While it is clear the chancellor is keen to treat the Budget as a ‘tax-cutting’ Budget, and has indeed made cuts to national insurance contributions, it would be very simplistic to view this Budget – when considered overall – to be such.
In particular, it is disappointing to note that Jeremy Hunt has done nothing to address the fiscal drag suffered by so many taxpayers over the past few years, because of the freezing of the personal tax allowance and income tax rate bands.
As these bands are not meant to change potentially until April 2028, it is clear that more and more taxpayers will actually be caught by the income tax system directly and/or higher rates of tax, purely because of inflation rather than any innate increase in their real income.
However, despite any disappointments that one might feel with the overall tenor of the budget, there are clearly some important takeaways that one needs to consider from an advisory and tax or financial planning perspective.
For example, the reduction in the capital gains tax rate on the sale of domestic properties from 28 per cent to 24 per cent might well encourage a number of private landlords who have been sitting on significant unrealised gains to now look at selling their letting properties.
Furnished holiday letting landlords will have to re-consider their retirement strategies.The focus on selling letting property could also be triggered by the removal of the furnished holiday letting regime.
Private landlords of furnished holiday lettings, who have historically been able to get full mortgage interest relief on their properties (which provided relief potentially at 40 per cent or 45 per cent), will in future only be able to get a limited tax credit of 20 per cent of the mortgage interest paid against their letting profits.
While this change puts them in the same position as private landlords of long-term rented property, clearly with mortgage interest rates now at high levels (at least compared to the last 15 years), there may be pressure on many landlords of furnished holiday lettings to sell up.
Alternatively, you may find that private landlords owning property in their own name now re-consider the idea of transferring these properties into a limited company structure, to ensure that full mortgage interest can continue to be claimed.
While there are legal and administrative costs (and tax issues) with such transfers, it can be a suitable option in some scenarios.
It is also possible that the removal of the furnished holiday letting regime will reduce the pension contributions that some landlords can make on a year-by-year basis.
This is because furnished holiday letting profits were always ‘allowable income’ for assessing what pension contributions a taxpayer could make into a private pension scheme.
In contrast, the income from regular, long-term letting income is disregarded for pension contribution purposes.
One may therefore find that a number of furnished holiday letting landlords will have to re-consider their retirement strategies, if they are unable to input pension contributions above the default limit of £3,600 a year.
Finally, it is worth noting that the Treasury has also announced a review of the tax adviser market and, for example, the ability of unregulated accountants and advisers to provide tax advice to the general public.
While this announcement is purely a consultation, if it does result in a change to the regulations and proper oversight of the tax advisory field, it would help ensure that taxpayers aren’t caught out by unregulated, unqualified and often uninsured cowboy advisers.
Robert Salter is associate director at Blick Rothenberg
