Getting on the housing ladder used to be a realistic aspiration for young people, but growing affordability problems in the housing market are fast becoming a political hot potato, driving policy changes around property tax changes.
Philip Hammond’s removal of stamp duty for first time buyers on properties up to £300,000 (and for first time buyers in London for properties up to £500,000 with a stamp duty exemption on the first £300,000) is the latest policy designed to tackle house price affordability for the young.
So what other property tax changes have been made in recent years?
Not only is the government trying to help first time buyers onto the property ladder, they have also tried to make buy to let property investment less attractive in an attempt to slow the rise in property prices.
First Time Buyers
- The introduction of the lifetime ISA last year allows individuals over the age of 18 and under the age of 40 to save up to £4,000 a year as a deposit towards their first home worth up to £450,000 or to draw as a pension once they are over 60. If the criteria apply the government will add 25% to whatever the individual saves in the tax year, potentially topping the £4,000 up to £5,000.
- This is a development of the 2015 Help to Buy ISA, which is still available, where any individual over the age of 16 can invest up to £3,000 per year from a minimum of £1,200 up to a maximum of £12,000, and again the government will top up by 25% as long as the funds are used to purchase a first home worth up to £250,000.
Individuals cannot use both ISAs so it is worth taking advice as to which is better. In most cases if an individual qualifies for the lifetime ISA this is the better option as it is more generous.
Buy to Let Landlords
In policy changes designed to slow house price rises driven by a thriving buy to let market, landlords have been getting a really hard time:
- Since April 2016 there has been a SDLT surcharge of 3% when any individual buys a second property, which also applies to buy to let properties purchased through companies.
- April 2017 saw the phasing in of a restriction on the amount of tax relief that can be claimed by higher rate tax payers paying interest on a buy to let mortgage.
- By April 2020 those paying income tax at the higher or highest marginal rate will only ever enjoy basic rate tax relief on the interest that they pay on a buy to let mortgage.
With poor returns elsewhere however, those with money to spare will still see investing in property as an attractive option despite property tax changes, and whilst property is in short supply prices will continue to rise.
With housing supply at the root of the issues, the government has committed to spending £44bn towards 300,000 new homes by 2025 and is levying a council tax surcharge on empty properties.
If you are a young person planning that first step onto the housing ladder – or if you have family in that position – you may want to discuss the different ISA investment options. Just call Rawlinsons on 01733 568321, who will be happy to help you.