Budgeting for the Future

by ESPC

15 July 2015

The second Budget of 2015 has ignited a keen debate about what George Osborne's economic policies will mean for Scotland's property sector. While the policies announced on Wednesday will affect the whole of the UK, it is interesting to consider how the various announcements made to the House of Commons might impact upon Scottish markets.

One significant change concerns the restriction of mortgage interest relief for buy-to-let landlords and investors, which will be capped at the basic rate of income tax by 2020. Scotland currently has an estimated 370,000 privately rented properties, many of which are owned by private landlords and investors with modest portfolios. Although the majority of these properties have no outstanding mortgage, those that do will generate a far bigger tax burden on their owners when these changes come into effect. Many industry insiders predict new landlords will be discouraged from entering the market, which could inflate rents among the existing stock of private rental homes.

There was better news on inheritance tax, following the widely-trailed announcement that a family home allowance of £175,000 will be added to the existing £325,000 tax-free allowance given to each individual. Due to be fully introduced by April 2020, the new £500,000 IHT threshold will lessen the tax burden on people bequeathed properties that have experienced considerable price growth. Average property prices in the City of Aberdeen have increased by over 80 per cent in the last decade, according to recent data from Registers of Scotland, meaning thousands of families would have faced substantial IHT bills under the old £325,000 threshold. The family home allowance will save many Scots from inadvertently incurring tax liabilities due to elevated property prices outwith their control.

At the other end of the property ladder, there was confirmation that the Help to Buy ISA will be launched later this year. This scheme is intended to help people who would otherwise struggle to raise a sizeable deposit, or obtain a high loan-to-value mortgage. For every £200 a first-time buyer puts into one of these accounts, the UK Government will add an extra £50, with a top-up limit of £3,000 over a four-year period. Help to Buy ISAs will be held through banks and building societies, and can be redeemed against any new or resale property in Scotland with a purchase price below £250,000.

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