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Back in January, we speculated about what announcements the Chancellor would make about the SDLT holiday and the wider ramifications of his March budget. The waiting is now all over and we have had opportunity to pick over the bones of his announcements, some we saw coming, others have come as a bit of a surprise.

Firstly, lets address the extension to the SDLT holiday. We suggested in January there was wide support from within the property industry for an extension to the current scheme but, Treasury sources were staying tight lipped.

It seems the Treasurer has listened to the industry. The extension of three months will enable more buyers to take advantage of the potential saving and more importantly, allow those in the process of buying to complete purchases that were getting very close to the wire.

2021 SDLT Holiday

Since the introduction of the SDLT holiday, the property industry has struggled to cope with the growth in demand, creating bottle necks at all stages. The extension will allow sales that were in the process of completing the opportunity to do so without as much risk.

One aspect we probably didn’t see coming was the mortgage guarantee scheme, which will be a major boost to new home buyers. Designed to help those with lower deposits, many market analysts are saying that if current 95% LTV rates drop to 75% rates to reflect the lower risk to lenders, then we could potentially see lower repayments costs, a big plus for those on tighter budgets.

This could also create a small entry point for many renters to get on the ladder, creating traction in the rental property market and keeping the lower end of the house buying market ticking over.

Outside of the property market the Chancellor had to address escalating public borrowing and the eventual need to bring this down, in short, how do we pay for Covid-19 support?

The Office for Budget Responsibility (OBR) have public sector net-debt peaking at 109.7% of GDP in 2023-24 (a post-WWII record), with the budget deficit declining from 13.3% of GDP to be in balance by 2025-26. They also predict our economy will return to pre-Covid levels by the middle of 2022, six months earlier than they previously estimated.

To attempt to balance the books, allow the economy to gather speed and grow like this is a delicate balancing act. The Chancellor had two objectives, continue to provide economic support to curtail unemployment numbers and then deliver his growth roadmap. He achieves his first objective by extending furlough and other Covid support schemes.

The second task, the road to recovery, he started by freezing the income tax bands until 2026. A clever move to effectively increase tax revenues by stealth. As wages and inflation go up in the years ahead, so do tax revenues, allowing the Chancellor to avoid vote influencing income tax and VAT rises.

Based on some assessments, this could have a massive impact on tax incomes, as inflation rises year on year by the 2025-26 tax year it could raise over £8bn, or the equivalent of a 2% rise in income tax.

It is a similar situation with inheritance tax and pension allowances. Historically the inheritance tax threshold, currently £325,000 rises with inflation. Freezing it means that if property prices rise, so do tax incomes. With house prices rising by over 6% per annum that could be a very significant amount for the Exchequer.

For businesses, the increase in corporation tax from 19% to 25% for profits over £250,000 will not be popular although according to figures, this will only impact 10% of companies within the UK.

So, what does this mean overall?

The Chancellor said he wanted to lay it all out to the public and deliver a roadmap for recovery that would stimulate growth and restore public finances.

We think that this has been achieved. It is pragmatic and, in many respects balanced, supporting the right areas, and tax rises where he has needed to. The budget predicts growth, support for those that need it and over the medium-term, increased tax receipts to start to slowly reduce the enormous deficit.

We will continue keep a watchful eye and let you know our thoughts. You can keep up to date with our other latest news stories by clicking here.

Published on 12th March 2021

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