Budget 2021 reaction – what do letting agents need to know?

Budget 2021 reaction – what do letting agents need to know?

3 March 2021

With the stamp duty holiday and furlough scheme extended in the Budget, how could letting agents and the rental sector be affected?

This year’s hotly-anticipated Budget, delivered by Chancellor Rishi Sunak, featured several measures intended to continue supporting the economy through the Covid-19 pandemic.

As expected, housing policies took centre stage, with Sunak announcing an extension to the stamp duty holiday, as well as a 95% mortgage guarantee scheme for property buyers.

Meanwhile, the furlough scheme and business rates relief for the retail, hospitality and leisure sectors have been extended until the end of September.

There were rumours of property tax reform to help close the Covid spending gap, which didn’t come to pass. However, tax changes are still expected, with details potentially being announced as soon as March 23.

Below, we take a closer look at the key Budget measures and what they mean for letting agents and the rental sector…

Stamp duty holiday extended

Stimulation in the sales market could lead to higher levels of churn in the lettings market, particularly with incentives for first time buyers.

In the face of considerable pressure from property professionals, the public and politicians, the Chancellor has extended the stamp duty holiday for three months until June 30 2021.

From July until the end of September, the holiday will also be extended for properties priced up to £250,000 (instead of £500,000 under the current holiday). This means that the pre-Covid stamp duty threshold will not return until October 1 2021.

So far, no details have been released on whether these new dates will avoid a ‘cliff-edge’ finish or will be tapered to avoid thousands of property purchasers missing out on tax savings.

Investors purchasing property until June 30 can still benefit from savings of up to £15,000. After this date and until the end of September, the maximum stamp duty saving available will be reduced to £2,500.

Making the announcement, Rishi Sunak said: “The cut in stamp duty I announced last summer has helped hundreds of thousands of people buy a home and supported the economy at a critical time. But due to the sheer volume of transactions we’re seeing, many new purchases won’t complete in time for the end of March.”

The stamp duty holiday extension will provide many landlords and investors with additional opportunities to expand their portfolios and benefit from tax savings. It will also help to stimulate the property market for much of 2021.

According to Rightmove, nearly half (45%) of all properties will still be exempt once the stamp duty threshold is reduced from £500,000 to £250,000 from July to the end of September.

It says the average stamp duty saving in England is £5,802, although this can be considerably higher in more expensive locations such as London, with some saving as much as £15,000.

Extension of the furlough scheme confirmed

Rishi Sunak also announced that the Coronavirus Job Retention Scheme, also known as the furlough scheme, has been extended until the end of September.

The scheme – which covers 80% of employees’ wages for the hours they cannot work due to the pandemic – has protected more than 11 million jobs since it was introduced in March 2020. Employers using the furlough scheme will be expected to pay 10% towards the hours’ staff do not work from July, increasing to 20% in August and September.

There will also be additional Government support for 600,000 more self-employed people as access to grants is widened. Extending the furlough scheme could boost the rental market, helping tenants pay rent and indirectly protecting letting agency and landlord incomes.

However, rent arrears have been a cause for concern for many landlords and agents, especially due to the COVID-19 pandemic. As Furlough comes to an end, there could be a wave of redundancies, leading to increased rent arrears.

A recent survey by mydeposits found that 31 per cent of landlords and letting agents currently had tenants with rent arrears due to the pandemic’s consequences. With this in mind, it’s so important to make sure that you and your landlords consider rent protection insurance.

There were rumours that the Chancellor would introduce rent grants – similar to those in place in Scotland and Wales – to provide further support for tenants, but this did not come to pass.

No Capital Gains Tax changes yet

There was significant speculation that the Government would use the Budget to increase property taxes in order to close the pandemic-related spending gap.

One of the main rumours was that Capital Gains Tax (CGT) rates would be doubled or brought closer to income tax rates with the aim of netting the Treasury an additional £14 billion each year.

The rental sector will have breathed a sigh of relief as no property tax reform was announced, although it could be a relatively short respite period.

The Government has planned a ‘tax day’ on March 23 when it is believed consultations for tax reform – including changes to CGT – could be unveiled.

Although rising CGT rates will be viewed as another attack on buy-to-let investors, property still represents an attractive long-term investment, especially for landlords with good letting agents and access to products that protect their rental income.

At a glance: additional Budget policies

  • 95% mortgage guarantee scheme launching in April
  • £20 uplift in Universal Credit to be extended for another six months
  • No changes to rates of income tax, national insurance or VAT but thresholds to be frozen
  • Personal income tax allowance to be frozen at £12,570 from 2022 to 2026
  • Minimum wage to increase to £8.91 an hour from April
  • Higher rate income tax threshold to be frozen at £50,270 from 2022 to 2026
  • Corporation tax on company profits to rise from 19% to 25% in April 2023
  • Apprenticeship grants to rise to £3,000;
  • Business rates holiday for firms in England will continue from April until June

You can see the Government’s full overview of the Budget here.

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