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Budget Brings changes for the residential Property Market

Industry Insight July 8th, 2015

How will the budget effect the residential Property Market?

George Osborne has delivered his budget for the first time as chancellor of a Conservative majority party. Speaking for over and hour, Mr Osborne laid out his new plans for the next five years of Tory government including many proposals that will have an effect on the residential property market.

The changes in brief:

– Mortgage repayment tax relief cut to 20%

– The 10% “wear and tear’ allowance has changed

– Homes worth up to £1 million can be inherited tax-free

– Tax incentives for the elderly to downsize

– Increased tax relief for home owners renting out a room

Full details of budget change for the property market

George Osborne has cut the tax relief available for mortgage repayments down to the 20%. Currently repayments can be used to offset Income Tax and therefore can apply to the highest 45% threshold.

This comes as a blow to the buy-to-let industry that has been helped by the tax relief and particularly to those with larger portfolios. Mr Heaton, founder of Heaton and Partners, said “The changes… will particularly hit those owning property in prime, central London, where the sums involved are very high and the yields extremely low.”

Similarly the 10% wear and tear allowance for landlords will be changed so that only actual costs incurred can count. A logical move by George Osborne but mindful landlords will be able to counteract this change by spreading repairs out.

In better news for property owners, from April 2017 the increase in inheritance tax means that married couples or civil partners can collectively leave assets worth up to £1 million tax-free. Currently the tax-free cap for couples sits at £650,000 and half that for a single parent.

Alongside this comes an incentive for pensioners to downsize, as selling an expensive property they would be eligible for “inheritance tax credit” and would qualify for the new threshold as long as direct descendants inherit the majority of the estate.

There is a similar increase in tax relief for homeowners who are renting out a room. Currently only income up to the value of £4,250 is tax-free but the new budget will see that increase to £7,500 from next year.

George Osborne’s budget has outlined the course of the next 5 years for the property sector and it looks to be a mixture of tax increase and relief depending on where and how you own property.

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