The Spring Budget shows why property is key to the UK economy

The relief packages introduced to support businesses and consumers affected by the coronavirus has meant excessive borrowing by the government. The Office for Budget Responsibility has estimated borrowing will reach £394 billion by the end of the financial year in March.

Nonetheless, the Spring Budget delivered by Rishi Sunak on 3 March was not one defined by tax hikes. Instead, what we received was an economic strategy to help bring about the post-pandemic recovery of the UK as it transitions out of lockdown. To achieve this, the government is looking to encourage consumer spending and investment activity in a bid to promote economic growth and productivity.

One of the key takeaways from the Chancellor’s speech was the importance of the property market. Given its size and attractiveness as an asset for domestic and international buyers, investment into residential real estate was identified as a key pillar of the country’s economic strategy. As such, the Spring Budget has delivered significant reforms to encourage buying and selling activity.

Extending the SDLT holiday

The most prominent of these reforms is the extension of the stamp duty holiday. Announced on 8 June 2020, the holiday was introduced to kick the property market back into gear by offering temporary relief for buyers of real estate in England and Northern Ireland. The holiday has proven to be an incredible success, partly due to the fact that the holiday could also be used by non-UK resident buyers.

With house prices rising at a remarkable rate, the holiday has been extended from the end of March to the end of June. This means domestic and international buyers are exempt from paying up to £15,000 on their property purchase, even if this constitutes prime real estate. On top of this, the nil rate threshold will be temporarily doubled from £125,000 to £250,000 from the end of June to the 30 September.

This reform is ideal for investors seeking new property investment opportunities in the coming months. It is hoped that by extending this relief, house price growth and transaction levels will consistently rise. However, while the holiday does extend to non-UK residents, any prospective international buyer will be subject to a new SDLT surcharge from the beginning of April 2021.

No CGT hikes

In the lead-up to the 2021 Spring Budget, one of the rumoured reforms was the potential doubling of the capital gains tax (CGT) threshold. At the moment, CGT is charged at the rate of 28% when total taxable gains are above the basic tax rate band. If not, the rate stands at 18%. When it comes to the property market, sellers are typically liable to pay CGT when selling a property they own which is not their primary residence.

As it happens, not only did the Chancellor Rishi Sunak decide not to increase the CGT rate; he has also announced that the current thresholds will remain in place until 2026. This is positive news as it ensures sellers are not discouraged from listing their property. The fact that the rate will not be increased for the foreseeable future also ensures greater liquidity for the market and the ability for UK homeowners to effectively plan their buying and selling activities over the long-term.

Reopening the property market

The extension of the SDLT holiday and decision to freeze the CGT threshold for the next five years are two policies that will help more people take advantage of the strong house price growth and transactional activity we have been witnessing over the past eight months. Already, property site Rightmove has recorded a significant spike in activity on its website in the days following the Chancellor. At the moment, there is no reason for this momentum to subside anytime soon.

In my opinion, the budget has demonstrated the importance of property as a cornerstone of the UK economy. While there is still plenty of uncertainty to contend with, there is a clear sense of optimism among buyers and sellers alike. For this reason, I expect house prices to continue to grow over the coming months off the back of reforms announced by the Chancellor.