The Chancellor, Rishi Sunak, announced the forthcoming Budget for the 2021-22 financial year on 3 March 2021. Within the Budget, the key focus was a three-point plan to fix public finances, build the future economy (which has shrunk by 10%, its biggest fall in 300 years) and protecting jobs and households.
To address these issues, the Chancellor has confirmed the following initiatives:
- An extension of the furlough scheme until 30 September 2021. Employees will continue to receive 80% of their salary. As the economy begins to reopen, employers will be expected to contribute 10% in July 2021 and 20% in August and September 2021.
- An extension of the self-employment income support scheme and greater access for the newly self-employed who have been exempt from support previously.
- An extension to the weekly £20 increase in universal credit for a further six months, which was welcomed by housing associations as an essential lifeline in paying rent and living expenses for those on the lowest incomes who have been affected by the Covid-19 pandemic.
- A £5bn restart grant to support businesses reopening after lockdown.
- A new loan scheme from the Treasury of between £25,000 – £10 million to replace the bounce back loan (BBL) and coronavirus business interruption loan scheme (CBILS).
- No rates payments for leisure and hospitality businesses for three months and then a reduction of two-thirds for the rest of the year.
- A 6-month extension to the 5% reduced rate of VAT for the hospitality and leisure sector, increased to 12.5% for the remaining six months of the year, before a return to the standard rate from April 2022.
- The introduction of a 130% super deduction on tax for company investments made in the next two years via a £25 billion investment from the Government, the biggest business tax cut in recent history.
Whilst the Budget includes freezes to fuel and alcohol duty, personal tax thresholds, the inheritance tax threshold, the pensions lifetime allowance, annual exempt allowance from capital gains tax and the VAT exemption threshold, the main talking point is the rise of corporation tax from 19% to 25%.
However, this will not take place until April 2023 (when the economy is expected to be in recovery) and will only impact businesses with a profit of over £50,000 on a tapered scale, which sees only those with a profit of more than £250,000 liable for the full 25% tax rate. Businesses making profits of less than £50,000 will remain on the current 19% corporation tax rate.
To support the whole of the UK more widely, a number of initiatives have also been introduced to see a more level playing field of investment and influence between the North and South, such as the launching of special economic zones known as freeports making business cheaper and easier, a new economic campus based in Darlington and funding of £1 billion for 45 new “town deals” across the UK. Low-carbon investment is also a focus.
But what of the property market? The Budget for 2021 included the following incentives to attempt to alleviate a potential decline for the sector in 2021 following the housing boom of 2020 which resulted from pent-up lockdown demand and the initial announcement of the stamp duty holiday in July 2020.
Stamp duty holiday extension
The anticipated extension of the stamp duty holiday to 30 June 2021 was confirmed by the Chancellor to ensure those homebuyers with existing transactions which are likely to exceed the original deadline of 31 March 2021 for the stamp duty holiday will not be unfairly penalised. The Budget also goes one step further and included a nil rate of stamp duty on properties up to a value of £250,000 until 30 September 2021, reverting to the pre-July 2020 rates of stamp duty with a nil rate on properties up to the value of £125,000 from 1 October 2021.
The 2% rate increase on stamp duty for buyers of residential properties in England and Northern Ireland who are not UK residents will also come into effect on 1 April 2021 as planned.
However, whilst many in the housing sector welcomed news of an extension to the stamp duty holiday, there have also been calls for much lower rates and even the abolition of stamp duty altogether.
A mortgage guarantee system to help home buyers access 95% mortgages
The Chancellor also confirmed the introduction of a mortgage guarantee system, allowing homeowners who can raise a 5% deposit to access a 95% mortgage as opposed to raising the usual 20%+ deposit which is generally requested by mortgage lenders. The Chancellor noted that Lloyds, Nat West, Santander and HSBC are already on board with the scheme and Virgin Money will be following suit in the near future.
Again, many have welcomed the news to support first time buyers and those on lower incomes for whom a large deposit makes purchasing a property unnecessarily prohibitive. However, others point to the inflation of house prices as a result of previous mortgage guarantee schemes – such as the Help to Buy scheme which finished in 2016 – and called for a simultaneous focus on the housing supply and reform of planning when it comes to the housing sector as a means to getting more people onto the property ladder.
As for the longer-term economic recovery and its resultant impact on the housing market, with a consultation on the future of property taxes expected in the near future and the prospect of further tax rises likely to be discussed in the Autumn Budget statement, the impact of our economic recovery on the property market is likely to be fluid for many months and years to come.