After weeks of rumours, leaks, opinions and predictions, the Autumn Budget finally landed on Wednesday, and many felt… well, I suppose many did not know quite what to think.
There was a sense of fairly widespread anti-climax, not least, perhaps, because the OBR managed to essentially leak the contents of it an hour before Rachel Reeves managed to stand at the despatch box. By the time she gave us her speech, we’d already got used to what was coming!
On a property front, there were some headline winners and losers, and losers mainly, as none of the potential sweeteners came to be: no mortgage support, no first-time buyer bonuses, no stamp duty relief or reform.
Nevertheless, even the losses were relatively limited, given what leaks, rumours and speculation had laid out on the table in the run up.
In the firing line: owners of property valued above £2 million, and landlords facing an extra 2% tax on income…
Nevertheless, after all the drama on the day itself, with so many leaping to voice their thoughts and opinions, drop their hot takes and, perhaps, grind their axes, I really felt there were more questions still to ask particularly for landlords and property investors, on those two very points!
That’s why I have taken a day or two longer to gather my thoughts, look in the right places, and come to you with more grounded analysis, with the benefit of a day or two to read it all through.
Here are some things that HMO landlords in Ipswich should be thinking about:
A New ‘Mansion Tax’ on £2m-plus Homes
One big talking point in property market terms was the introduction of a “mansion tax” or, officially, a High Value Council Tax Surcharge, to be aimed at properties valued over £2 million, to be introduced in 2028.
Whilst it is not something that will affect the majority of local people, there are properties worth over the £2 million mark here in Ipswich, around Constitution Hill and Christchurch Park, and of course through some parts of Suffolk and north Essex and indeed, even a few properties above the £5 million mark, which is where the next threshold is set to kick in.
Nobody wants to pay more tax. But realistically the entry-level surcharge of £2,500 extra a year is likely to be manageable by most people in this bracket. It is a nuisance, but surely not a nail in the coffin for most.
What is perhaps surprising is that the OBR expects this policy to raise only around £400 million. A nice Euro-Millions win, no doubt, but a small sum in the context of national tax receipts.
To me, this felt more of a political move than a particularly practical one.
The question I had though, which was not clearly answered on the day, was: who will pay it?
Because, whilst hailed as a ‘tax on the rich’ by those who want to see such things, it is being brought in as something that will be collected through council tax charges and council tax gets paid by the householder, not necessarily the owner…. that is to say, by tenants, not by landlords, unless of course, its an HMO.
In many cases, those who can afford to rent a £2 million home at £6,000 a month are wealthier, or at least earn more on a monthly basis, than many owner-residents of homes worth £2 million. If charged to the household, this would catch those people as another form of wealth tax.
But what about HMO tenants? A property that has been converted to a large 8 Bedroom HMO, where individual tenants are paying £750 each to reach £6,000 a month as a household, could conceivably be worth £2 million. If this levy is charged to households as council tax, could these tenants be hit by the high value surcharge?
This was the question I wanted to dig into.
And I still don’t quite have the answer to that question, not in a way I am fully happy with, to tell you with total certainty.
What I can say however, is that all the language being used that I have been able to find, including statements from the Government and Treasury Department, is framing this as a charge that will be made to ‘owners’ of £2m+ properties.
There is time for consultation on this before 2028, so I would suggest this is not fully set in stone. A part of me, a cynical part perhaps, wonders if the Treasury has thoroughly thought this particular issue through, as fully as they should have done.
There is to be consultation between now and then, about relief for people who might be asset rich but cash poor, and I wonder if during that consultation this matter will be revisited.
Landlords: a tweak to what we expected, but not a shock
Instead of taxing rental income through National Insurance, as we had more than half expected ourselves, the government has opted to raise the tax on property, dividend and savings income by 2%.
