If Chancellor George Osborne wanted to get the nation talking over the summer period then he certainly gave plenty of topics for discussion in his Summer Budget. Without the shackles that might have come with a coalition this was the first true Tory blue Budget in 19 years and there’s no doubting Osborne had his eye on not just his legacy but also the future leadership of his party.
A number of the policies due to be announced had been widely known prior to the Budget but there were still a number of ‘rabbits out of the hat’ that have become almost customary during recent announcements. In terms of specific housing-related policies, there were few announcements – nothing on future plans to increase housing supply, a small amount confirming the launch of the Help to Buy ISA in the autumn and a reference to further planning changes.
However, in a wider sense, and particularly when looking at the ‘grey’ market there was a considerable amount to get our collective teeth into, not least the suggestion that in the future pensions could be treated like ISAs with tax relief applied when the monies come in, rather than going out. The fact that this is likely to help the Exchequer cut the deficit in the region of £10bn per year, was lost on no one.
Also, in the Budget spotlight were inheritance tax allowances which from 2017 will be upped to the tune of £175,000 per person to help those who want to pass their home onto their children or grandchildren. This effectively means that a couple will be able to pass on £1m of assets tax-free and will undoubtedly play to the Conservatives older core vote, with the beneficiaries being those whootherwise would be pulled into the payment of IHT, especially in the South, for those who would want to pass on their home.
This is a particularly interesting development for the equity release market especially as equity release products have been used in the past to offset the existing IHT regulations. It remains to be seen what the impact might be for those who have, in the past, opted for equity release in order to ensure that as little as possible of their beneficiaries’ inheritance ends up in the tax-man’s hands.
Understandably, there is some concern about a move which is likely to mean individuals staying in their home for a much longer length of time. The notion of retired individuals downsizing might well be impacted if they decide that they would rather hold onto their properties to pass them on, rather than moving to smaller properties. If this is the case then a sizeable number of properties, which would be put on the market for other homeowners to step up into, simply won’t be available. The pressure on the Government’s ability to develop and build new properties will therefore continue to grow.
In many other areas there was considerable meat on the Budget bone with wide cuts to benefits, increases in the minimum wage, increases in basic tax allowance and not forgetting the phased cut in tax relief for buy-to-let landlords on their mortgage interest payments. On this particular point there has been much talk about the influx of pension freedom money that could be heading into buy-to-let from those retired individuals looking for a home for their pension cash. This Budget measure in itself might help put something of a hold on this, as it will mean those higher-rate taxpayers will have to recalculate their sums given the pull-back to basic tax relief that will be introduced in two year’s time.
Very few areas or individuals will have been left untouched by this Budget; in fact it’s quite possible to say that this was a Budget which would impact every person in the land in quite significant ways. How many Budget announcements can we say that about? It is destined to keep everyone talking over the course of the summer and beyond and, specifically with the phased-in notion of many of the Budget announcements, this is certainly one which will run and run.
Chris Prior is manager, sales and distribution at Bridgewater Equity Release
