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The Budget 2012 – Our stance

March 22, 2012Article by Ray Withers

So, were we surprised with today’s budget announcement? I thought I’d summarise the key points from our perspective; particularly in regards to its effects on our clients and property investment prospects.

No major shocks as far as I see. I was particularly pleased to see some coherence with my last blog post about where we are hoping the UK economy is going. The Office for Budget Responsibility (OBR) stated that the UK will avoid a technical recession with positive growth in first quarter of 2012 and that the economy has “carried a little more momentum into the new year than previously anticipated.” The revised growth forecast for this year estimates growth up to 0.8% from 0.7% previously and states that the government is on course to eliminate structural current deficit by 2016/17. All good news!

So, the main points as I see it:

1. Top rate of income tax. Will reduce to 45% from 50% in April 2013 for those earning more that £150,000. This may give our UK resident clients marginally more disposable income to invest, but more importantly it increases the UKs competitiveness. This may help attract entrepreneurs and job creators with a resulting positive affect on the economy and housing market

2. Corporation tax: This will be cut to 24% in April, having already been cut to 26% from 28% (will lower to 22% by 2014). This only applies to larger companies (small companies already pay the 20% rate), but is another boost for British competitiveness alongside the reduction in income tax.

3. Properties owned through companies – A big one here that will affect those who own or plan to own property through a company. Although we had hints of a clamp down on companies purchasing though off-shore companies, I was surprised to see that  Stamp Duty Land Tax would be charged at 15% for properties purchased in this manner. The government said they would also investigate retrospective stamp duty charges for residential properties already owned by companies.

4. Stamp duty for properties worth over £2m. From today, Stamp Duty will rise to 7%. Although it won’t affect most of our investments, it will be interesting to see how it affects foreign investments into areas such as London.

5. Personal tax allowance. The threshold at which workers start paying income tax will rise to £9,205 in April 2013, up £1,100 from £8,105 in 2012 . There have been mixed feelings on this but I hope this increased work incentive will help reduce benefit dependency and hence potentially boost consumption and therefore stimulate growth and further tax collection through NI, PAYE and VAT!

6. Planning permission. Next week the government will publish an overhaul of planning regulations that should make applications for planning permission far simpler. It should mean more freedom to refurbish, renovate and potentially build more in areas of low supply – http://www.dailymail.co.uk/news/article-2118137/BUDGET-2012-Planning-laws-scrapped-60-years.html?ito=feeds-newsxml

7. A cap on tax relief for high earners. This will be introduced in April 2013 and mean that anyone that claims upwards of £50,000 in tax relief will be limited to receive a maximum of 25% of their income or £50,000, whichever is the higher.

8. Affordable housing. The Get Britain Building scheme that extends funding to companies that build new houses will be upgraded to encourage affordable property development.

There was a couple of positive points raised supporting some of our current projects too:

London – Significant measures to boost the London economy – specifically there was mention of the Royal Docks Enterprise Zone – home of our Holiday Inn Hotel investment – http://www.localgov.co.uk/index.cfm?method=news.detail&id=105254

Liverpool – Great news regarding the recent and significant Chinese investment in Liverpool which the chancellor also mentioned – further helping the market grow further where we have been successfully selling our student and residential developments – http://www.ft.com/cms/s/0/28e9be50-72bb-11e1-ae73-00144feab49a.html#axzz1plFYyU8c

Finally, Some other points that are significant, but less relevant to our client base and market:

Enterprise Management Incentive: Subject to consultation and State Aid approval,  changes will be made to the Enterprise Management Incentive (EMI) share incentive scheme so that gains made on shares acquired through exercising EMI options on or after 6 April 2012 will be eligible for capital gains tax entrepreneurs’ relief, thus reducing the capital gains tax bill to 10%

Child Benefit: More of a niggle from the chats with clients I have spoken to already, but Child benefit is to be partly removed from households where at least one person earns over £50,000 – softened from previous plans.

Personal tax statements. Annual  statements will be sent to all taxpayers which will set out your average tax rate for the year, how much tax and NI you’ve paid in total and how this has funded both public spending and public debt.

Private Sector development: Michael Heseltine is to conduct a review on how government can work better with private sector economic development. Please feel free to contact me Michael if you want some ideas!

So overall this seems like a pro-business and pro-growth budget to me. I am sure a lot will be politically unpopular, but the best medicine can often taste bitter. I think that there are a number of initiatives that will increase the competitiveness of the UK. That is good for the UK economy, jobs and the property market. Hopefully it also helps put the country back on the path to prosperity. The better off people are, the more they want to invest. For us, like everyone else, anything that helps achieve that gets a thumbs up from us!

What are your thoughts?


Ray Withers

Ray has over 17 years’ experience in the international property market and bought his own first international property investment back in 2002. Aside from running Property Frontiers, Ray has been involved in residential, hotel, student and commercial property investment and development in both the UK and overseas and co-wrote "Where to Buy Property Abroad - An Investor's Guide". As Founder and Trustee of the Frontiers Foundation, Ray is directly involved with many of its projects to ensure they have a direct and tangible impact in individual communities across the globe. He is passionate about property, travelling, scouting out new opportunities and finding time to spend with his young family.
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