How Will the Cost of Living Crisis Affect Property Investors?
Last week saw the announcement of new measures by Chancellor Rishi Sunak designed to help reduce the increasing cost of living, following reports that inflation could average at around 7.4% or higher this year.
Despite the Office for Budget Responsibility predicting an average inflation rate of around 7.4% in 2022, many experts anticipate this number to peak in double figures by the end of the year.
To combat this, alongside a substantial cut to fuel duty, Chancellor Sunak announced a 1p income tax cut and an increase of the National Insurance threshold.
But what does all this mean for property investors?
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Help With Energy and Fuel Rises
The most immediate and significant cut was the reduction of 5p in the fuel tax level, effective as of 6pm last Wednesday. This reduction will help everyone who drives.
It was also announced that there would be a further cut in VAT for homeowners buying energy-saving materials such as heat pumps, solar panels, and insulation.
This means that for the next five years, homeowners will pay 0% VAT on materials to improve their properties’ energy efficiency.
As a result, the tax savings are estimated to be worth £1,000 upfront and contribute to an annual energy bill saving of around £300.
With eco-friendly properties quickly becoming a hot item for both investors and tenants in 2022, the introduction of these measures could be massively beneficial in making properties more energy-efficient, reducing tenants’ bills, and keeping costs down when properties are empty.
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No Increase to Buy-to-Let Stamp Duty
Despite some speculation of it rising from 3% to 4%, there will be no increase to the stamp duty surcharge on additional homes, easing concerns of further tax hikes for landlords/investors.
For more information on this, read our guide to stamp duty tax on buy-to-let property in the UK, with stamp duty graphs and a buy-to-let stamp duty calculator to help you work out possible rates.
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Will Investors Benefit from Tax Cuts?
As mentioned, the basic income tax rate will be cut from 20p to 19p in the pound by the end of the current Parliament in 2024.
According to Sunak, this will equate to a £5 billion tax cut for the 30 million people working in the UK.
The National Insurance threshold will also rise by £3,000 this year alongside this, to the same level as income tax – £12,570.
All in all, The Treasury estimates this will save around £6 billion a year for all UK workers.
However, despite these announcements, many investors could be affected by rising taxes in the coming months.
From April 1st, National Insurance will increase by around 1.25% – to be collected as a separate Health and Social Care levy in 2023.
Some landlords may also be affected by ‘stealth taxation’ – in which people fall into higher tax bands as a result of thresholds and allowances not being increased.
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The Treasury have said they view the Spring Statement as a ‘short update’ on the government’s big picture spending plans, with more announcements to be made in the full Autumn Budget – which is expected to take place in October or November.
It’s likely that there are going to be more property-related proposals in that instance, but for now, it’s not all bad news.
Firstly, although high inflation will undoubtedly make life harder for everyone, it is currently expected to last just a few years, rather than the long term.
In terms of the property market, the fact that the economy is still expected to see solid growth throughout this year – with house prices steadily increasing and continued high demand from buyers– is almost definitely a good sign.
For more on the UK Property Market, check out our 2022 Prediction guide. We also have a new blog post created in Summer 2022, talking about property investment during inflation and whether it’s a good idea.