UK Budget 2021: a good news for home buyers
Rishi Sunak, UK Chancellor of the Exchequer, delivered his new Budget on Wednesday 3 March 2021. The Budget sets out the distributional impact on households of tax, welfare and public service spending decisions. On a wider economic context, there is also focus on trends in employment, earnings and household incomes – including the impacts of COVID-19.
“There are many welcome announcements within this Budget,” said Nick Whitten, Head of UK Living Research at JLL.
Major policies related to real estate market:
Extended Stamp Duty Holiday
Responding to calls from the industry and to prevent over a third of the deals from falling through, Sunak has extended the Stamp Duty Holiday. No tax will be levied on the first £500,000 of property purchases in England and Northern Ireland until 30 June 2021. To assist a smooth transition, the threshold will be reduced to £250,000 from July to September 2021. For completions after 1 October 2021, stamp duty will return to the usual level of £125,000.
Overall, JLL believes that the stamp duty holiday provided a much-needed confidence boost to the housing market. The extension will provide welcome relief to purchasers on the edge of the original deadline and open the door to additional buyers, where the clock is now effectively ticking.
According to statistics, it has taken an average of 54 days to sell a home since the stamp duty holiday was introduced in July 2020, down from an average of 70 days 12 months prior. Assuming the average time to sell a home remains at the current level, aspiring buyers have until 7th May to begin a purchase to take advantage of the full holiday extension.
2% Overseas Stamp Duty Surplus
With reference to last year’s budget, it has been confirmed that a 2% overseas stamp duty surplus for purchasers of residential property in England and Northern Ireland who are not resident in the United Kingdom. The measure will apply to land transactions with an effective date of 1 April 2021 or later.
From our perspective, this tax represents a big shift in UK Government policy away from an open trade policy – until now there has never been a consideration of an investor’s origin if they are looking to buy an investment home.
Undoubtedly, JLL recognises that this tax will create initial market resistance until it becomes accepted. However, it should be noted that many other competing cities already provide higher levels of overseas taxation; so, UK’s major cities should remain competitive on the international stage.
Increase in Corporation Tax
Corporation tax on company profits above £250,000 is set to rise from 19% to 25% in April 2023. The 19% corporation tax rate is retained for those companies with small profits under £50,000. The tax rate for profits between £50,000 and £250,000 will be taxed at a rate between 19% to 25%, depending on the government’s relief.
Therefore, JLL envisions that this will affect all companies that own a portfolio of UK commercial and residential property.
Overall Budget Conclusion
The underlying message from the budget was that the outlook for economic growth is better than anticipated. There are various supports for the vaccination rollout, businesses, arts and sports to resume. GDP will reach its pre-pandemic level six months earlier than expected, while unemployment is expected to peak at 6.5%, rather than the initially anticipated 11.9% in June 2020.
The Budget’s stamp duty and mortgage measures may create a ‘generation buy’; however, to suit a greater variety of end user needs, renting as an aspirational lifestyle choice will still be apparent.
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