Government U-turns on top tax rate – update

The government has unveiled a U-turn after its recent mini-budget saw the top rate of income tax of 45p being abolished and it will now reinstate the levy.

The mini-budget led to turmoil on the money markets and saw lenders withdrawing mortgage products across the board.

But now the Chancellor Kwasi Kwarteng says the abolition of the top tax rate is a ‘distraction’.

The move to abolish the rate led to a backlash – including from senior members of the Conservative Party.

Critics said the proposal to benefit those earning more than £150,000 was unnecessary during the cost-of-living crisis.

Mr Kwarteng said: “It is clear that the abolition of the 45p tax rate has become a distraction. We get it, and we have listened.”

How the mini-budget affects landlords

As reported previously on Property118.com, here are the main points in the mini-budget that affect landlords:

• The basic rate of income tax cut to 19p from April 2023 – the 45% higher rate was ‘abolished’ but has now been reinstated
• Stamp duty land tax is being cut in England and Northern Ireland – the limit for buyers has been raised to £250,000 or £425,000 for first-time buyers
• The planned increase in corporation tax has been cancelled, so it will remain at 19%
• A new bill to unpick the complex patchwork of planning restrictions and EU-derived laws that he says ‘constrain our growth’
• The planned rise in National Insurance contributions will be reversed from 6 November.

Basic rate of income tax cut

Chancellor Kwasi Kwarteng announced that the basic rate of income tax is to be cut.

He said: “I can announce today that we will cut the basic rate of income tax to 19p in April 2023 – one year early.

“That means a tax cut for over 31m people in just a few months’ time.

“That means we will have one of the most competitive and pro-growth income tax systems in the world.”

Cut to stamp duty thresholds

There is also a cut to stamp duty with the limit being raised to £250,000, and £425,000 for first-time buyers.

Also, first-time buyers will be able to claim tax relief on the first £625,000 of their new home.

This will, the Chancellor claims, mean 200,000 will be taken out of paying the duty.

Mr Kwarteng said: “And we’re going to increase the value of the property on which first-time buyers can claim relief, from £500,000 to £625,000.

“The steps we’ve taken today mean 200,000 more people will be taken out of paying stamp duty altogether. This is a permanent cut to stamp duty, effective from today.”

Cuts to National Insurance and the health and social care levy

Mr Kwarteng also confirmed the cuts to National Insurance and the health and social care levy that were announced yesterday.

And, as expected, the corporation tax rise planned for next year has been cancelled – the rate will remain at 19% and not go up to 25%.

‘Recipe for yet more unsustainable house price rises’

Gary Wright, the co-CEO of payment technology firm flatfair, said: “Increasing demand through cuts to stamp duty, while having no meaningful plans to increase supply, is a recipe for yet more unsustainable house price rises.

“The pandemic proved this.

“Overvalued homes do not equal economic growth anywhere except on paper. The effects won’t be felt in wider society.”

He added: “If this government is serious about sharing the benefits of a high-growth economy, it would do well to mitigate the impact of the cost-of-living crisis on renters, who are often the most vulnerable in society.

“Reforming the tenancy deposit system to incorporate more than just a punishing traditional five-week deposit – which averages more than £2,200 in London – would be a good start.”

‘Steps to boost the market’

Jeremy Leaf, a north London estate agent and a former RICS residential chairman, said: “The Chancellor clearly recognises the dangers in terms of reduced revenue from stamp duty, given the recent reduction in housing market activity, and has taken steps to boost the market.

“The stamp duty cut, particularly for first-time buyers, should encourage those at the first rung of the housing ladder to take the plunge, which will be good not just for the market but for job and social mobility across the board, as well as the wider economy.

“It is good news that it is an immediate and permanent reduction which means that existing transactions shouldn’t be unduly delayed, and the benefits can be felt as soon as possible.”

He added: “The ambition to reduce planning red tape and improve delivery is particularly interesting because if there is one thing we need more than anything it is additional affordable housing to sell and to rent.

“Nothing is more frustrating than gaining planning permission for suitable schemes and then waiting sometimes more than a year for work to begin as often unnecessary regulation needs dealing with.”

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