Autumn Statement 2022 – Impact on the property sector

The Autumn Statement delivered by the UK government – one of the largest series of fiscal announcements for some decades – was previewed as one involving difficult decisions, higher taxes and public spending challenges. For once, perhaps, the spin doctors’ previews were not off the mark.

The Chancellor – Jeremy Hunt – made clear that the UK was not unique in facing extreme financial challenges. Although Brexit is having an impact, the UK is one of many countries tackling the financial aftermath of Covid 19, international inflation and the side-effects of the war in Ukraine.

However, there were many announcements affecting property investors, owners and tenants. The most relevant include:

Halving the Capital Gains Tax annual exemption from £12,300 to £6,000 in 2023-24 and again to £3,000 in 2024-25.

This is obviously a hit for landlords in particular; as many have quit the sector already because of tax and regulatory changes, it is likely that this change may accelerate their plans before the CGT changes begin in six months’ time. Conversely, however, those investors wishing to expand portfolios and not influenced by the stricter CGT allowances (which are modest when set against recent capital appreciation) will at least have the prospect of more properties available to buy should other landlords sell.

Dividend allowance will be cut from £2,000 to £1,000 next year and then to £500 from April 2024.

It means that by 2025, anyone receiving dividends above this amount will pay tax on them at a rate depending on how much other income they receive. Again this is likely to hit landlords (at least those who have incorporated) and may prompt further sales.

Stamp Duty cuts announced in September will remain – for now.

Earlier this autumn the former Chancellor (Kwasi Kwarteng) increased the threshold at which Stamp Duty is charged on residential purchases from £125,000 to £250,000 with the threshold for first-time buyers also up from £300,000 to £425,000 and to be used on purchases worth up to £625,000. This reduced stamp duty will remain in place but only until March 31 2025. The upside of this is that the housing market will benefit from this incentive for some two and a half years – it’s likely that this will mitigate price falls feared as a result of the wider economic downturn.

There are two other property-related measures which, at least indirectly, have a bearing on investments and the housing market. These are:

Local authorities can raise council tax by five per cent without holding a referendum

(that is three per cent, plus an additional two per cent if they have social care responsibilities). In areas like London, where typical council taxes are amongst the highest in the UK, this will be another burden on tenants and will thus worsen the overall affordability issue in an era of rising rents.

Finally, Inheritance Tax thresholds are to be frozen for an extra two years, making hundreds of thousands of home owners liable to IHT. The threshold currently stands at £325,000 with a further residential nil rate band set at £175,000. IHT is levied at 40 per cent above this level and is already contributing £6 billion a year to the UK government; this remains an unpopular tax and may hasten older owners to sell in later life and accelerate the shift towards, for example, equity release.

Beyond those announcements with a clear impact on property, the wide range of other measures in the Autumn Statement are set against a gloomy forecast from the independent Office for Budget Responsibility (OBR).

The absence of an OBR forecast in the September fiscal event spooked the markets at the time; the details of the one released now will be only slightly more comforting. It says Britain’s economy is already in recession and set to shrink by 1.4 per cent next year, largely because of the soaring cost of living, with an estimated 500,000 set to lose their jobs and UK national debt being some £400 billion higher than forecast in March.

Critically, the OBR forecasts that house prices will fall by up to nine per cent between the fourth quarter of 2022 and the third quarter of 2024, largely driven by higher mortgage rates as well as the wider economic downturn.

Amongst a series of stealth taxes – personal allowances being frozen, meaning people pay more tax as their incomes rise – many investors will also note that the Chancellor revealed that the point at which high UK earners start paying the top rate of tax is to be lowered from £150,000 to £125,140.

There are, however, at least a few glimmers of light – they are measures which may both reassure the markets and help offset damage to individual household incomes.

There will be longer-term help for energy bills from next April, although typical household bills will rise from £2,500 a year to £3,000 – without the government support, this may be £4,000 or more. There will also be additional payments for many vulnerable groups and the National Living Wage will increase.

More controversially, the government has kept a plan to lift the cap on bankers’ bonuses – likely to be good news for property investors in the City in particular – and he is also not changing non-domicile tax rules that allow certain people to pay tax in the UK only on their income in this country.

At a macro-level, the windfall tax on energy companies will rise from the existing 25 per cent level to 35 per cent, in line with many other countries, and most major infrastructure projects such as the High Speed 2 rail project will continue.

It is a sign of our volatile political times that two months after a dramatic tax-cutting budget from the government of the day, we now have heavy tax-raising measures from an administration which may represent the same party, but has a new Prime Minister and new Chancellor.

Unlike the last mini-budget, the measures in this fiscal event are likely to stick and have been calibrated to take effect over several years to come.