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.

Why?

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.

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3 comments

  • Hi David, My name is Michael Williams. I find your views interesting and very informative and I take the time to always read them. I am a landlord. I purchased your book, sucessful property letting and had it signed by you at a property network event a few years ago. Fanstastic book.

    I am currently woking with some lettieng agents to provide an extra income. You mentioned about being a partner on your affiliate programme. How does this work. Please feel free to call me on 07584075236 to discuss my idea

  • The housing benefit cuts are fantastic, this will have a huge impact of peoples lives, “justice” finally, or atleast the path to justice.

    Yes, it will create ghettos, but the people in those ghettos will be the workshy, anti-social and the yobs, I’m sorry but why people think it’s ok to stick some couple who have never worked, and have three kids next to a family who work their fingers to the bone, is just revolting.

    I’m so happy, this will be great for social cohesion, work ethic, family values, it’s just great. Well done Osborne.

    • David Lawrenson

      Thanks James
      Many would agree with you but I think we should all always keep in mind that there are lots people out there who are on housing benefits (and other types of benefits) who are not workshy.
      I think I read at Shelter’s site that only one in 8 recipients on Local Housing Allowance were unemployed. Will double check that statistic over the next few weeks.

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