After a succession of raids on the residential sector in recent fiscal policy announcements, the Budget on March 16th was as significant for what it didn’t do for property, as for what it did. Probably the biggest disappointment to the investment community was that the Chancellor did not do anything to smooth the path for the institutional rental sector. We have summarised some of the key outcomes below.
Key budget announcements:
- Additional homes stamp duty confirmed and extended to all investors.
- Capital Gains Tax (CGT) cut from 28% to 20%, and from 18% to 10% but it will not apply to residential property where CGT remains at 28% or 18%.
- Confirmation of £1.2 billion fund for brownfield land development, with the aim to build 30,000 “Starter Homes” and 30,000 market-rate homes.
- £300 million to develop the North’s rail network, particularly High Speed 3 between Leeds and Manchester.
- £80 million to begin development work on Crossrail 2 in London.
- The Office for Budget Responsibility (OBR) forecasts UK GDP growth of 2.0% this year, and 2.2% in 2017. CPI inflation is expected to reach 2.0% (the Bank of England’s target) in 2018.
- Corporation tax will fall to 17% by 2020, from 20% today, meaning that the UK could have the lowest corporation tax of all the G20 nations.
- 100% relief on business rates for rateable values of up to £12,000, and tapered relief between £12,000 and £15,000.
At a time when the prime London market is already experiencing low sale volumes and downward pressure on prices, the downbeat assessment for the UK economy only added to the uncertainty that is making prospective buyers cautious.
The Chancellor’s key response to lower growth was to impose further public spending cuts and where he did offer help; it was aimed primarily at small businesses, first time homebuyers and northern city economies. Property was singled out to be exempt from the reductions in the rate of Capital Gains Tax. The 3% stamp duty on additional home purchases was confirmed and extended to include large investors - but at least there were no new tax surcharges for the sector.
There was some positive news for London as a whole. The Chancellor allocated £80 million (to be matched by Transport for London) to progress plans for Crossrail 2, with the stated aim of depositing a Bill within this parliament. Crossrail 2, which will connect places in southwest London and Surrey with northeast London and Hertfordshire via central London, could be running by 2033.
The other key announcement for London was that the GLA would be given devolved powers to retain revenue from business rates. This will inevitably increase the motivation to grant planning consent for commercial space and could have some implications for the extent to which small, rates-exempt businesses will be welcomed.
For the wider southeast, the Chancellor signaled his support for economic development in a corridor from Oxford, through Milton Keynes to Cambridge, asking the National Infrastructure Commission to report on how best to maximise the potential of the area through infrastructure investment.