How will the Mini Budget Impact the UK Property Market?

Stamp duty changes, new investment zones and a declining pound. We summarise the UK Chancellor's mini budget announced last week and outline the impact it is likely to have on the UK property market.

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On 23rd September 2022, UK chancellor Kwasi Kwarteng announced a raft of cuts and changes to UK taxes (including income tax, corporation tax and stamp duty) which may have a significant effect on the direction of the UK property market. But what was in the “mini budget”, and how may it impact house sales in the UK?

Changes to stamp duty

The threshold at which stamp duty land tax (SDLT) is paid has increased from £125,000 to £250,000, while the threshold for first-time buyers to pay the tax has increased from £300,000 to £425,000. The maximum amount that a first-time buyer can pay while remaining eligible for first-time buyer’s relief has increased to £625,000.

For those purchasing a home for the first time in London and the Southeast, the changes could mean a saving of as much as £11,250. Non-first-time buyers purchasing a house for £312,000—the average price of a home according to the Land Registry—would save around £2500 in stamp duty fees.

While rising interest rates combined with the increasing cost of living have started to impact the property market, it’s still very much the case that these changes to stamp duty will be welcome news to those at the lower end of the market alongside first-time buyers.

It’s important to bear in mind that these rules apply to England and Northern Ireland only; the measures are different in Scotland and Wales.

Income tax and national insurance

The “additional” rate of income tax of 45% for those earning over £150,000 will be scrapped, meaning that the highest rate of tax will be 40% no matter what an individual’s income level is.

Updated 04/10: the government has u-turned plans to scrap the 45% income tax bracket, saying it was “a massive distraction on what was a strong package”.

In addition, the basic rate of income tax will be cut from 20% to 19% in April 2023, 12 months earlier than planned, with 31 million people getting on average an additional £170 per year.

Additionally, the 1.25% increase in National Insurance payments has been reversed.

However, the savings very much seem to be top down, potentially making little impact on most property transactions.

Corporation tax

The mini budget also scrapped the planned rise in corporation tax, which would have increased to 25%. Instead, corporation tax will remain at 19%.

For landlords who own property via limited companies, this is good news with potential savings. The increase in dividend rates has also been scrapped. In April, dividend rates for self-employed directors had increased by 1.25% to 8.75% for basic rate income taxpayers, and to 33.75% for higher rate taxpayers.

New Investment Zones

One of the interesting things to come out of the mini budget was the introduction of new investment zones, where businesses with be offered tax breaks.

In addition to lower taxes for businesses in these zones, there may also be lower personal tax for those living or working in these locations.

While these areas are still to be confirmed, they are likely to attract both jobs and property price growth (which comes alongside economic development).

Market reacts to tax cuts and pound plummets

The Chancellor’s mini budget has led to a spike in concerns for the UK’s public finances. Subsequently, many woke up on Monday to find that the pound had plummeted to a new all-time low. Losing 4.7%, the sterling was trading at $1.035 in the early hours of the morning—which is the lowest it has ever been against the dollar.

The Sterling also dropped by 3.7% against the euro on Monday to €1.0787.

Though worsening inflationary pressures and the cost of living crisis, a low pound is likely to attract foreign investment. As the pound nears parity with the dollar and the euro, it presents an unmissable buying opportunity for those throughout Europe and the US, who can now get more for their money in the UK. We’re likely to see an increasing number of foreign buyers turning their attention to UK property in the coming months.

Contact us today to discover available UK properties.