The government's inaction on the private rental sector supply

The UK government’s Autumn Statement released recently had a glaring gap. Many expected the government to take steps to improve the private rental sector supply, but that didn’t happen. There is a massive demand for private rented housing in the country. There is a severe shortage of quality homes in this sector. With mortgage rates growing, the situation is expected to worsen, and consequently, homeownership will become unaffordable.

Research shows that scrapping Stamp Duty could boost the Treasury revenue by £10 billion through increased income and corporation tax receipts. Instead, the move to cut Capital Gains Tax allowances will deter investment in new homes and drive up the cost of renting. Statistics reveal that the demand for private rented housing is significantly higher now compared to the last five-year average, while the supply has fallen drastically. The demand is on a constant upward surge despite the increase in the number of households occupied by owners by more than a million in the past five years.

Five points in the Autumn Statement were directly relevant to the private rental sector.

Halving The Capital Gains Tax Annual Exemption

The UK government has halved the capital gains tax annual exemption from £12,300 to £6,000 in 2023/24 and to £3,000 in 2024/25. This can hit landlords, second homeowners, and those who want to sell their property. The unfavourable conditions for selling are likely to result in fewer disposals. Most people will hesitate to sell their assets in such circumstances and wait for favorable conditions.

The Cut In Dividend Allowance

The dividend allowance will be slashed to £1,000 from £2,000 next year. From April 2024, it will be further reduced to £500. By 2025, those receiving dividends above this sum must pay tax on them. The rate will depend on the other income they receive.

Local Authorities Allowed To Raise Council Tax

The local authorities have been permitted to increase council tax by five percent. They can do it without a referendum. The breakup is three percent plus two percent more for social care responsibilities. This can create more pressure on private tenants.

Stamp Duty Cuts Will Be Time-Limited

The Stamp Duty cuts announced by the government in September 2022 will be time-bound. The cuts will end on March 31, 2025. The move is aimed at helping firms relying on housing marketing navigate the existing challenges. It will also help strengthen public finances in the long term. The threshold for charging Stamp Duty on residential purchases was increased this autumn from £125,000 to £250,000. The threshold for first-time buyers was also increased from £300,000 to £425,000. It is to be used on purchases worth up to £625,000.

Inheritance Tax Thresholds Frozen For Two More Years

The move to freeze inheritance tax thresholds for a longer period can end up making hundreds of thousands of homeowners liable to IHT. The current threshold levels stand at £325,000. An additional further residential nil rate band is set at £175,000. IHT is levied at 40 percent above this level.Experts believe this was the best opportunity for the government to address the problem and tackle it head-on. It appears they do not recognize the fact that housing has the potential to drive growth and ensure a robust economy. The simple step of ending Stamp Duty on new rental home purchases would have helped boost supply.