K. residents are better positioned to purchase properties by deterring non-U.K. residents from the market.

Of course, the circumstances surrounding this initial announcement have changed. The government has in fact been encouraging international injections of capital by allowing non-U.K. residents to benefit from the SDLT holiday. As such, there were rumors the SDLT surcharge for overseas buyers would be delayed until 2022 once the country had effectively transitioned out of lockdown.

Ultimately, this has proven not to be the case. The 2021 Spring Budget confirmed that the surcharge will be coming into force from April 1. The surcharge will apply to transactions involving freehold and leasehold properties, and also increase the total SDLT payable on rents on the grant of a new lease. Finally, the surcharge will also apply to U.K. resident companies controlled by non-U.K. residents. Further details can be found here.

Frozen Tax Thresholds

In the lead-up to the 2021 Spring Budget, one of the rumored reforms was the potential doubling of the capital gains tax (CGT) threshold. At the moment, CGT is applicable to those who are selling a property that is not their primary residence. The tax is calculated by subtracting the sale value from the original purchase value. CGT is charged at the rate of 28% when total taxable gains are above the basic tax rate band: if not, the rate stands at 18%.

It was reported that the Chancellor would be cutting exemptions and doubling rates. This turned out not to be the case, which means that those who own buy-to-let properties or multiple homes in the U.K. will not face additional taxation when selling a non-primary residency. The decision not to double CGT makes sense, as it is the aim of the government to ensure a liquid real estate market is maintained. What’s more, Rishi Sunak has stated that current CGT thresholds will remain in place until 2026. At this time, we could see a potential tax hike.

Reopening the Property Market

The extension of the SDLT holiday and decision to freeze the CGT threshold for the next five years is a positive sign for the property market. Combined, the policies help ensure more buyers and sellers are able to take advantage of the strong house price growth and transactional activity we have been witnessing over the past eight months.

The government does not want to damage this positive momentum, which is why the budget was generally warmly received. Of course, this does not mean the challenges posed by Covid-19 have been overcome—in reality, the reforms announced by the Chancellor could change if the country’s transition out of lockdown does not go to plan.

Nonetheless, I believe there is good reason to be optimistic. Should lockdown restrictions be effectively lifted as per the roadmap provided, and new cases remain low, we could see an ongoing injection of capital into the property market. While there is plenty of uncertainty to contend with, the coming spring and summer could prove busy periods for buyers and sellers alike.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

The opinions expressed herein are those of the author and do not necessarily reflect those of the Butterfield Group.

Alpa Bhakta is the CEO of Butterfield Mortgages Limited, part of the Butterfield Group and a subsidiary of The Bank of N.T. Butterfield & Son Limited. Butterfield Mortgages Limited is a London-based prime property mortgage provider with a particular focus on the needs of U.K. and international HNWIs.

The author can be contacted at:

Butterfield Mortgages Limited is authorized and regulated by the Financial Conduct Authority (Financial Services Register Number: 119274). Registered office: Sun Court, 66-67 Cornhill, London, EC3V 3NB. Registered in England No. 338594.

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