TPP608: How the budget will affect the property market (and the country)
Nov 7, 2024
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The podcast dissects the recent UK budget and its unexpected impact on property investors, particularly through increased stamp duty. It examines the implications of capital gains tax changes and critiques the conservative fiscal approach, advocating for bolder policies. The hosts also provide a positive outlook on the UK property market, highlighting ongoing demand and limited supply. Insights from Rory Sutherland add a unique perspective on customer experience in the realm of investment and infrastructure.
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Quick takeaways
The recent budget's increase in stamp duty for property investors may initially frustrate but could ultimately enhance long-term rental yields due to reduced supply.
Despite concerns, the capital gains tax remains unchanged, providing a sense of stability for property investors amid other rising costs.
Deep dives
Impact of Increased Stamp Duty on Investors
The recent budget has introduced a 2% increase in stamp duty for property investors, making the total additional charge 5%. While this has caused some initial frustration among investors, the speakers argue that it may not drastically alter the overall property investment landscape. The financial burden translates to an extra £5,000 on a typical £250,000 purchase, but considering the long-term returns of property investment over a decade, this increase might be manageable. A potential shift in the market could even lead to reduced rental stock, resulting in increased rental yields for those who remain active in property investment.
Long-Term Effects on the Rental Market
The conversation around the impact of the stamp duty increase extends to the broader rental market, particularly in London. If the increase discourages property investors, it could lead to a decrease in available rental properties, thus driving rental prices higher due to lower supply. This scenario may favor investors who choose to stay in the market, as higher rents can increase their returns. As a result, the long-term consequences of the budget could inadvertently benefit those who invest during this period of heightened tax implications.
Reflections on Capital Gains Tax Changes
Despite previous fears regarding a significant increase in capital gains tax, the budget only resulted in a modest adjustment, leaving rates for property investors unchanged. This has provided a sense of relief within the property investment community, as many anticipated a more severe hike. The speakers note that the government’s cautious approach likely stems from the fear of discouraging property sales and overall market activity. This situation emphasizes that while taxes may be rising in other areas, the relatively stable capital gains tax for property remains a point of stability for investors.
Concerns Over National Insurance Increases
The budget has introduced a significant rise in national insurance contributions for employers from 13.8% to 15.8%, which represents a considerable financial impact on businesses. Although the speakers suggest that the immediate effects may be tolerable in a strong employment market, there are concerns about the long-term implications such as potential job reductions or a shift toward offshoring. This change could lead to reduced government revenue over time if employment decreases, thus questioning the sustainability of the current budgetary strategy. The dialogue stresses the need for the government to find a more ambitious approach to revitalize the economy and manage taxation more effectively.