On Wednesday 22nd November 2023 the Chancellor, Jeremy Hunt delivered the Autumn Statement and we have taken a look through the details to bring landlords a summary relevant to their business.
Whilst the Chancellor largely ignore housing in the Autumn Statement we have noted key measures which should help landlord and support the housing market. From permitted development changes to a reduction in NI contributions and investment into local housing allowance but what does it all mean for landlords.?
Local Housing Allowance
This is set to be increased in 2024 to the 30th percentile of local rents supported by a £1bn investment. This means that for the first time since 2020 local housing rates will cover the bottom 30% of market rents.
This helps tenants with their rent which has been rising at such high rates for a number of years now and may open up market choices as affordability gaps between income and support close in on market rents. This additional support for tenants on the lowest income is estimated o provide an additional £800 next year to 1.6 million households according to the Chancellor.
The benefits for landlords are:
- Ability to increase rents - particularly for those landlords that have been putting off increases to support their tenants
- Wider tenant pool - with affordability improving this can expand the pool of potential tenants and reduce void periods between tenancies
- Improved rental stability - good tenants in receipt of housing benefits tend to stay in their properties' for longer periods and rising rates which support the market changes can increase security and stability
Generally the announcements have been welcomed and indeed were called for by landlord groups prior to the statement but there is still a large gap and a desire that further investment is realised in the Spring Budget.
Mortgage Guarantee Scheme extended
The government-backed scheme has been extended to the end of June 2025. This is 18 month longer than previously agreed. The scheme is primarily aimed at helping first-time buyers and home movers secure a mortgage with just a 5% deposit by providing a guarantee to the lender for the 95% mortgage. This scheme is not directly available to landlords purchasing buy-to-let properties but has an indirect benefit which we explore below:
- Housing demand - as home ownership becomes more accessible to a larger pool of buyers this can result in higher property prices which can be a benefit to landlords looking to sell part or all of their portfolio
- Housing values - this scheme can bolster the housing market and values which means portfolio values increase and provides wider access to finance for landlords
- Market movement - the stimulus of market movement between rental and ownership could provide further investment opportunity for buy-to-let investors and landlords whilst also generating additional rental stock to support the demand in the sector from tenants
Whilst the scheme is not designed for landlords, its broader impact can present opportunity to landlords and creates indirect benefits which landlords should consider within their own investment strategy and objectives. Generally this is a welcome extension.
Permitted Development Rights
The Chancellor announced a consultation into new permitted development rights which will explore allowing one house to be divide into two flats provided the exterior remains unchanged. Should this be implemented then it brings good news to investors both those entering the market for the purpose of splitting properties to create multiple rentals and those that currently hold assets that may be more suited to split.
The wider benefits of this include;
- Increased income - splitting to two properties can generate additional rental income
- Portfolio value - in the right conditions the value of the asset can be increased which has a wider impact on portfolio values and in turn access to finance
- Additional rental stock - in areas which have a higher demand for smaller properties this can result in increased supply and a larger pool of tenants based on affordability
Overall this should be good news for landlords and investors but caution should be applied if considered development in this area. We recommend that landlords revisit their long term strategy and objectives and consider the local market demand and supply, whilst of course considering costs and the potential return on the investment.
National Insurance & Universal Credit
Employee and self-employed contributions both featured in the Statement. A 2% cut announced for employees from January 6th 2024 which saves employees approximately £450 per year on an average salary. Whilst Class 2 NI payments for the self-employed will be abolished and Class 4 NI contributions cut from 9% to 8% provides an average total saving for self-employed people of over £340 per year.
A large number of landlords in the sector are self-employed and these changes will directly benefit them. Tenants that are employed will see a benefit in the employee cut of 2% which will ease the cost of living burdens and provide further rental stability.
Despite these changes calls continue for raising thresholds which would have a larger impact on paid workers.
Universal credit and other benefits are set to rise in April 2024 by 6.7% in line with the consumer price index (CPI). Whilst this is lower than raises to national living wage which is 9.8% it is still very welcome.
Personal Tax
We take a look now at the personal tax changes which will apply for the coming year, not all of these were announced in the Autumn Statement but remain applicable to landlords and should be considered in future planning.
Income tax thresholds will remain at £12,570 for 2024/2025 with the higher rate at £50,270. 45% additional rate will stay at £125,140.
Dividends - for those landlords being paid by dividends the allowance for 2024/2025 will be halved to £500 as previously announced.
Trusts and estates - there will be no tax for estates where income does not exceed £500 and in these circumstances the estate income paid to beneficiaries will also be tax free. Trusts with an income of £500 or less will have no tax to pay and this threshold is split across trusts where a settlor has created more than one. These changes apply following previous announcements and introduced legislation and are not stated within the Autumn Statement.
Inheritance Tax - the nil rate band will remain at £325,000 being unchanged since the introduction in 2009/2010.
Stamp duty land tax - banding remains unchanged for England and Northern Ireland. From 1 April 2025 the threshold for 0% will be halved to £125,000 and a 2% rate will then apply between £125,000 and £250,000. The surcharge for second homes will remain as it currently is at 3%.
Capital gains tax - for individuals and personal representative the exempt amount will reduce by half to £3000 in 2024/2025.
Additional measures- Triple lock pension increase of 8.5% for 2024/2025
- Full expensing of investments in qualifying plant and machinery will be made permanent for business and companies
- Investors permitted to make multiple subscriptions to ISAs of the same type each year from 2024
- National Living Wage increases by 9.8% to £11.44
- Reform of long-term sickness benefits to encourage job seeking and working from home
- Core inflation is predicted to fall by 2.8% in 2024, which is a slower decline that previously anticipated
What was missing?
Despite being mentioned in the King's Speech there was no reference to the Renters' Reform Bill which is currently being scrutinised and debated in the House of Commons as part of the committee stage. Relief was granted to the sector with the announcement that Section 21 will not abolished until much needed changes are made to the court system.
New housebuilding featured in the Autumn Statement and of course energy efficiency features within these measures but for existing property landlords were not given new deadlines or schemes related to energy efficiency with very little mention of this at all. Landlords were relieved to see the scrapping of the proposed energy efficiency improvement requirements to move properties form an EPC band E to C by 2025 and this will continue as no further measures were announced in this Statement but the uncertainty in the market around energy efficiency standards will remain.
Calls for the removal of Section 24 have been ignored with strong beliefs that this would provide some security to investors and generate additional investment into rental stock to meet the high demands, some may consider this a missed opportunity.
Conclusion
The property sector remains robust in the current economic climate and although there seems to be some missed opportunity the Autumn Statement and measures announced will have a positive impact for most landlords and their tenants.
Do you think more could have been done and what measures are you keen to see?
Leave us a comment below or get in touch today.
