On Wednesday 3rd March, UK chancellor Rishi Sunak announced his Spring UK budget. Set against the backdrop of the global pandemic, the budget was one of the most anticipated in living memory and appears to be strongly aimed at helping the country to recover from the economic turmoil of the past twelve months.
With eye catching tax changes and schemes aimed at getting home buyers moving, what could the announcements made in yesterday’s budget mean for investing in the UK?
Stamp Duty Holiday Extended
The suspension of stamp duty on the purchase of properties up to the value of £500,000 has been extended for a further 3 months up to the end of June. Additionally, the nil rate band will be set at £250,000 – twice the standard level of £125,000 up until the end of September.
Proving more time for those already in the process of buying, the extension will likely see the property market become busier as buyers and sellers alike take advantage of the tax break.
95% LTV Mortgages
The government confirmed reports that it will provide a guarantee of 95% loan to value mortgages designed to assist buyers with small deposits, and confirmed the lenders including Lloyds, Barclays HSBC and NatWest have all signed up to the new scheme.
The scheme could lower the cost of repayments for borrowers. For instance, if current 95 per cent LTV rates drop to 75 per cent rates to reflect the lower risk to the lender, it has the potential to bring down the monthly cost of repayments.
The scheme will be available for new mortgages up to 31 December 2022 and allow borrowers to fix their initial mortgage rate for at least five years.
Capital Gains Tax
Good news for many investors as a predicted hike in capital gains tax did not materialise. There had been predictions that the chancellor would raise the 20% rate to bring it in line with income taxes. However, the predictions did not become a reality, with Sunak announcing that CGT would be frozen until 2026.
The budget announced the first corporation tax rise in 47 years, changing the headline rate of corporation tax from 19% to 25% for company profits over £250,000 from April 2023. The treasury indicated that the tax increase will raise £47.8bn by April 2026.
Sunak said it was “fair and necessary to ask [businesses] to contribute to our recovery” in light of spending of more than £100bn on emergency support for companies during the coronavirus pandemic”.
Super deduction tax
Slightly sweetening the bitter bill of the corporation tax rise, the Chancellor announced a new “super-deduction” policy to encourage investment into the UK and boost recovery.
Under the scheme, companies investing in qualifying new plant and machinery assets will benefit from a 130% first year capital allowance. Investing companies will also benefit from a 50 per cent first-year allowance for qualifying special rate (including long life) assets, the Treasury said.
This upfront super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest.
While, just like the rest of the world, the UK economy has been hit hard by the effects of Covid19, the plans on the whole seem to bring some positivity for growth in both the UK housing market and investment into the country.