London property market will remain vibrant after lockdown, budget proposals

Autumn in London is different this year, especially with the lifting of the Covid-19 lockdown and all remaining restrictions on July 19. Locals and foreign visitors are back in the city and are starting to buy or rent property again.

According to an Oct. 25 report from Knight Frank UK, overseas buyers have been more active in London since the UK’s travel rules were relaxed, but the full impact of their return to the property market remains to be seen. The property consultancy adds that 2.57 million passengers passed through Heathrow Airport in September, more than double the number of 12 months ago, and that figure is expected to rise further in October.

With the downward trend in the number of Covid-19 cases and nearly 50 million people aged 12 and over (around 86% of this group) having received their first dose of vaccine as of October 31, while another 45 million (about 79%) received two doses, general feeling should improve.

Another recent development that could have an impact on sentiment is the UK’s Autumn 2021 budget announced on October 27.

Its implications were discussed during a post-budget analysis webinar on October 28, hosted by real estate agent Benham & Reeves, CFO Vidhur Mehra. Attendees included real estate reporter Graham Norwood and Less Tax 4 Landlords group co-founder and group director Christopher Bailey. The panel examined the impact of the budget on the taxation of investors.

The webinar was divided into six main parts: overview, specifics for owners and investors, UK economy and future prospects, indirect issues (for owners and investors), some unknowns to keep in mind and where it all leaves homeowners and investors.

Norwood: London’s strong attractions or unique selling points… will remain the same for the long haul (Photo by Benham & Reeves)

No tax change in stamp duty, commitment of £ 150 billion to ‘new economy’ spending

According to Norwood, despite much speculation, no changes have been announced for stamp duty, capital gains tax and inheritance tax. Among the announcements was a £ 5million allocation to remove hazardous coatings from certain high-rise buildings and coating work to be funded at 4% through the residential development tax.

“There will also be long-term funding for an additional 180,000 affordable housing units and a greater emphasis on contaminated sites for new affordable housing. There will be an evolution of universal credit, indirectly benefiting many tenants, ”he added.

Regarding the specifics of the owners, Norwood said: ‘£ 65million has been allocated to help (settle) the arrears accumulated during the pandemic through the Covid Arrears Debt Fund which will be administered by the English local authorities. The capital gains tax declaration and payment period doubled to 60 days.

“There was also a change in the timescale for the roommate rate to help some tenants. One good thing advertised for homeowners who are independent traders with an income of over £ 100,000 a year is that they would have an additional 12 months until April 2024 before switching to an online system called Making Tax Digital ( MTD). Another £ 2.2bn has been allocated to more legal recoveries, including courts hearing possession cases. “

He saw the budget as good news for homeowners and investors.

Vidhur: Since the restrictions were lifted there has been incredible interest in both selling and renting (Photo by Benham & Reeves)

“There are promises of massive spending of £ 150 billion to create a ‘new economy’ to recover from the pandemic. This is a substantial injection of funds into the economy with the hope that growth will be significant in the years to come. In addition, the inflation rate is now 3.1% and is expected to rise to 4.0%.

“The forecast for peak unemployment has been reduced from 11.9% to 5.2% while annual GDP growth will be 6% this year, then 6% in 2022 and 2% by 2025. L Borrowing as a percentage of GDP is expected to drop from around 14% to 1.5% by 2025. Overall, the economy is expected to reach pre-Covid levels by the end of 2021.

In terms of other indirect good news for investors, Norwood said, “There has been a much faster than expected economic recovery after the pandemic. The reform of corporate tariffs, as advocated by the Confederation of Industrial Enterprises and Business Managers, has been very well received. Concerns about financial services were eased slightly with the benefit of a bank surcharge reduced from 8% to 3%.

On other macroeconomic issues, the air travel tax on domestic flights has been halved to boost connectivity, while £ 21bn has been allocated for road spending and £ 46bn for railways .

“The effects of Brexit – so far there have been fewer inconveniences than expected. The continuation of the pandemic is an uncertainty, but we seem to have overcome the worst; its effects are expected to diminish by 2021 and 2022. There are also issues such as inflation and supply chain crises around the world that are impacting affordability and the cost of living, which will affect tenants, ”he said.

“Likewise, there will be an increase in the minimum wage for (people aged 23 and over) to £ 9.50 an hour, which will help workers in construction and in industry. Inflation figures may not include very recent energy increases. And finally, there will be an additional air travel tax on flights over 5,500 miles to / from the UK, which is a factor that may affect the country’s international connectivity. “

Bailey says investors should be aware of increases in cooperation tax and dividend tax (Photo by Benham & Reeves)

Meanwhile, Norwood gave its forecast for the overall market in light of the budget announcement.

“London’s strengths or unique selling points, which are primarily its connectivity, global language, education (and student market) and culture (be it history or tourism) will remain unchanged in the long run. .

“The most recent average rate of capital appreciation (of sales) in Britain is above 10% (and in London, according to the index, the rate is between 4% and 7% on average), it There is therefore no change in the remarkable dynamics of the sales and rental markets.

“The housing shortage relative to demand will continue. Infrastructure projects appear largely undamaged by the pandemic, even with high tax levels in the UK. The UK is holding on to its reputation as a safe haven for investors.

However, he warned that the tenant reform bill, which will be introduced in the next three to four months, could be a problem.

“It will be a long process and we don’t know what the specific measures will be. There has been talk of changing the way deposits are managed and changing the possession process for owners, but the process to introduce this will likely take three to four years (due to consultation and parliamentary processes) and therefore , any measure that comes in the next few months will be the start of a long process.

In conclusion, the panelists were optimistic on the budget and anticipate a good recovery in the housing and rental markets in London and the UK.

Vidhur shared his insights: “Since the restrictions were lifted there has been incredible interest in both selling and renting. All of our branches are receiving an incredible amount of queries, at unprecedented levels due to pent-up demand. We have been busy with real estate events and launches almost every weekend at our overseas locations.

“After having to stay indoors for such long periods of time, people are ready to move. London’s financial district is starting to enjoy the same buzz it had before the pandemic. While people can enjoy the flexibility of working from home, businesses appreciate working together in a professional environment and the more powerful impact of face-to-face meetings.

“But there are still long-term effects of the pandemic to consider. Some may prefer to minimize their travel by public transport or be able to walk to places they need to go, have an outdoor space and be able to get to the WFH when needed. “

Bailey predicted, “The homeowner bashing may be over, hopefully. Foreign buyers need to understand that the government will review votes before considering taxes, which is important. The rental sector is booming right now, and that is making money for the government.

He said foreign buyers may also have to take into consideration that the cooperation fee for businesses will increase in 18 months. The rates will drop from 19% to 25% over the next two years. In addition, the dividend tax rate could reach 39% by next year.

“Buyers should be aware of these additional taxes,” he warned.

Penny D. Jackson