Now that we’ve had some time to assess the Budget and all its ramifications it’s perhaps possible to find a number of measures and announcements which may have an impact on your landlord clients.
Perhaps understandably there was a lot of focus on pensions, most notably the decision to increase the annual tax-free allowance from £40k to £60k and the lifetime allowance being abolished completely.
The idea behind this being to keep higher earners, particularly within the health sector, working and potentially to bring back into employment some of those individuals who retired early because they felt they couldn’t add any more to their pensions and be hit with a much higher tax rate.
What might this have to do with our sectors? Well, it might seem slightly tenuous, but many people invest in property in order to supplement their pension – indeed for many it is going to be their pension – and part of the reason for investment diversification has been the pension rules.
It may well be that, with the abolition of the lifetime allowance, putting greater amounts of money into a pension, particularly over the next couple of years, will seem like a much more attractive prospect.
This could mean that money earmarked for property investment ends up going into the pension instead, or indeed, some landlords may decide they could utilise some of their existing property equity, release it, and put it into a pension instead.
These are all hypotheticals but there’s no doubting individual landlords will be weighing up the benefits of what can now be achieved with their investments, particularly if they were planning to hold onto them until retirement, with what can now be achieved within a pension.
And, let’s not forget, the Labour Party has already said that if it wins the next general election it will reverse this decision, so many people who will benefit from these measures may well think they only have a limited time to be able to fully benefit from them.
A further decision, and one that again will play into how landlords work with their portfolios in the future, is around Capital Gains Tax (CGT). Last year, it was announced the tax-free threshold for CGT would be reducing from April 2023 down from £12.3k to £6k, and then down to £3k from next April.
Many were wondering whether the Chancellor would relook at this decision, particularly if the economy was improving, but that was not the case, and given the figures released regarding economic growth, it seems unlikely we’ll get any review now.
It means those landlords who are thinking about selling their additional properties will need to consider that any profit made will now be subject to higher levels of CGT tax exposure from the 1st April – and that is no April Fools.
In a sense this might make those who were thinking about selling up think again, and in a way, may keep property within the PRS that could have been about to leave. Lord knows the sector needs all the supply it can get at the moment, however it remains to be seen just what impact this will have over the long term. Certainly, landlords who are relying on capital growth will need to understand just what these reduced thresholds will mean should they decide to sell.
Finally, energy and its efficiency was a big part of the Budget. The Energy Price Guarantee was extended and this will clearly impact both tenants and those landlords who include bills within their monthly rents.
Overall, however, in the supposed ‘push’ towards net zero and reducing the carbon emissions emanating from UK properties, there was not a lot to go on. We still await the final rules for landlords on EPC levels but there remains the assumption that this will eventually become law, and landlords will have until 2025/28 to literally get their houses in order so they are Level C and above.
As always, advisers are in a very strong position here to take their landlord clients through their forthcoming responsibilities, to ascertain what the current EPC is, to look at what might need doing to the property to improve it, and to understand just how the landlord wants to fund this and the financial products available to them to achieve it.
At the moment, it looks unlikely we’ll see a lot of government-focused incentives or schemes for landlords to make use of, so it will probably be a question of landlords doing it (and funding it) themselves. Getting ahead of this potential issue right now is definitely the correct course of action, for both advisers and their clients.
Steve Cox is chief commercial officer at Fleet Mortgages