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Autumn Budget 2021: stamp duty holiday or council tax hike – what should homeowners expect?

·6-min read
Autumn Budget 2021: stamp duty holiday or council tax hike – what should homeowners expect?

Based on this government’s love of leaking policy announcements, today’s autumn Budget looks to be property-lite.

Balancing the books is going to be particularly difficult for Rishi Sunak this time around. Multiple lockdowns caused up to a 10 per cent slump in the economy while the Government were forced to spend more than £100bn on supporting jobs, such as the furlough scheme.

Following the acute phase of the pandemic, the NHS and social care need more investment than ever.

All of this means the Government has to claw back money through taxes, which does affect how much money potential home buyers have in their pocket and whether they can buy your first flat, upsize, or even afford to service your current mortgage.

On top of this households face inflation – rising food and energy bills – making it harder to pay rent, service the mortgage, move house or squirrel away that deposit.

There is also the likelihood of impending interest rate rises, which is good for savers but will translate into higher mortgage repayments.

Chancellor of the Exchequer Rishi Sunak (Aaron Chown/PA) (PA Wire)
Chancellor of the Exchequer Rishi Sunak (Aaron Chown/PA) (PA Wire)

“With government borrowing reaching its highest level since records began in 1946, the public is bracing itself for the announcement of tax increases in the Budget,” says Guy Gittens, chief executive of Chesterton.

“In the past some tax changes have been introduced with immediate effect…which can cause great financial strain. We would urge the Chancellor to grant a reasonable lead-in period to give people time to adjust.”

Homes & Property analyses the rumours circulating so far:

Stamp duty

The Chancellor’s emergency stamp duty holiday, announced with immediate effect in July 2020, stimulated the housing market across the country.

It tapped into and boosted the trend of moving from city to suburb, town or countryside following the first lockdown, as people craved more space.

For over a year, it meant those buying a home worth less than £500,000 did not have to pay any stamp duty. For those spending more than £500,000 it saved around £15,000.

The crisis policy stimulated the housing market and the economy (driving spend on indirect sectors too such as DIY and interiors.)

The tax holiday has now ended but noise around a re-extension is building this week.

Analysts at the accountancy firm Bakertilly posted: “Not many residential homes are available at below £125,000 and a re-introduction of this successful policy would help the housing market and new homes.

Gittens is arguing for longer term stamp duty cuts: “We have seen the dramatic impact that a change in the punitive stamp duty had on the volume of sales transactions, which enabled tens of thousands of people to move home, when they may not have been able to afford more previously.

“This really should make the Government re-consider the current stamp duty charges.”

But don’t confuse wishful thinking by estate agents with informed prediction. The stamp duty holiday drove record sales and record house price rises of up to 20 per cent in some parts of the country). To continue to artificially stoke the market would stretch affordability in the long term.

National Insurance

The Government has already confirmed that there will be an increase in national insurance contributions to fund the country’s social care bill and the NHS.

From April 2022, National Insurance contributions will increase by 1.25 per cent meaning people will pay national insurance at a rate of 13.25 per cent, impacting monthly incomes.

Prospective first-time buyers who are still paying off their student loans will be hit hardest because they already pay a higher rate of tax.

“By chipping away at workers’ incomes, these higher rates could erode housing affordability,” says Lawrence Bowles of Savills.

Green Homes

The timing of this Budget makes it the warm-up act for COP26 in Glasgow. Therefore any headline-grabbing big reveal is likely to be about the mitigation of climate change. Up until now the Government’s approach to green homes has been piecemeal.

In September 2020 the Government announced the Green Homes Grant scheme which promised to offer homeowners and landlords discounts on expensive energy efficient home upgrades such as double glazed windows. However, in March 2021 the Conservatives announced it would be scrapped straight away and then extended it for another year.

This month Boris Johnson unveiled plans of a £3.9 billion strategy to decarbonise how we heat homes and buildings, with grants to encourage people to bin their gas boilers and install energy efficient air-source heat pumps. This could spell the end of the Green Homes Grants for good.

Both property and decarbonisation sectors have denounced the new clean heating strategy as insufficient.

“The Green Homes Grants will make investing in cleaner technology, such as heat pumps, more appealing. But the scale of ambition is an order of magnitude below where the Government says it wants to be,” explains Bowles.

“The grants will fund just 90,000 heat pumps over three years, leaving more than 20 million homes with gas boilers.”

Rate relief on extensions for landlords

It’s possible a scheme, similar to one adopted in Scotland, could be launched whereby new buildings or extensions to existing buildings are given one year rates relief to help kick-start investment.

James Thompson of BNP Paribas explains: “Currently, when a building is extended, the rateable value is increased with effect from the date the building works finish, and the extension becomes usable.

“An additional year free of rates would give landlords the benefit of a year rate free before becoming liable for empty rates. This should kick start new developments and allow more time to find new tenants.”

Council Tax

At the Tory Party Conference in the first week of October, Sunak refused to rule out a council tax hike with some ministers speculating an average rise of five to six per cent.

This potential announcement has been met with criticism that it will exacerbate the wealth disparity across the country, with northern constituencies paying a higher proportion of council tax.

Andrew Dixon of the Fairer Share Campaign described it as “levelling down”. When combined with a National Insurance rise, an increase in council tax will eat into your available income wherever you live.

Capital gains tax

There have been a trickle of reports to suggest that Sunak is considering imposing Capital Gains Tax on the sale of main homes.

This would spark a windfall for the Treasury as announcing a tax rise for, say, April 2023 would push property owners to sell up. In turn this would address the shortage of housing stock too.

But buying agent Camilla Dell of Blackbrick, thinks this “stealth tax” is unlikely. “It is completely against all Conservative values,” she says.

160,000 new homes

According to a spokesperson for a large property company, there are rumours that the Government is pledging £1.8 billion in funding to help deliver 160,000 new homes on brownfield land.

This equates to a spend of £11,250 per home and therefore will push developers to find the cheapest possible land to develop rather than building homes in city centre locations or other areas where there is high demand to live and therefore higher land values.

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