The widely trailed ‘mansion tax’ has now been confirmed. This will target properties with a valuation of £2m plus and will be applied in four bandings ranging from £2,500 per annum on properties of £2-2.5m up to £7,500 p.a. for properties over £5m.
David Hollingworth, associate director at L&C Mortgages said,
“There will be some relief that this wasn’t applied to the original rumoured lower valuation of £1.5m+ which would have captured more properties.
Any new tax can risk distorting the market on those affected properties. The level of charge will depend on the revaluation conducted by the valuations office rather than what buyers pay, so it isn’t something that can be avoided by reducing the purchase price.
However, that doesn’t mean that buyer behaviour won’t be affected. We will have to see if buyers will swallow the charge or negotiate harder with vendors to drop their offer, to offset the additional running cost.
The annual charges look to be set at a level to avoid creating a significant disruption. Even 5 years of the new charge on a £2m property would amount to well below 1% of the property valuation.
However, it’s worth noting that charges will be increased in line with CPI inflation from 2029. It’s also suggested that properties will be revalued every 5 years which could presumably see properties edge into higher bandings or make more properties subject to the surcharge.”
Property income
Income from property will now be taxed at a new higher rate, 2 percentage points higher than the current basic, higher and additional tax rates. Dividends will also see an increase which could affect limited company landlords.
David Hollingworth, associate director at L&C Mortgages said,
“This will be another big blow to landlords who have been increasingly hit by measures that have made it harder to maintain returns on rental property. A limitation in the relief available on mortgage interest, tougher lending requirements and higher interest rates has affected private landlords.
This will be another test of their appetite to remain in the market. If they choose to exit it may potentially free up property for first time buyers. However, there is a risk that it will reduce the supply of rented property despite ongoing demand and ultimately push rents higher.”
ISA and Lifetime ISA Reform
David Hollingworth, associate director at L&C Mortgages said,
“On the face of it savers will be more heavily impacted by the changes to ISAs. However, lenders, especially Building Societies, have pointed to the impact that reduction in cash saving could have on mortgage rates.
Cash savings are a key funding source so if that becomes more constrained and more competitive it could push up the rates they can offer on mortgages.
The Lifetime ISA continues for now and will be a valuable tool for aspiring first time buyers looking to scrape a deposit together. However, there will be consultation next year on how a simpler product could replace the LISA. Existing savers will no doubt want more clarity about how any new product will interact with existing savings in the LISA, especially if maximum purchase prices may be increased.”
