After weeks of anticipation, speculation and selective leaking, the Budget has acquired something of the atmosphere of the Fyre Festival! Thankfully, the Chancellor has reaffirmed her commitment to just one fiscal event each year, so this particular circus will not return to town for another twelve months.
For our clients and for the London residential market, the substance is limited. The principal points are as follows:
Council Tax Surcharge
From April 2028, the Government intends to introduce a new council tax surcharge known as the High Value Council Tax Surcharge (or HVCTS). This will apply to properties valued at £2m or more and will be charged to owners rather than occupiers. The HVCTS will begin at £2,500 and will rise to £7,500 for properties above £5m. The Government will consult on the mechanics of the charge, including the circumstances in which support or deferral may be appropriate. There has been intense speculation around property taxation. In practice, the measure is not a mansion tax (albeit we suspect the media will coin it as such). It is a recalibration of council tax at the upper end of the market – something that is arguably long overdue. We anticipated a measure of this kind and we do not expect it to alter market behaviour or market values.
Property Income Tax
From April 2027, property income will be subject to a separate rate that will sit two per cent above the prevailing income tax rate. Given that the properties we acquire are almost exclusively private homes, this is unlikely to affect our clients directly. In broader market terms, we do not expect this to impact values or sentiment. That said, we appreciate it will feel like another blow to beleaguered buy-to-let investors.
Cap on Inheritance Tax charges for Excluded Property Trusts
From April 2025, relevant property trust charges for pre 30 October 2024 excluded property trusts will be capped at £5m. We understand this will apply only to Inheritance Tax charges.
Although this appeared only in the small print of the Budget (para 4.201), it represents a significant concession for former non-domiciled individuals who established excluded property trusts. It may even be regarded as an olive branch to those considering their position in the United Kingdom. The detail is limited, and we will await the views of specialist tax advisors, but as a matter of sentiment, it signals that the Treasury is listening. It may not be enough to entice those who have already left, but it may influence those contemplating departure. It is certainly a move in the right direction.
Despite the relentless noise in the run up to the Budget, the most alarmist proposals have not materialised. There is no exit tax, no mansion tax, no wealth tax, no capital gains tax on primary residences, no further increase in stamp duty surcharges and no abolition of stamp duty.
What is all the more remarkable, is that amid all the speculation, the market has moved stealthily forward. We are aware of seven transactions above £5m exchanging yesterday alone. Buyers who transacted in the midst of the uncertainty have been rewarded. We are also seeing increased interest from new arrivals making use of the FIG regime, even if not always in the manner the Government originally envisaged.
Onwards and until next year!