Home Property Property Tax cut – Covid’s Two speed Economy

Property Tax cut – Covid’s Two speed Economy

A two speed economy has been described as “where one sector of industry or business grows at a much more rapid rate than another – often masking the slow rate of growth in the smaller sector”.  This is true in the case of Covid’s impact on the property market, together with the property tax cut.  Real estate is one of London’s most resilient factors in the economy as will be vouched for by the property market leaders, including the estate agents in Hyde Park, at the core of London’s industrial hub.

Stamp Duty on Land Tax:  The property market experienced a rise in the second half of 2020, mainly due to the cut in the SDLT (Stamp duty land tax).

  • The tax “holiday” is currently valid till 31 March 2021 and has allowed no tax payable on the first £500,000 paid for property in England and Northern Ireland for first time buyers.
  • For buyers of second homes or additional dwellings (including individuals, corporate buyers/investors), the 3% additional SDLT will continue to apply. However, they will still benefit by paying only 3% surcharge on the first GBP 500,000, instead of the previous tax, escalating from 3% on the first GBP 125,000, 5% on the next GBP 125,000 and 8% on the remaining GBP250,000.
  • An additional 2% surcharge on stamp duty will be introduced for overseas buyers from 1st April 2021. The surcharge is proposed to apply to individuals or companies with a few specific exceptions such as REITs (Real Estate Investment Trusts).  Clarifications can be sought from an experienced estate agent.
  • The maximum benefit is purchasing more expensive property, closer to the GBP 500,000 margin, as the tax savings will be higher. Those looking to move to more costly areas could also benefit.

This SDLT decision by the Government has helped buyers and boosts the property market during the pandemic. However, with more people rushing to buy homes while the SDLT holiday is in place, the feeling exists that people who were planning to buy later would try and take advantage of this tax benefit and go ahead immediately with their purchase.  This could cause a slump in property demand after the tax holiday is over, causing a fall in house prices.

Incomes and Savings:   The wealthier population has managed to pull through the financial crisis and, with the lockdown limiting outdoor movement, they have even been able to boost their savings.  This has resulted in some looking to move to a larger accommodation, with more outdoor space, away from the cities’ centre, resulting in a rise in property sales.  On the other hand, some of the middle-class people were hit with job losses, and their dream of owning their own home remains just that – a dream.

Mortgage approvals:  There has been a rise in mortgage approvals, due to the many types of low rate interests available, which means prices could continue to increase.  However, the reversal of the property tax cut could see a decline in the property market.  To protect the lower income population whose finances have been badly hit, estate agents could guide them to specialist mortgage lenders to find the right solution.

Rentals:  With more people working from home or flex offices, the demand for rentals in suburbs and wider spaces has grown, increasing the rental market in those areas while rentals in cities like London have dropped.  Student renting is a large part of the rental market.  However, with the new strain of Covid entering the UK, schools and colleges have been closed (except to the children of key workers and vulnerable children).   Due to travel restrictions and other pandemic effects, the overseas student population has decreased, causing a slide in the rentals as well.

Covid vaccine:  The arrival of the Covid vaccine will have an impact on the property market.  It could restore buyers’ confidence, which would avert the predicted crash after the SDLT holiday ends.  In the wake of the Covid vaccine, some buyers and sellers are already rushing to make it before the 31 March 2021 deadline!   On the other hand, the potential Covid vaccine has made other prospective sellers think twice and not accept low offers. Instead, they prefer to wait and see if the market improve. Hopefully, the vaccine will bring back some normalcy to life, with a resurgence in demand for property in the cities.  Once the pandemic is over, and the lockdowns cease, the hospitality, entertainment, leisure and shopping areas will probably be able to operate in a greater capacity than at present, which will result in a boom especially in the city property markets.

Conclusion:  With all the uncertainty caused by the pandemic, the result of the property tax cut, Covid’s two speed economy and the arrival of the Covid vaccine,  it is not easy to predict the future.  There will be fluctuations but, overall, the UK property market should remain as strong as it always has been.