That took me a little by surprise, but when we thought about it, it did make some sense; it means being able to levy tax on landlords’ revenues without any consideration for Section 24 and relief on mortgage interest. Section 24 essentially shows that private landlords should be treated as individuals, not businesses, but introducing NI would mean the opposite, something that could have perhaps led to challenges.
What I did have a question over, and what really gave me pause for thought, and pause in bringing you those thoughts in the few days it has been since Rachel Reeves spoke, is the question of whether this new 2% tax applies to turnover or profits, in terms of rent received?
The answer to that one lies within this document here: Changes to tax rates for property, savings & dividend income – GOV.UK
And what it tells us, is that it will be a tax imposed on taxable profits only, not on turnover. A relief to landlords… or a relative relief, at least.
In any case, though, for landlords it still does mean:
- Higher annual tax bills
- Tighter margins
- More pressure on already stretched profitability.
There are two or three likely outcomes we can foresee. Some landlords may decide to exit the market, already feeling the pressure of tighter margins and extra compliance from Renters Rights Act legislation. Another likely local outcome is that private landlords letting as individuals may look to form companies. But perhaps the strongest likelihood is that tenants will face higher rents, as landlords try to balance rising costs. We are already speaking to landlords about the higher costs that Renters Rights legislation will bring over the next few years; I suspect that extra costs to landlords by way of higher tax is going to be another reason for them to have to push rents up.
Ironically then, in the government’s push for fairness, it is tenants who are likely to feel the greatest impact in terms of the extra cost to them each month, especially over time. One thing this might also mean is a greater number of challenges to rent increases made by tenants under the new tribunal system, a system that has yet to prove itself to be up to the task.
Something that will affect many local people: fiscal drag.
One other outcome from this Budget is what many had come to expect would happen when an increase to income tax was ruled out a couple of weeks before the Budget. That tax thresholds have been frozen again, for three years longer than planned, taking us into the next decade – enough time for more Ipswich residents, tenants and landlords alike, to find their wages and salaries pushed into higher tax bands over those coming years.
It is essentially an income tax rise via the back door, set to raise £8 billion in tax receipts by 2029. This matters to tenants – and therefore landlords – as it means stretched affordability, and that can have a knock on effect on rent values, or on whether tenants fall foul of it and struggle to pay rent as time moves on.
On the flip side, the increase to the national living wage (announced and confirmed before the Budget) is good news for many people, particularly those working in the hospitality sector, as many tenants do.
In other words, there is a bit of take, but there has also been a little give.
What next for the Ipswich lettings market?
What we think will happen now, is that we will get back down to business – thankfully!
The speculation is over; the fear of the unknown has passed; and as far as the local lettings market is concerned, this Budget hasn’t presented any really seismic changes.
Landlords will have worries, but as mentioned, increasing rents will offset a lot of any perceived financial loss. And of course, from 2028, there may be a number of people here in Ipswich who could face that extra High Value levy, the ‘Mansion Tax’, if we want to call it that.
But the rumours had suggested it could come in from £500,000 upwards, not from £2 million! And besides, being pushed back to 2028 means two things: firstly, that people will park it at the back of their minds for another 18 months before they start to worry; secondly, depending on economics and politics over the next two or three years, it could yet be either scrapped, or be a can that gets kicked down the road. The Chancellor has her new fiscal headroom, and maybe that is all that matters for now, for her and for the government. The ability to win some influential hearts and minds back in a pre-election year (2028) by tweaking this particular proposal before it bites, warrants some thinking about…
In any case, the Budget has happened at last, and the certainty and clarity that has already settled over the market, despite the sea of angry LinkedIn posts you might see out there, should help unlock decisions that people had put on pause, which is good for any market sector.
As a personal, hands-on specialist HMO letting and management agency in Ipswich, myself and the whole team here at LEA Property Solutions are glad to be able to at least give our landlords and tenants a little clarity at last.
If you have been waiting for the Budget before deciding what to do next, whatever that may have been, the good news is: you can now move ahead with confidence.