Scotland's autumn Budget: How landlords are getting squeezed

Scotland

By David Alexander, Managing Director


Immediately prior to each Budget it has become my habit to issue a statement giving a view as to how the Chancellor might assist the housing market, not just for the benefit of those with a vested professional interest but also the wider public.

This year, however, I have decided not to bother. The UK Treasury is desperate to raise cash so the residential rental sector, in particular, should not expect any favour from Philip Hammond when he stands up in the Commons next Wednesday. As for additional direct or indirect taxes, the current government has hit landlords so hard in this area that I cannot see how he can squeeze anything more out of them. A former Labour Chancellor, Denis Healey, once threatened to “tax the rich until the pips squeaked”; Tory Mr Hammond and his predecessor, Mr Osborne, have increased the tax liability on landlords to such an extent that there are no more pips to be squeaked.

Consequently, I am more concerned with the Scottish Budget on 14 December and the SNP government’s potential for giving a massive boost to the residential property sector – or sticking to a failed agenda through sheer political dogma.

There are two areas associated with the housing market where the Scottish Finance Secretary, Derek MacKay, can boost government income while generating an overall feel good factor among voters. One of these is LBTT (the successor in Scotland to stamp duty) which to most observers has failed in its intenion to assist buyers at the lower end of the market while maintain the tax take from residential property transactions.

A radical overhaul of LBTT is required. Mrs Thatcher proved that lower tax rates lead to more tax income for governments. Consequently I would like to see the SNP abolish LBTT on all purchases by first time buyers while reducing the rate from the top to the bottom of the current scale. Draconian rates have seriously diminished top-end sales, a situation exacerbated by older owners of large family villas declining to trade down to more manageable (but still higher-end) accommodation. As for investment buyers, rather than a prime £800,000 flat, these are now buying four properties at £200,000 each saving just short of £50,000 in tax in the process.

The other area where government revenue and housing can come together to create a wide positive outcome is income tax, over which Holyrood now has a large measure of control. The new-build sector excepted, most housing transactions lead to some form of “home improvement” on the part of purchasers – anything from a major roof repair to replacing a 1980s-style avocado bath with the latest genre. Consequently more activity within the market (as a result of reductions in LBTT) will inevitably lead to an upsurge in instructions for associated businesses – solicitors, chartered surveyors, estate and rental agents, building contractors, electricians, kitchen and bathroom fitted, painters and decorators. Even if some of these businesses pay corporation tax on profits (which goes to Westminster), personal incomes will still rise. Last month, setting out her government’s thoughts on future income tax rates, Nicola Sturgeon said that Scots should pay more to fund public services. It is a fact that the best way of raising additional tax through incomes for businesses to grow and to generate higher incomes for their directors and employees which then equates to more revenue for government. An upturn in housing sales will help do just that.

Having lots its overall majority, the SNP is now hostage to the Scottish Greens to get bills through parliament and the latter’s raison d’etre – i.e. understandable concern for the environment – now seems to have taken second place to a hard-left “ tax and spend “ agenda. Consequently, the suggestions I have described above are unlikely to be followed in the forthcoming budget. But one can always hope.

 

This article originally appeared in The Scotsman on 16 November 2017 titled ‘Budget could prove to be a highly taxing affair’.