What will the 2021 Budget Impact Be On UK Property Investment?

 

Are you wondering about the UK 2021 budget impact on property investment?

A couple of weeks ago the UK Chancellor announced the UK budget for 2021. As usual it is a mixed bag for property investors.

I will give you my opinion on the various initiatives introduced in the budget and what I believe will be the impact for UK property investors. As an experienced property investor, I have been through several budgets over the years and in many cases had to make adjustments to my strategy after this to keep profit levels where I wanted them.

You need to decide what adjustments you need to make after this budget (if any). Please remember that this is just my opinion. I do have a lot of experience in the property market but I do not have a crystal ball. Only time will tell what the UK 2021 budget impact on property investment will really be.

Some of the initiatives in this budget I expected and some were a surprise. I will go through all of these and explain my reasoning. One thing to bear in mind is that the government will not want a property crash.

The property prices in the UK create a “feel-good” factor for the economy. If house prices are rising or at least stable then this is a powerful indicator that things are heading in the right direction. This is good news for those of us in the property investment game.

Extension of the Stamp Duty Holiday

This was something that I and a lot of other property investors were expecting. The current stamp duty holiday was due to end on 31 March 2021. They have extended this until 30 June 2021.

The reason for this extension is obvious – the government want to see more property transactions in 2021 and not less. There has been a lot of doom and gloom predictions recently from “experts” who said that they saw a property crash coming as soon as the stamp duty holiday ends on 31 March.

I didn’t share this point of view completely but I was concerned that there could be a fall in house prices to some degree. Not only have the government extended the current stamp duty holiday scheme for another 3 months, they have introduced a new stamp duty cap on properties valued at £250,000 or less.

This new cap will last until 30 September 2021 and is more good news for the housing market. The threshold is clearly aimed at the lower end of the market where there are the most transactions. If we still have an economic problem due the coronavirus or the effects of Brexit then I can see this being extended further until the end of 2021.

UK 2021 Budget Impact On Property Investment – The Mortgage Guarantee Scheme

At the moment, we have a rental dominated housing market and the government wants to change this to a homeowner market just as Margaret Thatcher did back in the 1970s. They want to make it a lot easier for first time buyers to obtain their first property.

The 95% mortgage initiative in the last budget was only available for first time buyers who were prepared to purchase a new-build home. This did not work very well at all. So now they have widened the 95% mortgage scheme for all types of property.

How does this impact property investors? Well, if you want to sell properties to first time buyers and existing home owners for £600,000 or less you now have a better chance of doing this under the new expanded scheme. Even if you are not in this market, the knock-on effect from this should be a significant increase in transactions which will increase house prices overall.

The government stated that all of the major lenders have provided their support to the new expanded 95% mortgage scheme. It is unlikely to benefit you directly as a property investor, but if it increases the level of property transactions in 2021 then this will benefit you indirectly through a rise in house prices.

No Changes in Capital Gains Tax (CGT)

Quite a few of the experts were predicting increases to CGT but this did not happen. My opinion here is that this is going to happen next year because the government needs every bit of tax revenue that they can get to pay back the massive debt that they now have due to supporting the country through the Covid-19 pandemic.

So, if you have a number of properties listed to you as an individual you have time to make changes here to avoid paying a hike in CGT which is sure to come. You could consider forming a limited company for your properties for example. But you need to be aware that there are corporation tax changes in this budget so you need good advice here.

Corporation Tax Changes

The Chancellor announced that Corporation Tax will rise to 25% in April 2023. Any companies that make a profit of less than £50k will still pay the current 19% rate. There will then be a tapering from £50k to £250k in terms of the rate of corporation tax you will need to pay.

Only companies making more than £250k profit will have to pay the highest 25% rate. Before your mind starts racing here, it is unlikely that you will be able to split existing companies into more companies to avoid paying higher rates.

The government did not actually announce that they would total up all the profits from all of your companies to calculate your rate of corporation tax but I know that they will do this. They have to claw back the money they have borrowed for Covid-19 and increased taxes are the only way that they can do this.

Many property investors have placed their buy to let portfolios under limited companies because it made good sense to do this. You will need to assess your situation in light of the new changes to corporation tax. It will probably still be better to keep your portfolio under a limited company rather than in your name.

Helping the Economy

Although the UK Covid-19 vaccination program has got off to a good start, it is going to take a while to cover everyone and to return to the “new normal” (whatever that will be). The government had to spend more money to prop up employment and the economy so they introduced the following in the 2021 budget:

  • The existing furlough scheme will extend to October 2021
  • A new recovery loan scheme is available to all businesses with loan amounts from £25k to £10 million
  • There is a new “apprentice scheme” where the government will provide a £3,000 incentive to businesses to hire with no age limits. This is better than the previous Kickstart Scheme where businesses needed to employ 30 people in one go to receive an incentive
  • The 100% business rates holiday is extended until the end of June. It will continue with a “two thirds off” of business rates until the end of 2021
  • If you made a loss in this tax year due to the pandemic then you can carry back losses of up to £2 million over the last 3 years which will help with cash flow for businesses that are recovering now
  • There is a super reduction to encourage business owners to invest their cash back into their businesses – more details will follow about what is applicable, but you will be able to claim back 130% against your taxes
  • New “help to grow” initiative for training business owners and directors
  • Freeports making a return to help businesses with trade (these were not permitted under EU law)

The government needs to do everything it can to help support employment and increase spending. These are a good set of initiatives in my opinion. They should have a positive impact on the UK housing market.

Conclusion

I believe that the UK 2021 budget impact on property investment will be mostly a positive one. With the extended stamp duty holiday, you need to take a look at your property investment goals for 2021 to see if you can speed things up to derive the maximum benefit from this.

It is clear that the government wants to protect the housing market. One reason for this is because it is closely tied with the economy and if house prices are rising then the signs are good. Another reason is that they will claw a lot of revenue from an increase in property transactions.

UK 2021 budget impact on property investment

I am optimistic about the future of property investment in the UK and I encourage you to be as well. Once the current lockdown ends, I can see a sharp rise in property transactions and a hike in house prices again.

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