The impact of today’s Budget on professional property investors

Andy Jones, Group Director of Corporate & BTR at Leaders Romans Group (LRG) shares his views ahead of the Chancellor’s Statement

With a reported ￡22bn (which now appears to be closer to ￡40bn) black hole to be filled with fiscal revenue and a promise to shield ‘working people’ from tax rises, this ‘Halloween’ Budget always going to be more trick than treat in its impact on corporate landlords.

Capital Gains Tax and Corporation Tax

The predicted Capital Gains Tax rise is unwelcome news for individual investors wishing to sell a property asset in their personal ownership. This sentiment was evident several weeks ago in the number of individuals who, following initial rumours about a rise in CGT, chose to incorporate prior to the Budget: that figure increased by approximately 20% year-on-year.

For those new company owners, along with the majority of professional investors who operate within a company structure, the increase in Corporation Tax will reduce the profitability of their investment, therefore just adding more hurdles and impacts to desperately needed housing stock

The overall effect of these changes will be a slow-down in both the numbers of properties changing hands and the profits made.

Incentives needed

So further change is necessary. The government has made an absolute commitment to increasing the country’s housing stock by 1.5 million homes. For this to be realised, the government will need to take action to mitigate what are expected to be largely negative changes.

For example, if it is not announced today, the Spring Statement must provide incentives across the property market in relation to new Net Zero targets. Similarly the Chancellor will need to review Stamp Duty, local authority funding and consider re-introducing financial incentives for first time buyers.

Currently many new build schemes are stalled because of viability. While changes to planning policy are set to open up the opportunity for more development – public and private, for sale and for rent, brownfield and greenfield – getting these homes built will require the government to be flexible in the planning gain requirements which can now include 50% affordable housing, 10% biodiversity net gain and substantial Section 106 commitments, alongside increased material and labour costs.

We hope to see a reversal of the abolition of Multiple Dwellings Relief – and if this is not announced today, it must be a future priority. Currently the abolition of MDR is estimated to have cost the UK 25,000 homes - almost 7% of the government’s 370,000 housing target - while also costing 60,000 jobs. Were the decision to abolish MDR reversed, the BTR sector would have the means of delivering much needed additional units across a variety of tenures, including much-needed later living accommodation.

Positives

While this Budget may not be good news for professional property investors, falling interest rates go some way to balance the detrimental effects. If, as has been suggested, the Bank of England reduces interest rates by a further 0.5% this year, debt will become more accessible allowing landlords to expand their portfolios, and lenders will show more forbearance towards those at risk of defaulting on their loans.

Looking ahead

The government’s 1.5 million homes housing targets has always seemed ambitious - today perhaps more than ever.

But the fact is that the target is of huge political importance to the government: to fail to meet it (even to deliver the first 370,000 homes in the first year) would be a much greater horror than any individual element of this Halloween Budget. On that basis, I anticipate with caution that greater leniency will be shown towards our sector in a (more upbeat?) Spring Statement in March 2025.?