Reflecting on the Budget
Posted on 1 April 2014
Now we've had time to reflect, what does the budget really mean for you? The great expectations have remained just that – no reduction in stamp duty, and only a very small movement for the 40p tax threshold. Encouragement for the new build market was widely predicted but the changes were not as dramatic as to make any significant change – certainly not enough to cool off a very hot market as the demand continues to overtake supply.
For the housing market and mortgage industry, there are some significant announcements, – even if at first glance they seem unconnected.
The cries from the savers have been heard after years of low interest rates and there is an encouragement for them to save up to £15,000 in a new form of ISA, which merges both cash and shares ISAs.
There is more good news for the savers as the 10% tax rate for savers will be abolished in the Finance Bill 2014.. During 5 years of low interest rates there has been precious little incentive to save, with many people turning to investing in property instead.
The budget reforms may change that equation slightly in favour of saving, however it will make it slightly easier for first time buyers to save their deposit, which can only be a good thing! The increase in the personal income tax free allowance for 2015-16 by £500 from £10,000 to £10,500 will save people £100 income tax per year. The change will take effect from 6th April 2015.
The threshold for the 40p rate of tax has also been increased from £41,450 to £41,865.The income tax saving will be further £82 per year. All of which sounds like the majority of us will be better off. However, if the interest rates increase by just 0.25%, a family with a mortgage of £150,000 will face an increase of £375 in annual interest payments, wiping out any gains from the tax threshold changes and leaving hardworking families in the 40% tax bracket £193 a year worse off.
The huge surprise is the reform in pensions where from April 2015, people can take their pension pots cash from the age of 55 and will not have to purchase an annuity. Small pots up to £30,000 can be cashed without further tax liability but for larger pots income tax rates will apply after drawing down the first 25% tax-free compare to the current flat penalty rate of 55%. As Osborne said: ‘You have earned, you have saved it...’ we can add: now you can take it cash and invest in properties, should you wish to. It’s possible the pension reforms could fuel a Buy To Let boom – or lead to lenders being more willing to offer interest only mortgages to older borrowers, who might now decide to use their pension pots as a repayment strategy.
Of course, one of the major aspects of the Chancellor’s speech was directly related to the housing market. Days before the Budget the chancellor announced that Help To Buy 1 will be extended to 2020 instead of ending abruptly in 2016 – which will certainly boost the confidence amongst first time buyers. As a reminder – the scheme applies only to first time buyers purchasing a new build property. Shortage of housing was also addressed with plans to build a new garden village of 15,000 new homes near Ebbsfleet as well as a project for Brent Cross aiming to create jobs as well as over 4,000 homes.
Crucially, if your accountant is still advising you to purchase a property under limited company, be mindful of changes in the law. It was announced that Stamp Duty on homes worth more £500,000 will rise to 15% for those bought by limited companies.
High expectations and focus on elections has rendered the mood rather dim. Still, bingo is cheaper and we can all have a drink now.
Categories: Mortgages London
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