Now that the Chancellor has delivered her second Budget, Chief Executive Mark Harris and Antony Cousins, Head of the Wealth Management team at SPF Private Clients, discuss the measures and how they might impact the housing market and our investments.
Introduction of a ‘Mansion Tax’
As widely trailed in the media beforehand, the Chancellor introduced a ‘Mansion Tax’. This will impose an annual levy on homes worth more than £2 million, hitting London and the South-East hardest. Savills estimates that over 60% of homes over £2m are in London, with just under 20% in the South-East. The Government expects this to raise around £400m to £450m per year, involving a revaluation of homes in the top council tax bands F, G and H.
“Inevitably, a ‘Mansion Tax’ will be popular among Labour backbenchers but it will be difficult and time-consuming to implement, and won’t be a quick fix to the shortfall in the country’s finances. Properties will need to be valued and then homeowners are likely to challenge those valuations. Those living in large houses who have equity tied up in their homes but don’t have cash to spare to pay an annual tax, will struggle to pay this levy and may be forced to sell up.”
No National Insurance for landlords but higher tax rates on property
Unfortunately, landlords came under attack once again with a 2 percentage-point increase to the basic, higher and additional rates of property income tax, to be introduced from April 2027. This will increase them to 22%, 42% and 47% respectively and is estimated to yield £0.5 billion a year on average from 2028-29.
“It is hard to see that this will achieve much apart from push up rents and push landlords out of the market,” Mark says. “That means it is tenants who will suffer. This Budget is the final nail in the coffin for landlords owning property in their own name. It is very hard to make a profit unless property is owned via a limited company structure. We have seen a growing number of clients either purchase investment property via this route or move existing portfolios in their own name over to a limited company structure and we now expect this trend to escalate.”
If you are considering going down this route, the timing of such a move is very important from a tax point of view, and needs to be done in consultation with your mortgage broker and tax adviser. Landlords concerned about the measures announced in the Budget should seek advice as soon as possible.
Nothing for first-time buyers or to encourage transactions
Housing market transactions have slowed in recent years as the high cost of moving deters buyers and sellers, yet nothing was promised to encourage housebuilders to build more or assist first-time buyers onto the housing ladder. Mark says: “This was a huge, missed opportunity and it is hard to see where the encouragement is going to come to ensure there is more building and more transactions.”
Reduction in cash ISA allowance
As expected, the Chancellor announced there would be a reduction in the amount of money that can be saved each year in a tax-free cash ISA from £20,000 to £12,000, with the remaining £8,000 to be invested in stocks and shares. While the move is aimed at promoting investment in UK companies, Antony explains that he found it to be an odd one: “Under the current ISA regime you can get a cash fund within stocks and shares ISAs and transfer stocks and shares to cash anyway,” he says.
The Government announced that over-65s will be able to continue to put their entire allowance into cash ISAs if they wish, a move Antony welcomed: “The elderly typically lean more towards cash rather than stocks and shares. Forcing them to invest outside their comfort zone could lead to a considerably worse client outcome. It could have meant people get into investments they don’t have an attitude for – not an issue for our clients as they receive proper advice, but for those who have only a modest amount of money to invest and don’t take advice, it could be a problem.”
Cap on salary sacrifice contributions to pensions
As expected, the Chancellor is capping the tax benefits of salary sacrifice schemes at a new threshold of £2,000, above which pension contributions will incur national insurance. One thing worth noting, however, is that these changes are not due to come in until April 2029 and a lot can change before then so it might not see the light of day.
"The salary sacrifice changes we feared have come to pass and these will fundamentally affect everyone paying extra into their pension. To suggest it is just aimed at those investing bonuses is a bit rich.”
Seek advice
Many will breathe a sigh of relief that the Budget is over and at least we now have some certainty after months of intense and harmful speculation. However, if you have any concerns about your finances or investments, do get in touch to discuss with the team at SPF Private Clients.
