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Blog - Published 21st November 2018

Autumn Budget 2018: Chancellor misses an opportunity to address affordability issue

Autumn Budget 2018: addressing the property affordability issue

The Autumn Budget 2018 offered plenty of good news for the housing and construction sector, with the Chancellor promising £1bn of British Business Bank guarantees to encourage more smaller-scale developments by SME developers. There was also additional funding to help up to 500 neighbourhoods secure land for new homes, to be sold to local people at a discount.

However, he could have done more to address the problem of housing affordability, by incentivising buy-to-let property owners to release stock back into the market. The tweak to lettings relief, due to take effect in April 2020, could also end up discouraging, rather than encouraging, the sale of second properties.


British Bank Guarantees for SME developers

pound coinsThe Government’s pledge of £1bn of British Bank Guarantees for SME developers, links to an earlier promise of support for small and medium-sized builders made in the Housing White Paper. The significant value of this additional funding suggests that the Government is following through on its promise and acknowledging the contribution that SME developers could make towards achieving its ambitious target of a million new homes by the end of 2020.

While this area of the Chancellor’s speech was undoubtedly positive for the property sector, further detail is required to establish exactly how developers will access the funding and the relevant qualifying criteria. Many smaller developers will be unaware of the British Business Bank, or the work it undertakes, so the success of the proposed guarantee scheme will rest on whether efforts are undertaken to raise awareness of the organisation amongst this key segment of the market.


New house building fund

How will the 2018/19 Finance Bill impact property investors?Another welcome announcement was confirmation of an £8.5 million fund to help up to 500 local areas secure land for new homes, to be sold at a discount. Focusing on key geographical areas where the issue of housing affordability is particularly acute, this measure should certainly go some way to helping more young people get onto the housing ladder. It should also help to provide opportunities for SME developers, who will be able to benefit from more straightforward planning permission.

The Chancellor’s decision to remove the cap on local authority borrowing for the construction of council houses is another promising move, which could help to tackle the problem of housing affordability. In recent years, unfavourable changes to the tax position for buy-to-let homes has forced many buy-to-let landlords to sell up. This has triggered concern for councils, who have long relied on these portfolios to plug the council housing gap. Providing an additional source of borrowing for councils could help to overcome the availability issue.


Changes to lettings relief

While these announcements are mainly positive, the Chancellor’s decision to alter lettings relief has been widely criticised. Whereas previously, those selling a buy-to-let property could benefit from a reduction in taxable gains of up to £40,000, from April 2020 this relief will only be available to landlords who have a shared occupancy arrangement with their tenant. In terms of its effect on the supply of affordable housing, this could prove counterproductive, serving as a significant disincentive for second home owners looking to sell their property.


What about Capital Gains Tax and Stamp Duty Land Tax?

The UK Government has also missed an opportunity to boost housing supply by reducing capital gains tax (CGT) on residential properties to 20 per cent or lower. Reducing the tax burden on landlords in this way could have released long-term stock onto the housing market and boosted property sales.

Another oversight is the decision to continue charging Stamp Duty Land Tax (SDLT) on development land. As well as restricting small developers from entering the market, this expense is often passed onto buyers, which is increasing prices and doing nothing to solve the problem of affordability.

Rebecca Wilkinson - Menzies AccountantWhilst there was some positive news for the property market and SME developers, the lack of a stronger commitment to tackling the issue of housing affordability is disappointing. More incentives to release stock into the market, combined with more support for SME developers, may yet be needed to move the Government closer to its ambitious 2020 housebuilding target.

For more information on the Autumn Budget and it’s implications for your Property and Construction business, contact Corporate Tax Partner Rebecca Wilkinson.

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Rebecca Wilkinson - CTA

Corporate Tax Partner

Rebecca Wilkinson is a Corporate Tax Partner in Menzies Woking office specialising in corporate tax advisory services for UK and overseas SMEs.