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Four factors that may impact UK property market in 2021

Abigail Fenton
·3-min read
Despite pandemic house prices saw a steady rise in 2020. Photo: Getty
Despite pandemic house prices saw a steady rise in 2020. Photo: Getty

With Brits spending more time in their own homes than perhaps ever before, what does 2021 hold in store for the residential property market?

Property law firm Collyer Bristow made a few predictions about expected tax changes and buyer behaviour.

1. No ‘cliff-edge’ on property sales

The stamp duty holiday comes to an end on 31 March 2021, but the expert does not expect the market to “fall off a cliff edge.”

“The property market is buoyant with considerable pent-up demand,” said Collyer Bristow's partner and head of probate client property Janet Armstrong-Fox.

“We think it unlikely that demand in the housing market will significantly fall away in 2021, with high value, prime properties remaining particularly strong.”

There is already a large number of sales and purchases in the pipeline that are unlikely to complete before the end of March.

Collyer Bristow joined others in urging the UK government to extend the stamp duty tax holiday to include properties that have been exchanged but are not completed by that date.

2. Escape to the countryside

This year has seen “exceptionally strong interest in country properties, albeit within striking distance of London”, and that is expected to continue throughout 2021.

“The escape to the country will continue, with homebuyers prepared to move further from London in expectation of continuing to work part of the week from home,” said Armstrong-Fox.

She added: “Those under 40 are more likely, however, to hold on to or purchase a pied-à-terre in London.”

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3. Capital gains tax

“With the government desperately needing raise additional tax revenue to fill the Coronavirus-shaped hole in the nation's finances, changes to capital gains tax (CGT) will be firmly in the chancellor's sights,” said Andrew Mason, an associate in the tax and estate planning team at Collyer Bristow.

A recent review of CGT commissioned by the chancellor recommended cutting tax free allowances, and that rates of CGT should be brought in line with income tax rates.

This could see the top rate of CGT on residential property rising from 28% to 45%.

However, suggestions of changes to CGT remain speculative at this point, and will be determined in the spring budget, which has now been set for 3 March.

“Having already been restricted in recent years, principal private residence relief, which currently exempts homeowners from CGT on the sale of their main home, could be cut further – all of which would be bad news for homeowners,” said Mason.

Another suggestion from the ONS is that the current tax-free uplift on death to current market value might be scrapped, according to the firm.

This would trigger CGT on any latent gains in the deceased's property, in addition to any inheritance tax that may be charged at the same time.

4. Inheritance tax changes

The All Party Parliamentary Group on Inheritance and Intergenerational Fairness in January reported on potential reform and simplification of inheritance tax.

Suggestions made in the report included replacing the current rules with a flat tax 10% on both lifetime gifts and transfers on death, and scrapping or restricting the wide array of reliefs currently available – including business property relief and agricultural property relief.

Although the chancellor didn't take up these suggestions in the March 2020 budget or the summer statement, with inheritance tax receipts this year falling for the first time in a decade, he may look to “revisit” this area in 2021, the experts said.

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