Property taxes 2022 to 2023.  The 2022 Autumn Budget - What does it mean for the UK Property

Sector?

The property sector expected taxation reliefs in the 2022 Autumn Budget.  The sector is suffering from the complexities of the property taxation system.  Whilst the budget brought several areas of improvement in the UK's tax regime, as it hardly serves the property sector's long-term interests.

There are multiple ways the government can bring some respite to letting agents and landlords, who bear the burden of several costs that ultimately impact tenants. The wish remains year after year for a budget that creates an ecosystem to encourage property investment and boost the property sector's growth across portfolios.

The current scenario

There has been a steady rise in the tax burden on landlords over the five years to 2022 - due to the phasing out of a landlord's ability to claim mortgage interest payments against rental income. 

The 2022 budget saw a reduction in Capital Gains Tax on non-property assets to 18 percent. CGT for rented property continues to be 28 percent.  The capital gains tax allowance or CGT exemption before the tax becomes payable from April 2023 reduces to 6,000 from the present 12,300. It will further reduce to 3,000 from April 2024 onwards.  Indexation naturally still applies.  Pundits argue some will consider selling land and property assets now.

And, for landlords who switched to owning properties through a limited company so they could still deduct mortgage interest from their rental payments there will be a 6 percent increase in corporation tax from 2023.  The strategy alledgedly is to get private rented sector landlords to sell up therefore releasing properties to the open market and thus to provide new stock.  This strategy has catastrophically failed as we have seen this summer with the shortage of properties to rent being the result.  Stories of people queueing and putting in offers before they have even seen a property are commonplace.  Rents are rising faster than seen in several decades.  The HMRC will continue to streamline property taxes through an online portal for UK taxes, so tax collection rates will no doubt increase.

Impact of Autumn Budget 2022 on the property sector

While presenting the 2022 Autumn Budget, Chancellor Jeremy Hunt clarified that the Autumn Budget will impact everyone through higher taxes. The UK is not the only nation facing financial struggles because of the pandemic and the effects of the Ukraine war. The country is also experiencing the impact of Brexit, besides these factors. The Autumn Budget announcements poised to influence the UK property sector include:

1  Stamp Duty cuts to continue (for now)

The previous government raised the Stamp Duty threshold to 250,000 from 125,000 for purchasing residential properties. The threshold rose to 425,000 from 300,000 for first-time buyers, with a cap of 625,000. The upcoming budget proposes to continue with this decision until March 2025, providing relief to the property market for up to 2.5 years.

2  Freeze on Inheritance Tax Thresholds (IHT)

The freeze on the Inheritance Tax threshold will now last an additional two years' increasing the number of homeowners accountable to pay Inheritance Tax. The tax change is to encourage older owners to speed up the shift to equity release or selling their property and downsizing or rightsizing.  This is because older owners are often sitting in larger family properties and if they rightsized, these properties could be released for growing families.

3  Council taxes to rise 

The 2022 budget allows local authorities to increase council taxes by up to five percent. Councils do not need a referendum to raise taxes. The five percent rise includes a two percent tax to support social care. Tenants in London will suffer the most as the capital has an unenviable reputation for being among the cities with the highest council taxes. It will cause severe stress for tenants already struggling to pay high rent.

The takeaway

Despite the tough compromises, the budget hints at a few opportunities for the property sector. It may encourage releasing the assets for redevelopment or sale because of the mounting financial pressure. The government is not in a sound fiscal position to support infrastructure for developing the economy and society. It is an excellent opportunity for the private sector, which can rise to the occasion considering the property sector's role in developing the UK's housing, healthcare, and education sectors.