Housing Benefit and Local Housing Allowance Are Cut and CGT Rises in the Budget
So who wins and who loses from the emergency budget?
Well, the trouble with the budget is that lots of the details are in the hard to get (and even harder to digest) documents that come out after the Chancellor has sat down.)
But back at the desk and catching up, it seems clear that one winner could be the private tenant who is not in receipt of Local Housing Allowance / Housing Benefit.
Well, because Osborne has placed limits on the amounts that can be paid under Housing Benefits at £400pw for a 4 bed house and £250pw for a one bed one.
Also, Housing Benefit will be reduced by 10% of the initial amount where a claimant has been on Job Seekers Allowance for 12 months and the LHA rate will be set at the 30th percentile of local rents for all areas instead of at the current median level of local rents.
This will mean that landlords who previously let to LHA tenants – (because it paid rather well in some areas for those landlords who knew what they were doing and could work their way around all the hideous forms) – might now switch to letting to private tenants, thus increasingly supply here and cutting the level of private rents.
Were LHA Rates Too Generous Before?
The move by the Chancellor addresses some concern that LHA rates were rather too generous in a few areas. (At LettingFocus we have had experience of this where we let in one area where 2 bedroom LHA rates are 7% above what is achievable on non LHA lets – a local problem caused by the “Broad Market Rental Areas” being too big and “non local”.)
But where are the LHA dependent tenants who are currently getting more than the maximum new rates going to go? They may well have to move to other cheaper boroughs.
Another impact is that as LHA dependent tenants’ available spend is squeezed, the default rate on rent payments to landlords could increase – thus making letting to LHA dependent tenants less attractive still.
Many observers had expected the budget to bring back the option of immediate direct payments of LHA to landlords for all tenants. This did not happen.
Impact will be Most Felt in London and the South East
The budget changes to housing benefits are likely to impact London and the SE the most, because rents are higher here.
Here it is likely to push LHA recipients out of the very expensive areas into areas where they can hopefully still get a let property at below these new levels.
Some people (and certainly most of those inclined to the right politically) would say this is only fair – why should the taxpayer pay full whack for benefit dependent people to live in very up market areas which are out of reach to many ordinary taxpaying mortals who have to slum it in more downmarket locales?
The Daily Mail will be cheering at this and the large Afghan family they found who were supposedly getting £100K a year may once again have to pack their bags and look for new accommodation.
And there is also the fact that by setting LHA at median rents (as was previously the case), in those areas where LHA is a big part of the letting market, the taxpayer ends up effectively bidding up rents across the board – which doesn’t seem right.
But others may see this as ghettoisation and I see one council housing executive has already said that she expects to see a wave of LHA dependent tenants flocking into her slightly more downmarket and cheaper London borough from the posher and more expensive to rent boroughs nearby.
This will have big implications for private rented sector access schemes – an area we advise local authorities and other public sector organisations on.
Capital Gains Tax Up
The other bit of news was that CGT will rise to 28% but only for higher rate taxpayers. So, it looks like if you are thinking of selling a property or any other asset, you’ll just need to avoid income for a year to make sure you are a lower rate taxpayer. Surely, though, it won’t be that simple, will it?
In previous blog posts I predicted that the changes to CGT would not encourage lots of landlords to sell ahead of the budget. I was right.
And I don’t think that the actual change to CGT will have much effect either. Why? Because those landlords who bought before December 2007 – when mortgage finance was available at 0.7% over base for life – will be making too much in income to want to sell.
Those who bought after this time won’t have made much in the way or capital gains anyway and so the change in CGT rates won’t matter for them.
In the budget I half expected to see a change in the rules regarding the way a taxpayer can designate a second property for principle residence exemption from CGT where that taxpayer lived in the second property for a time. I am referring here specifically to the “last 3 year” exemption rule – which allowed many people including lots of MPs to flip from one property to another.
There was nowt in the budget on this, so maybe the MPs are still looking after Number One.
Furnished Holiday Lets
Finally, the budget reversed Labour’s plans to end tax breaks for furnished holiday lets. There will be a consultation on this over the summer to ensure the new tax rules on this meet the EU’s legal requirements.
MORE ABOUT LETTINGFOCUS AND WHAT WE DO
LettingFocus.com is the home of Landlord Information.
I’m David Lawrenson, a landlord and property investor myself for over 25 years and author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years.
Services to Businesses and the Public Sector
Primarily I am a consultant to banks, local authorities, social housing providers, insurers and other organisations – helping them with their landlord facing or buy to let product strategies and services.
For example, I help banks improve their buy to let mortgage lending practices and I help housing association / local authorities find private landlords (private rented access schemes, local letting agency models etc.)
I also write for property websites and am regularly quoted by the media.
Services for Private Landlords
We also find some spare time to help landlords and property investors by coaching them in how to make money in the private rented sector using ways that work, which are ethical, fair to tenants and which involve minimal risk to the investor.
We pride ourselves on giving independent unbiased Buy to Let Advice on a one-to-one mentoring / coaching basis or through our occasional group seminars.
AT OUR WEBSITE LETTINGFOCUS.COM:
TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog
You can also use the tags and categories to read blog posts on related posts. (To find relevant posts from before 30 April 2010 you can also click on LettingFocus’s Old Blog – Categories, then search from the list for a topic that interests you and click to read all the posts we have written under that Category / Topic.)
THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page
For general info on our CONSULTING SERVICES click here: Consultancy and Seminars
For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS click here: Property Mentoring
NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors:
Next Property Investment Seminar and Networking Event
We have OFFERS on services and products here: Services and Products for Landlords
TO READ CLIENT TESTIMONIALS – from both commercial organisations and private landlords click here: Testimonials
BUY “SUCCESSFUL PROPERTY LETTING” click here: Buy the Book at Amazon plus anything else at Amazon.co.uk
To JOIN our Free QUARTERLY NEWSLETTER simply send an email to [email protected] – Please note we WILL NOT send spam or sell our mailing list to advertisers!
IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR TO OUR WEBSITE? IF YOU SELL SERVICES TO LANDLORDS, YOU COULD BE A PARTNER ON OUR AFFILIATE PROGRAMME.
PLEASE GET IN TOUCH!
See our TWITTER PAGE: Twitter
Copyright of Blog: David Lawrenson 2010. This blog is updated roughly once a week usually on a Monday or Tuesday.