2014 Budget Announcement: Extended Property Taxes and a Boost for Small Developers

Britain Scotland

Chancellor of the Exchequer, George Osborne,  announced the United Kingdom’s budget for 2014 today. In his speech, the chancellor discussed a wide variety of current issues. Some of the main issues the chancellor reviewed, that are relevant to both property investors and developers, were the topics of tax avoidance and housing supply. The Chancellor effectively offered the property market both carrots and sticks in the same budget which used some familiar tools from his previous budgets.

Annual Tax on Enveloped Dwellings to apply to properties above £500,000

Tax avoidance was one of the main themes of his speech. Within the last year, the chancellor introduced a tax that was aimed at individuals who bought residential property through corporations in order to avoid stamp duty. This was named the Annual Residential Property Tax and then renamed the Annual Tax on Enveloped Dwellings and applied to property valued at over £2 million. In today’s speech, the chancellor declared that he would be expanding the scope of the tax  property of valued over £500,000. The expansion of the scope of the tax is effective immediately and anyone who purchases residential property through a ‘corporate envelope’ after 19 March 2014 will be required to pay a 15% stamp duty. According to the chancellor, the tax is not applied to homes that are rented out and so it would appear that property bought for a genuine commercial purpose is still exempted.

Housing Supply: Funds for Small Developers

Another issue that the chancellor focused on was boosting housing supply. The chancellor announced new reforms to the planning system and set aside half a billion pounds of finance to small house building firms and £150m for homeowners looking to build their own homes.

Housing Supply: Industrial to Residential

The planning system will also see a change with regard to the change of use measures. The government will provide greater flexibility in regards to the repurpose of properties such as warehouses and light industry structures into residential properties. The plans will also allow businesses greater flexibilities to expand facilities such as car parks and loading bays within existing boundaries, where there is little impact on local communities. This announcement follows a relaxation of the rules for conversion of use from office to residential use to be within permitted development rights which came effective in May 2013 though most London boroughs were exempted.

Help to Buy Extended

The chancellor also announced today that the Help to Buy: equity loan scheme, will be extended to 2020. Since being announced, the scheme has helped over 25,000 households to afford to buy or reserve a new build home although it has had its fair share of critics. The expansion of the scheme will see an additional £6 billion invested in order to help 120,000 more households purchase a new-build home. Every home built under the Help to Buy scheme is a new-build home and the scheme currently supports 30% of all new-build homes in England. The extension of the scheme will lead to greater certainty for housing developers.

Current Stamp Duty Land Tax (SDLT) rates

Property Value SDLT rate
Up to £125,000 0%
Over £125,000 to £250,000 1%
£250,000 to £500,000 3%
Over £500,000 to £1 million 4%
Over £1 million to £2 million 5%
Over £2 Million 7%
Over £500,000 (purchased by certain non-natural persons) * 15%

* Updated on 19 March 2014, Effective on 20 March 2014.