The effects of the pandemic have reached all sectors, including Real Estate, despite its resilience in the face of storms. However, with the help of the government’s recent Budget, there are some silver linings to the clouds.
We shall explain below why almost all involved in the real estate market, including Buckingham estate agents and others, have a positive outlook on the future.
SDLT: The extension of the SDLT holiday till the end of June 2021, with a tapering process till the end of September, is a boon to the real estate sector. There will be no stamp duty land tax payable for residential properties worth up to GBP 500,000 until the end of June 2021.
Nor for properties up to GBP 250,000 until the end of September 2021. It enables those who had already applied for properties to purchase them without paying the total tax. It also offers opportunities for new buyers. There will be a 3% stamp duty surcharge for buyers of second homes or buy-to-let properties, but this is still a great benefit.
It offers opportunities for the purchase of property as well as encourages a rise in house prices. For non-UK residents, even though an SDLT surcharge of 2% is now payable, it still offers the benefits of the holiday extension.
Capital Gains Tax (CGT): This tax applies to property sale properties that are not primary residences. The tax is calculated on the difference between the sale value and the purchase value. This tax has not been increased in the new Budget, which offers investors an opportunity to avail of the benefits.
There are allowable costs that can be deducted from CGT, including solicitors’ and estate agent fees, stamp duty paid and survey and valuation costs.
Also, private residence relief (where the house has been the main residence during ownership) can be claimed against CGT. In addition, a fixed annual CGT personal allowance can be adjusted against CGT payable.
Corporation Tax: Even though corporation tax is set to increase from April 2023, it is still lower than CGT. Some professional investors have set up limited companies for selling properties so that they can benefit from tax payments by paying corporation tax instead of CGT.
Mortgage scheme with 5% deposit: This will definitely encourage buyers, especially when putting down a large deposit seems impossible. For properties valued up to GBP 600,000, a 95% mortgage scheme is available. The buyers can fix the initial mortgage rate for up to five years if they so wish.
The repayment will be on the mortgage and not on the interest only. It does not apply to second homes and buy-to-let properties. This is an incentive for lenders (with the government’s guarantee to provide the backup subject to affordability checks). It is an opportunity to turn Generation Rent into Generation Buy.
Freeports: These are certain zones where tax and tariff regulations do not apply. The Budget has announced 8 Freeport locations. This offers tax relief on the purchase of land used for a qualified commercial purpose for professional investors.
The allowance for structures and buildings for renovating old non-residential structures or constructing buildings within freeport sites has been enhanced to 10%.
For plant and machinery in these sites, the allowance has risen to 100%. In addition, there is a full Business rates relief. This could be beneficial to investors in real estate in these sectors. If there are more constructions, besides providing employment, the land value will also increase.
MMC (Modern Methods of Construction): The introduction of a 130% super deduction for the next two years for plant and equipment is beneficial to the construction industry. With demand far exceeding supply, adopting MMC would help revive the property market.
It improves productivity and reduces onsite labour. A high level of energy efficiency will be maintained, and reduction in material wastage and environmental impacts on the buildings will be seen. This will also enhance the Go Green movement.
Furlough Scheme extension: This scheme which offers 80% payment of employees’ wages, has been extended until the end of September 2021. It is a relief for all those involved and may impact the real estate market as well.
For those looking to buy, invest or move house, the job security offered by this scheme can help them decide. For renters also, it gives some leeway to meet rental payments.
Funding for Art and Culture: The Budget’s core funding to bring back the entertainment industry – theatres, galleries, museums etc. – could help the real estate sector.
Landlords, especially in big cities, have not found it easy after the effects of the pandemic. However, with the lockdown over and the hopeful return to normalcy, businesses and people (renters) may consider moving back to city areas.
Conclusion: With the positives of the Budget towards the property market, explained above, both buyers and sellers are able to benefit. The incline in house prices offers sellers more opportunity. At the same time, buyers can take advantage of the Budget benefits while purchasing properties.
One of the main motives in Real Estate is that the supply does not meet the demand. Therefore, if more properties or new constructions become available, it will definitely help revive the Real Estate sector.
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