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Buy-to-let crackdown? Charles Stanley's 5 Budget calls

With Philip Hammond facing a tough balancing act ahead of this week's Budget, Charles Stanley offers its predictions.

Unlikely to be a crowd pleaser 

 

The chancellor finds himself in a tough situation as he prepares to deliver his Budget later this week. 

While the Philip Hammond's statement has been widely tipped to contain some concessions to younger voters, Charles Stanley notes, this will do little to relieve the pressure on maintaining fiscal targets.

'The Conservative Party conference in October outlined a number of policies aimed at courting younger voters; a clear response to the results of the general election in April where first-time voters appeared to shun the party,' the wealth firm says. 

'This strategy is not without risk. Any concessions to the young will most likely have to come at the expense of older voters. Any attempt to launch a raid on assets most commonly associated with that demographic - namely pensions and property - will alienate core Conservative voters at a time when the party is already without a majority.' 

With the chancellor facing such a difficult balancing act, Charles Stanley lists its five predictions.  

 

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Unlikely to be a crowd pleaser 

 

The chancellor finds himself in a tough situation as he prepares to deliver his Budget later this week. 

While the Philip Hammond's statement has been widely tipped to contain some concessions to younger voters, Charles Stanley notes, this will do little to relieve the pressure on maintaining fiscal targets.

'The Conservative Party conference in October outlined a number of policies aimed at courting younger voters; a clear response to the results of the general election in April where first-time voters appeared to shun the party,' the wealth firm says. 

'This strategy is not without risk. Any concessions to the young will most likely have to come at the expense of older voters. Any attempt to launch a raid on assets most commonly associated with that demographic - namely pensions and property - will alienate core Conservative voters at a time when the party is already without a majority.' 

With the chancellor facing such a difficult balancing act, Charles Stanley lists its five predictions.  

 

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Buy-to-Let

'The Buy-to-Let market has been subjected to more and more scrutiny but the Treasury may still be tempted to make another tax raid as part of the Autumn Budget.

'Stamp Duty Land Tax (SDLT) rates on additional residential properties went up by 3% in April 2016 and there have been a number of changes to the rules this year as well.

'The Bank of England introduced stress tests for the first time in January, leading to several lenders raising their interest coverage ratios. Additionally, the amount of income tax relief landlords can get on residential property finance costs will be restricted to the basic rate of tax in 2020, after it is phased in over a four-year period. Lastly, landlords now face higher rates of capital gains taxes on property transactions. 

'The fact that further interest rate rises from the Bank of England will put more pressure on landlords may dissuade the chancellor from making more changes. He may however be tempted to crack down on landlords attempting to circumnavigate the existing rules.' 

 Charles Stanley chartered financial planner Anne McClean adds: 'The rules are changing so that landlords can no longer fully offset mortgage interest payments against rental income for tax purposes.

This doesn’t apply to companies, however, so growing numbers of landlords have chosen to form limited companies to circumnavigate this change. The government may be tempted to try and crack down on what could be perceived as a loophole.'

 

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Dividends

'In the Spring budget, the chancellor announced plans to reduce the tax-free dividend allowance to £2,000 from April 2018, down from the current limit of £5,000. The tax rates over the allowance are currently 7.5% for basic rate taxpayers, 32.5% for higher rate and 38.1% for additional rate.

'This proposal was dropped in the wake of the snap general election but was reintroduced in the new Finance Bill in September. Although this represents a very recent change, the Treasury may be tempted to increase dividend tax rates or cut the tax-free allowance even further.

'This has been described as a potential "quick win" for the chancellor and would likely have a greater impact on older, asset-rich voters, than the young.' 

Charles Stanley senior financial planner Mia Kahrimanovic adds: 'The government has dropped this proposal once before and it would be good to see them do it again.

'We need to be encouraging savers, especially since interest rates are going to remain lower for longer, and this is not the way to do it.' 

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Tax

'National insurance contributions may well be cut for workers in their twenties and thirties. This would appeal to younger voters but this would have to be funded from elsewhere. 

'It would appear likely that the government may opt to reduce the tax relief offered by Enterprise Investment Schemes (EIS). These allow investors to receive 30% income tax relief on the total investment into smaller, unquoted, trading companies. A government consultation on financing growth in innovative firms was conducted over the summer so this is clearly an area of interest.

'Given that tax relief increased from 20% to 30% as recently as 2011, it is possible the chancellor will simply opt to reverse this decision.

'The question of whether the chancellor will make any changes to the personal allowance, which is currently £11,500, is less certain. The government outlined a commitment to raise the personal allowance to £12,500 by 2020, albeit under different leadership, so there is scope to help out lower earners with this Budget.' 

 

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Stamp Duty

'This is an area where the chancellor may be tempted to make concessions that benefit the younger generation. The average price of a property for first time buyer in London is £422,380, according to figures from the Land Registry, which would result in a stamp duty bill of around £11,120.

'If the chancellor does decide to cut stamp duty for first time buyers, this would provide a significant boost to "generation rent" given the difficulties the younger generation face when trying to get a foot on the housing ladder.

'The number of homeowners under the age of 45 in England has dropped by more than 900,000 since in 2010, according to figures from the Data from the Department for Communities. The government may decide this would be a good place to make a show of tackling the perception of intergenerational unfairness.' 

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Pensions

Pension tax relief costs more than £50 billion a year, according to official government data, and the chancellor will be at least tempted to see what tweaks can be made here.

 The annual allowance for pension contributions is currently £40,000 and it is here that the chancellor might be tempted to make changes. A reduction to the annual allowance could risk alienating core Conservative voters but it remains a valid option.

Kahrimanovic says: 'Taking the annual allowance down from £40,000 to £30,000 would affect a minority of people but it would be perceived as a move against higher earners. This could be a feasible as it would raise more money while appealing to those who feel a sense of intergenerational unfairness.' 

Charles Stanley adds: 'Savers may also see a reduction to the £1 million lifetime allowance. This appears less likely, especially given that it is due to increase in line with inflation in April 2018 to £1,030,000.' 

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