Money and Finance Wendy Whittaker-Large  

2021 Budget – What Does it Mean for the HMO Investor?

The Chancellor Rishi Sunak announced his budget proposals on March 3rd and here’s a quick summary of the measures that could affect you if you are investing in HMOs. The biggest thrust of Sunak’s efforts are focused towards paying back the huge debt that the government has borrowed to pay for COVID support packages, and to help the economy get back into the black.

This Budget consisted of a 3 point plan to help the country towards recovery:

1.  Support

2.  Fixing the country’s finances

3.  Beginning the work of building our future economy.

Stamp Duty Holiday

The Stamp Duty holiday currently in force will be extended until June 30th on property purchases up to £500,000 in value. Then from July the Stamp Duty holiday will continue until September 30th but with the upper purchase price limit where basic stamp duty will not be charged, will be reduced to £250,000. At this point, the SD holiday will end and as far as we understand, return to rates prior to covid.

This extension should not only help buyers who are currently in the midst of buying a property, it will remove some of the pressure on purchasing properties as the current Stamp Duty deadline has caused a backlog of applications and increased processing times.

Corporation Tax

For landlords who have incorporated (as well as estate and letting agency businesses) there will be an increase in Corporation Tax from 19% to 25% in the tax year starting April 2023 but only if their profits are above £250,000 per annum. If your company profits are £50k or less, your corporation tax will remain at 19%.

Between 50k and 250k profits will attract a tapered amount of corporation tax.

Therefore, keeping your business tax efficient will be a critical priority!

Capital Gains Tax

Thankfully, none of the changes proposed by the Office For Budget Responsibility to increase the levels of CGT were adopted by the Chancellor. This was a big relief to see that the government are defending the right to own assets without incurring large costs on disposal.

Government Backed Mortgage Loans

In a surprise move, Sunak announced that the government will be creating a mortgage loan scheme to  guarantee 95% mortgage loans on property purchases up to £600,000. This is to allow first time buyers to get on the property ladder, and as he said to move from ‘generation rent to generation buy’.  This may affect the market for HMO tenants as some of them decide to up sticks and purchase their own home, rather than rent.

Income Tax

Income tax allowances will be frozen for five years. This may not seem significant, but if inflation starts to increase, this will effectively increase many people’s income AND increase the tax they pay.

  • Personal income tax allowance is to be frozen at £12,570 from 2022 to 2026.
  • Higher rate income tax threshold is to be frozen at £50,270 from 2022 to 2026.

This of course affects many property investors, when coupled with the egregious effects of Section 24. If you are on the threshold of being a higher rate earner, you’ll need to keep an eye on this over the next few years to ensure you understand the impact on your personal tax due.

Other Announcements

The government’s furlough scheme is now extended until September 30th 2021 which will delay any immediate increases in unemployment, and hopefully allow vulnerable sectors to open up whilst still having some protection. Alongside this, the National Living Wage will be increased to £8.91 from April and the £20 uplift in Universal Credit to be extended for another 6 months.

A huge raft of incentives and schemes were announced to support investment such as –

  • The first ever “UK Infrastructure Bank”, located in Leeds.  It will start with £12bn pounds of capital.
  • There are number of green initiatives announced, including a new Savers Account.
  • “Help to Grow” will provide training for businesses.
  • “Help to Grow Digital” to assist small businesses with on-line activity.
  • A new visa to attract people with skills to our country.
  • A new economic campus to be created in Darlington.
  • Freeport areas which are going to be simpler and cheaper to operate within – lower taxes to encourage construction, private investment, and job creation.

What affect will these changes have on the HMO market?

I think that we all heaved a sigh of relief to learn that CGT rates were remaining unchanged as this would have been a massive threat to investors – both as property investors and business owners. There is an emphasis on investment and growth in the UK as well as support for those who are more vulnerable in this year’s budget. This means that tenants will have continued income security, and we as investors can rest assured that HMOs will still play a strong role in the housing market. There were few announcements that directly affect the housing market, which is a welcome relief, although some people are arguing that landlords should have been offered more financial support.

My hope is that as lockdown ends, and the economy starts to open up again, we will gain further clarity on the economic impact of Covid. This will lead to further tough decisions, but hopefully ones that will help us as a country become more productive, more efficient and have higher growth long term.

If you are considering investing in HMOs and wondering what the changes mean for you, please get in touch and let us help you decide exactly how to implement a plan for growth and profit using HMOs.