The Budget 2012 – The Max Verdict
Many of the measures set out in the Budget for 2012 will probably help the economy move forward but there is a very nasty smell about. It’s the property industry that will suffer most. The raising of Stamp Duty from 5 – 7% for properties over £2 million is a mansion tax in another guise.
Of course I understand that if you can afford to buy a house or flat worth that much money then you are hardly on the breadline. But that is to miss the point. When you buy a house not only are you expecting to live in it and therefore it is a home as well as being an investment but also it’s also quite a driver for the economy. In effect the chancellor has put the brakes on people trading their properties at the upper end of the market. There are some other impacts too.
If you have lower volumes in the market, so estate agent fees will remain high.
This measure will create inflation at the top of the market. Partly because anyone buying or selling will wish to see their tax returned but also anyone who does own a house in that bracket will be disincentivised from selling if they wanted to move simply because of the tax they’d have to pay. After all why spend £140,000 in tax when you can spend it on your home? Less supply, will force more demand and homes just under the threshold will become more desirable and so on.
Although the chancellor would like to think he is clamping down on avoidance, he isn’t. We will have to wait until the detail comes to the fore but if there is to be a tax on transferring properties into companies then we will have a two tier market for those already in a tax friendly structure. Not his intention, perhaps, but an unfortunate outcome.
It’s a dangerous road we are going down. The idea of taxing someone’s principal residence should not be acceptable. Especially if they have bought it with money that has already been taxed. In effect, you just pushed up the personal tax rate from 45% to over 50% should that person buy a house. Except many people will be paying with equity and debt (a mortgage). So the effective tax rate is higher if you aren’t buying with equity. Buy a £2 million house. You get a £1 million mortgage. And you still have £140,000 of tax to pay. To earn the million in cash, you already had to earn over £1.8 million (plus national insurance). Of course there will be a cumulative effect because if you buy and sell later on, so you will be paying even more tax on money that you have already paid tax on and stamp duty you have already paid. I am sure you get the idea.
The other tax measures…
Whilst we are here, we might as well look at the other measures. The big complaints appear to be about the reduction in the top rate of tax from 50 pence to 45 pence. I don’t think this will actually have much effect and we have a system that promotes the corporate set-up for anyone who is self employed, freelance or has their own business. The people who have picked up the bill are those who work for big companies where there is no alternative but to pay PAYE. With corporation tax falling to 22% by 2014, expect to see more people set up their tax affairs in a different way. It’s not the big handout that the opposition say it is. Partly because the 50 pence tax rate was only supposed to be temporary and mostly because we are talking about taking money off people as opposed to given them state handouts.
As for the continued attack on the motorist, there are some who argue that it’s not the government’s fault that oil prices rise. It is the vagaries of the international oil markets. That is, to an extent true expect we all know that 65%+ of the price of a litre of fuel is tax. We’d all be assisted if this were cut, yet the government continues to raise tax from the motorist without investing the money they raise in better infrastructure.
A government U-turn appears to be in the wings on airport capacity. I don’t mind whether they create “Boris Island” to the east or an extra runway at Heathrow to the west. Personally I’d do both. I just wish they’d get on with it and stop throwing it out into the long grass.
There is a lot in the Budget that affects the property industry. As someone who spent 15 years of my life working in it, it is shameful that there appears to be little or no single voice. The CBI is out there as are the major business commentators, economists and think tanks. Aside from a few perky estate agents? Nothing. No formal comment. This is shameful. It’s no wonder that our industry has been hit by the stupidity that is Stamp Duty alongside a very poor understanding as to how to fix high streets or the planning system. The industry isn’t engaging. As a result George Osborne isn’t listening and in the end, the property sector (and its clients, investors and customers) are picking up a disproportionate bill for clearing up the legacy of debt.
Perhaps that is the lesson to learn from all of this. The property industry needs to stop itstalking shops and disparate organisations and speak with a credible voice to the government, to the public and to the media.