Commentary on Autumn Statement

21st Nov 2022

The Chancellor, Jeremy Hunt, gave his Autumn Budget 2022 at lunchtime, intending to deal with inflation and keep mortgage rates down for homeowners. Hear from David Alexander on how this will impact the housing market over the next few years.

What does this mean for Capital Gains Tax (CGT)?

“The expected reduction in exemption rates for capital gains tax (CGT) has been confirmed and for landlords, property investors, and second homeowners there is now an increasing disincentive to invest in housing. The rate is reducing from the current £12,300 to £6,000 by next April and £3,000 the following April. This will be a further reason for people to escape the property market sooner while CGT is at its current level, and I would expect the private rented sector to shrink to reflect the decreased profitability these changes make.”

What does this mean for Inheritance Tax (IHT)?

“The freezing of the nil rate Inheritance Tax (IHT) threshold at £325,000 until 2028 means that more homeowners will pay much more tax on their estates for the next five years. This will mean that the IHT threshold will have been frozen for 20 years with inflation eroding its value substantially over the intervening two decades. If the IHT nil rate threshold had kept pace with inflation it should, by October 2022, be at £473,784 which is 45.8% higher than it currently is. This figure has increased by £9,141 just over the course of the last month due to double digit inflation and will rise substantially over the coming years to make it worth a quarter or less by 2028.”

What does this mean for Stamp Duty Land Tax (SDLT)?

“The reduction in Stamp Duty Land Tax (SDLT) announced by Kwasi Kwarteng has been maintained but will now be time limited to 31st March 2025 with the aim of supporting the housing sector through the next few years as higher base rates impact on affordability and the expected reduction in values. This is welcome and must be replicated in Scotland if we are not to develop a two-tier property market. The Scottish sector will look increasingly expensive to enter without mirroring this valuable reduction in purchase costs and I would urge John Swinney to make a similar announcement in next month’s Scottish budget. If he does not, then the Scottish market, and Scottish homebuyers will be at a considerable disadvantage compared to their peers south of the Border. Without this reduction we may see a much greater slump in the Scottish market over the next couple of years.”

What is the impact on the economy?

“This statement looks likely to settle the financial markets – clearly the main target today – and this will ultimately be beneficial for the wider economy. But it is essential that homeowners, property investors, landlords and tenants are not paying too high a price for the fiscal incontinence of Liz Truss’ government. We cannot continue to place a major burden of tax on the property sector without there being unintended consequences. The CGT cuts will impact on the private rented sector which will impact on the availability of homes and the rent levels for tenants. The freezing of IHT will impact on the value of estates being passed on the next generation. While the disparity between Scotland and the rest of the UK’s stamp duty rates will have a serious effect on the attractiveness of our country as a place to live and invest.”

“For the financial markets and wider economy some harsh changes now will be beneficial in the medium term. For the short term, however, there will be some pain and additional costs for all parts of the property market until debt levels fall, growth improves, and the end of the recession is in sight.”