Three major changes to the property market:

Inheritance tax will be cut from 2017 for properties worth up to £1million

The amount Buy To Let landlords can claim as relief on mortgage interest payments will be capped at the basic rate of 20%

The amount homeowners can earn by having a lodger will be increased to £7,500 per annum tax-free
Jeff Cole

Jeff Cole, from Cole Rayment & White explains how changes announced in the summer Budget could impact the sales and lettings markets in and around Wadebridge, Rock and Padstow.

“On 8th July, Chancellor George Osborne delivered his summer Budget, the first solely Conservative spending plan for almost 19 years. Mr Osborne echoed the Conservatives election pledges last month to tackle the UK’s housing shortage and aid first time buyers onto the housing market, before announcing three major changes to the property market aimed at changing the unpopular inheritance tax thresholds and creating a more balanced playing field for homeowners and Buy to Let investors.”

1. Inheritance Tax

From 2017 there will be an extra £175,000 per individual allowance on top of the current £325,000, which means that if a couple own a property up to the value of £1million, they will be able to leave it to their children or grandchildren free from this death duty. Downsizers will also be eligible. If somebody downsizes before they die, their tax-free exemption will stay at the value of the house that they sold.

2. Tax break on mortgage interest payments for Buy to Let landlords

The Bank of England believes the current system poses a risk to the country’s balance of homeownership and properties to rent as homeowners are not able to claim tax relief like landlords can. At the moment, Buy to Let investors may buy a property to let it out and then deduct mortgage interest payments from any rental income they receive, depending on their income tax rate. This means that if a landlord is a higher-rate taxpayer they are able to get 40% tax relief on the mortgage interest they are paying. Mr Osborne has now announced that this relief will be restricted to 20%, the basic rate of income, no matter what tax level somebody is on, which will be phased in over a period of four years from 2017.

3. Rent a Room scheme

The amount householders can earn by renting out a furnished room will be increased from £4,250 to £7,500 per annum tax-free.

Jeff Cole welcomes the news of the inheritance tax changes (IHT):

“This is going to be music to the ears of many home owners in North Cornwall. There’s been a lot of pressure on Mr. Osborne to change this death duty with 59% of voters believing the tax is unfair (YouGov – March). It was initially designed to be paid by the wealthy, but with house prices appreciating, particularly where we are, ‘ordinary families’ are now paying it, in addition to other taxes such as Stamp Duty. A family’s wealth can now be passed to their loved ones rather than the Government, whom are most likely struggling to upgrade their home or even get onto the property ladder. This new threshold should give them a better chance to put together the deposit required for a new home.”

“We should also see more larger homes come to market as under the new system, homeowners are able to downsize and still benefit from the IHT changes. This is great news and is seen as an attempt to encourage pensioners to free up larger properties for growing families.”

However Jeff is disappointed by the news of a reduced tax relief for landlord investors, although he believes there could be an opportunity for first and second time buyers:

“There was a lot of speculation that tax perks for Buy to Let borrowers would be ended, so this came as no surprise, but it is going to be disappointing for both landlords and tenants. 15% of new mortgages are Buy to Let and this is a fast paced market so the impact of these changes should not be underestimated, despite being phased in over a period of four years. Investors might become discouraged from entering the sector or adding to their portfolios, which could mean a decline in the number of available properties to rent. This is not good news for tenants as everybody knows that low supply and high demand leads to an increase in prices, in this case rental values!”

“However, should Buy to Let borrowers start to place their money elsewhere, it could present an opportunity for both first and second time buyers. At the moment these buyers are having to compete with investors, often losing out to them as competitive interest pushes the guide price out of the reach of their budgets. With other Government initiatives confirmed in the Conservative’s Housing Manifesto, first and second time buyers could fill this gap.”

The Rent A Room scheme is also welcomed:

“According to the flat and house share site SpareRoom.co.uk, there are an estimated 19 million empty bedrooms in owner-occupied properties in England alone. Freeing up just 5% of those rooms would accommodate almost a million people – the equivalent of a city the size of Birmingham! That is an incredible figure so this scheme is a great way to make better use of existing stock and should help millions of renters and homeowners.”

For more information about how these changes might affect you, please contact your local Cole Rayment & White/Fine & Country branch in Rock 01208 869218, Padstow 01841 533386, Wadebridge 01208 813595 and Camelford 01840 213333