Now that things have settled down a little and as further details appear from the emergency budget, we thought it worthwhile compiling a number of changes that would most likely affect landlords.
Capital gains tax
Effective from 23 June 2010, capital gains tax will rise from 18 to 28 per cent for those with total income and taxable gains above the higher rate threshold. Basic rate payers will see no change to CGT.
According to the official budget report:
This strikes the right balance between fairness and international competitiveness. A substantial part of the revenue from this measure comes from higher income tax receipts as the incentive to convert income into capital gains is reduced. Basic rate taxpayers will continue to pay an 18 per cent rate on their gains.
Basic rate of income tax
The basic rate for income tax will be frozen in 2013 – 14
The personal allowance for under 65s will be increased by £1,000 to £7,475 in 2011-12.
50p rate of income tax
The 50p rate of income tax took effect from April 2010 and will remain in place for the time being.
VAT and IPT
The standard rate of Value Added Tax (VAT) will increase from 17.5% to 20% from 4 January 2011.
The standard rate of Insurance Premium Tax (IPT) which will affect most if not all landlords will increase from 5% to 6% on 4 January 2011. The higher rate will increase from 17.5% to 20%.
The official budget statement states:
The Government will introduce a package of reforms to Housing Benefit from April 2011 onwards. This includes changing the percentile of market rents used to calculate Local Housing Allowance rates, and uprating these rates by CPI from 2013-14, capping the maximum Local Housing Allowance payable for each property size, time-limiting the receipt of full Housing Benefit for claimants who can be expected to look for work …
The changes will be:
- From April 2011, Local Housing Allowance Rates will be capped at £250 per week for a one bedroom property, £290 per week for a two bedroom property, £340 per week for a three bedroom property and £400 per week for four bedrooms or more. Channel 4 news reports that the Department for Work and Pensions have confirmed these capping rates are to take effect nationally. According to the Times, “13,000 families, mostly in London, will have to move out of their current properties and into somewhere more modest.” as a result of the proposed capping.
- Currently, the local housing allowance is based on the mean average of rents for a given area. From October 2011, Local Housing Allowance rates will be set at 30% of local rents.
- From 2013-14, Local Housing Allowance rates will be uprated in line with CPI.
- Housing benefit will be reduced by 10% for people who have been on jobseeker’s allowance for 12 months or more. This will be introduced in April 2013.
- From April 2011, Housing Benefit claimants with a disability and a non resident carer will be entitled to funding for an extra bedroom.
- Deductions for non-dependents will be uprated in April 2011 on the basis of prices. This will reverse the freeze in these rates since 2001-02.
- The Government contribution to Discretionary Housing Payments will be increased by £10 million in 2011-12 and £40 million in each year from 2012- 13.
The full budget report can be obtained here
Spending Review – Welfare Benefit changes
The Chancellor announced further welfare savings to those identified in the June Budget:
- a time limit to contributory Employment and Support Allowance for those in the Work Related Activity Group of one year
- an increase in the age threshold for the shared room rate in housing benefit from 25 to 35, so that Housing Benefit rules reflect the housing expectations of people of a similar age not on benefits
- greater flexibility to local authorities to manage council tax together with direct control over Council Tax Benefit, within an overall budget that will be reduced by 10 per cent from April 2013
- alignment of the rules for the mobility and care elements of Disability Living Allowance paid to people in residential care