George Osborne delivered his (now infamous) 2016 Budget a few weeks ago. Overshadowed by the all the on-off changes to disability benefits, were some changes that will affect both homeowners and buy-to-let investors throughout the year.
Among these were amendments to both stamp duty and capital gains tax, while changes to ISA allowances are designed to help first-time buyers onto the property ladder.
So what exactly do these changes entail, and when will they come into effect?
Key changes for property owners
The Chancellor confirmed that a 3% stamp duty surcharge will come into effect on April 1st 2016, and will apply to the purchase of second homes and buy-to-let properties.
Osborne had previously discussed his plans to levy additional taxes on properties not intended for use as a primary residence, and he confirmed this surcharge despite pushback from landlords.
While Capital Gains Tax (CGT) rates were cut, these cuts are not applicable to gains made on residential property. This means that as of April 6, 2016, CGT for higher rate taxpayers will be lowered from 28 per cent to 20 per cent, and basic rate taxpayers can enjoy a lower rate of 10 per cent down from 18 per cent. However, sales of residential property will be unaffected and will therefore be taxed at current rates.
While buy-to-let landlords may not have welcomed the budget with open arms, the UK’s first-time buyers finally received some good news. The Chancellor announced a Lifetime ISA for those who are under the age of 40 in April 2017. This enables account holders to save up to £4,000 a year, and the government will contribute a 25 per cent bonus (up to £1,000) on these savings at the close of the tax year.
Tax dodgers penalized
In what many are considering a positive move, Osborne also announced new legislation that will penalize offshore property developers who are not currently paying taxes.
With the new Finance Bill in place, any developers building property in Britain must pay UK tax on the profits. The Treasury believes this crackdown will garner £2.28 billion in taxes by 2020. A specially set-up HMRC division will be tasked with identifying and collecting from offshore developers who are currently evading tax payments in the UK.
Chris Hounsome, partner at Mansell McTaggart in Crawley, said that "while buyers of second or investment property will be disappointed to have to pay the higher stamp duty, the higher tax bills will be absorbed by the fast-rising prices in the area”.