What do the latest Spring Budget changes mean for you?

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Jeremy Hunt confirmed that he expects the UK economy will avoid a recession in 2023, but what other changes were announced – and how will they affect you and your property?

Delivering his second major statement as Chancellor, Jeremy Hunt stated: "In the face of enormous challenges I report today on a British economy which is proving the doubters wrong."

Every year, the Spring Budget provides insight into any progress made since the Autumn Statement and a forecast from the Office for Budget Responsibility (OBR) on the potential impacts of the newest budget announcement.

This budget announced a number of measures that will affect your property – and your purse strings. Read on to get the latest…

What’s the economic forecast for 2023?

In his second fiscal policy proposal, Jeremy Hunt expanded on the Government’s growth strategy, dividing it into four main pillars: Everywhere, Enterprise, Employment and Education. The overall forecast for 2023 is more positive than was expected, with aims to halve inflation, decrease debt and ensure sustainable and long-term economic growth. 

What are the predictions for the property market this year?

The housing market has started off better than many expected, with buyers slowly returning to the market, up by 11% when compared to the same time in 2019. The average property price had a small rise from January to February, which may be a reflection of slower market conditions and sellers pricing their properties right as they come on the market*. During the budget announcement, the OBR predicted that the UK will avoid a technical recession and inflation rates are expected to fall to 2.9% by the end of 2023†. 

Corporation and capital gains tax changes

Additional factors to keep in mind are that from April 6th, the allowance on capital gains tax will be lowered from £12,300 to £6,000, and will be reduced even further in April 2024 to £3,000. Another tax squeeze will come with corporation tax increasing to 25% for profits above £250,000*** from 1st April 2023. In the latter case, landlords may still want to think about setting up a limited company, as the level of corporation taxation may still be less than the amount of income tax paid. In any tax matter, professional advice should be sought.

Pension lifetime allowance has been abolished

In a bid to lure over-50s who took early retirement back to work, the Chancellor unveiled generous pension tax changes. The cap on tax-free pensions has led many professionals to take early retirement to avoid being hit by penalties. Many over-50s also bank on their house as a source of money in later life. If you’re in this position, or you’re thinking of downsizing to release equity, we have a guide to help you through the process. 

What does the budget mean for mortgages?

Despite the budget not mentioning anything specific to help the property market, the Chancellor’s childcare reform could have a positive knock-on effect for mortgage affordability.

From April 2024, working parents will have access to 15 hours of free childcare for children aged two, extending to children aged between nine months and three years in September 2024 and then, from September 2025, increasing to 30 hours. Childcare fees have a big impact on how much a family can borrow, and so the changes could help make more families ‘mortgageable’ in the future.^^

In addition, the fact that the budget revealed that the UK is no longer expected to enter a recession could provide more confidence to buyers and an acceptance that higher mortgage rates are the new norm.

How will these changes affect landlords?

The latest rental index data from February 2023 showed continued regional and annual growth, currently lying at 9.9% annual increase for new tenancies^^^, offering a positive start to 2023. Additionally, individuals will benefit from the Government's decision of keeping the fuel duty freeze in place for a further 12 months and extending the energy price guarantee until June 2023.

Announcements were made surrounding green energy initiatives within the energy sector; however, there has been no update on the upcoming potential change in EPC regulations and offering the private rented sector further support.

Regional update

In Scotland, the 0% rent cap will be lifted from 1st April, meaning that landlords can send a notice to their tenants and raise the rent by up to 3%.

What are the ‘investment zones’ that were announced?

Across the UK, Hunt announced 12 new investment zones – eight in England and four across Scotland, Wales, and Northern Ireland†. Successful areas will be supported with tax breaks and other benefits to revitalise these zones, which may prove to be important property investment areas for anyone looking to buy or build their portfolio.

Final thought

The Spring Budget was focussed on stimulating the economy and jobs. Although the budget didn’t have any direct effects on the property and rental market, there are tax factors that will affect certain property businesses. Larger property investors will have to pay a higher rate of tax if they are set to achieve profits above the £250,000 threshold from April onwards.

If you’re interested in understanding how you can optimise your investments, it’s always worth speaking to a property expert.

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