The new chancellor, Kwasi Kwarteng, has announced several tax changes including a stamp duty cut and corporation tax freeze, in the emergency mini-Budget, in response to the cost of living crisis, setting an ambitious target for 2.5% trend of growth.

Stamp Duty 

One of the policies of Kwarteng’s mini-Budget is a permanent reduction in stamp duty for people buying properties.

What is changing?

• There will be no stamp duty paid on the first £250,000 of a property purchase, up from £125,000
• First-time buyers will only pay stamp duty on properties over £425,000, up from £300,000
• Buyers of second properties, including buy-to-let landlords, will still have to pay a three per cent stamp duty surcharge.

Today’s reduction is similar to the stamp duty holiday between March 2020 and September 2021 that was introduced due to the pandemic.

The policy is part of the new government’s plan to ‘drive economic growth’ and aims to stimulate the housing market.

It’s likely to lead to higher demand for property, while supply may also increase if an active market encourages more people to sell.

Landlords looking to expand their portfolios could benefit from a greater choice of properties, however higher competition between buyers could push up prices.

Meanwhile, landlords looking to sell could be able to complete deals quicker and for a higher price.

Will it lead to higher house prices?

As with the stamp duty holiday, there’s concern that today’s tax cut could artificially inflate prices.

According to the Office for National Statistics, average house prices in the UK increased by 15.5 per cent in the year to July 2022.

The average price of a UK property was £292,118 in July, up from £230,332 in February 2020 before the Covid-19 pandemic and the stamp duty holiday.

Higher property prices could cancel out any stamp duty savings and lead to higher mortgage repayments at a time when interest rates and inflation continue to rise.

Impact on Limited company landlords 

Kwarteng announced that the corporation tax rate will be frozen at 19 per cent.

This will be welcome news for landlords who own their properties through limited companies as they won’t be hit with a higher tax bill.

And now that the new government has scrapped the planned corporation tax rise, it could encourage more landlords to incorporate.

What does the reversal of the National Insurance rise mean for landlords?

National Insurance tax has been cut by 1.25 per cent. This is a reversal of the 1.25 per cent rise introduced in April 2022 and will come into effect from 6 November.

Before today’s emergency Budget, National Insurance was set to return to its old rate next April to coincide with a new ‘Health and Social Care Levy’ at 1.25 per cent. However, this has also been scrapped.

This policy is a major part of Liz Truss’s plan to lower taxes to stimulate economic growth.

The return to lower National Insurance rates will see landlords pay less tax, with those who earn the most getting the biggest benefit.

The Treasury estimates that the reversal of the National Insurance rise will give back £330 a year to 28 million people across the UK.

Income tax cut brought forward

An income tax cut of one per cent, first pledged by Rishi Sunak in March, has been brought forward from 2024.

The tax cut, which will come into force from April 2023, means people will pay 19p (down from 20p) to the pound on everything they earn between £12,571 and £50,270.

The government previously estimated the tax cut to be worth £5 billion and it’s the first time the basic rate has been reduced since 2008-09.

At the same time, the government will also scrap the 45 per cent tax band for people who earn more than £150,000 a year. This means anyone who earns over £50,271 a year will pay 40p to the pound in income tax.

Again, this means landlords will benefit from lower tax bills.

Will there be another Budget this year?

Today’s announcement was called in response to a new government being formed and to address the cost of living crisis.

It wasn’t accompanied by analysis from the Office for Budget Responsibility, which means the government isn’t treating it as a full Budget.

Each year, the government is required to make two fiscal statements. In March, Rishi Sunak delivered a Spring Statement and it’s likely that there’ll be a full Budget before the end of 2022.

Landlords can expect more details on the Treasury’s long-term spending and tax plans, plus there may be an update on long-awaited rental market reforms.

If you are looking for advice or are looking to purchase a property in the UK. do get in touch as we can help advise you.

We’re experts in both residential and commercial real estate, and will work with you personally to ensure your investments are worthwhile and serving your best interests.