Little for leaseholders in last budget from Brown

BREAKING NEWS
 
LITTLE FOR LEASEHOLDERS IN LAST BUDGET FROM BROWN

In this special News on the Block eAlert we highlight some of the main announcements in the Budget to impact leaseholders along with more reaction from the residential property industry.

In what is widely expected to be Gordon Brown’s last budget before making a bid for Labour leadership, the Chancellor offered little to excite leaseholders. Stephen Peete, Chief Executive of the Loughborough Building Society, was forthright in his reaction when he told us: “Well, what a surprise. Gordon gives with one hand and takes away with another. Nothing is done to address the real issues facing people today. No moves to reduce the Treasury take on stamp duty and nothing to help address the question of how people are going to be able to afford their first home.”

Energy Saving Homes

“Homes account for one quarter of carbon emissions: our objective for the UK is low-carbon homes benefiting the climate through lower emissions, and benefiting consumers through lower bills”, said Brown during a budget penned with green fingers. Among the measures he announced were initiatives to speed up home insulation and design out energy wasting products as well as incentives for pensioners installing insulation and central heating in their homes. While on the whole, these measures were applauded for being rooted in helping the environment more could have been offered to leaseholders. Brian Berry, Head of UK public policy at the RICS explained: “The Chancellor's application of a reduced rate of VAT on green goods, such as insulation and double glazing, should have been extended to repairs to buildings to make the existing building stock greener and more energy efficient. Government incentives continue to focus on new build rather than tackle the existing housing stock, which contributes nearly 40% of carbon emissions.”

Carbon Zero Homes

In a flamboyant gesture, the Chancellor pledged to make all carbon-zero homes under £500,000 exempt from stamp duty until 2012. Although most people would welcome initiatives to encourage a reduction in carbon emissions that contribute to the problem of global warming, this pledge may lack real substance in the short term. David Bexon, Managing Director of SmartNewHomes.com explained to News on the Block: “I fear that Government’s latest pledge of stamp duty exemption is nothing more than an empty gesture if earlier admissions from the Treasury are true, that there are currently only 24 carbon-zero homes in the UK.” But Julian Sedgwick, Director for New Homes at Chesterton Global was somewhat more optimistic when he told us: “It is bound to make developers look more carefully at eco aspects of new developments as 0% stamp duty on a £500,000 property will be a huge selling point for purchasers, giving any developer a competitive edge”.

“Zero-carbon homes stamp duty not enough”, said Richard Forshaw, New Homes Director of Kinleigh Folkard & Hayward. “While the announcement by the Chancellor that buyers of new zero-carbon homes priced up to £500,000 will be exempt from stamp duty is superb news for consumers buying such a property, I am sceptical that the decision will have enough of an effect on the UK’s house builders to favour building zero-carbon homes, especially as this initiative is only set to last for the next four years, until September 2012. In its Code for Sustainable Homes, the Government has still not been 100% clear as to what constitutes a carbon-neutral home, whether it is fuelled by solar power, a biomass boiler or a wind farm. I believe the Government needs to make greater measures to encourage 99 per cent of our housing stock, not just newly built properties, to be more eco efficient. The Budget will have a minute effect on tackling the overall problem of the environmental change that we are facing.”

Recycling

To encourage recycling and to reduce landfill, Brown announced that the landfill tax will, from April next year to 2011; rise by £8 each year. Brian Berry, Head of UK public policy at the RICS agreed that this was a positive step in the right direction calling it a “responsible and sustainable way to raise revenue”. However, as leaseholders and property managers of blocks know all too well the problems of implementing a cost-effective and efficient means of recycling can be challenging.

Inheritance Tax

For many of our readers, inheritance tax is a growing concern. In the Budget, Brown announced that the current inheritance tax allowance of £285,000, will rise to £350,000 by 2010. Although, Brown explained that this will ensure that 94 per cent of estates will not pay inheritance tax, Yolande Barnes, Director of Research at Savills was more sceptical. She explained: “The new threshold for this tax will not come into effect until 2010. In the meantime, our forecasts for house price growth suggest that a further 106,000 properties will increase in value sufficiently to push their owner’s estates over the current inheritance tax threshold. Many of these will be in London, the East and South East. This means that the higher threshold for Inheritance Tax will only prevent 52,500 households from becoming potentially liable for inheritance tax after 2010.”

First-Time Leaseholders

In a devastating disappointment to first time buyers of leasehold flats, there was no adjustment to the stamp duty levels (other than for zero carbon homes). Paul Smith, chief executive of haart estate agents was indignant: “Stamp duty is an all-encompassing tax for everyone and it particularly deters first time buyers, who are already struggling to raise the capital for a deposit, from entering the market - the very people the Government says they want to get back into the market. It is crucial for the survival of the housing market that first time buyers are encouraged to enter. With the average value of a property in London now over £260,000, the majority of first-time buyers are looking at properties above £250,000 but they don’t have the vast cash reserves to fund the 3% stamp duty of £7,500. Most are stretched to the limit as it is. Stamp duty will remain a great stumbling block for many and the Chancellor has done nothing to help.” Brian Berry, Head of UK public policy at the RICS concurred when he told us: “A time limited stamp duty exemption for new build zero-rated homes up to £500,000 is a token gesture that won't solve the problem of the 25 million properties that remain largely carbon inefficient. The Government should raise the bottom threshold of £125,000 to £150,000 in order to help first time buyers onto the housing ladder given that up front buying costs are a key issue for many buyers.”

AND FINALLY… A LITTLE BUDGET CHEER FROM ARMA!


This week’s budget brought good news for tens of thousands of residential leaseholders who had been suffering from a penalty tax rate of 40%. The Chancellor announced that the rate of tax on interest earned on communal reserve funds of blocks of flats was to be reduced to 20%, thus saving leaseholders some £3m of excessive tax. The Budget statement said: “The Finance Act 2006 provided relief from the 40% trust rate of tax on income arising from service charges and reserve funds in the social housing sector. Reserve funds are an efficient way to save money for the upkeep and repair of properties. To place the private housing sector on the same footing as the social housing sector, the Government announces that it will extend this relief to the income on service charges and reserve funds held by private sector landlords on trust.”
The Association of Residential Managing Agents (ARMA) and the Association of Retirement Housing Managers (ARHM) have been at the forefront of lobbying for this change for two years as it was clearly inequitable that the social housing sector paid a tax rate of 20% whereas private sector housing paid 40% for the same thing.
“We are delighted that our voice has now been heard,” commented David Hewett, Executive Secretary of ARMA, “and that the 1.5 million private sector leaseholders will now get a fair deal. We have worked very hard on their behalf to persuade the Treasury to change its mind. We see it as at least one small victory over legislation that continuously penalises leaseholders.”
Under the terms of most leases, leaseholders are required to contribute annually to a reserve fund set up to cover future major works. As these funds are held under a statutory trust the Treasury decided to have a one-cap-fits-all approach to interest earned of over £1000 by applying its trust tax rate of 40%. This rate was set to avoid wealthy people using trusts to avoid higher rates of income tax.
“We have always felt this was an absurd situation,” continued David Hewett, “which implies that all private sector leaseholders are rich and are seeking to avoid tax. It was also flying in the face of the government’s better housing policy by actually discouraging leaseholders from saving for the future maintenance of their buildings.”

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