Chancellor Rishi Sunak announced the Autumn Budget on Wednesday 27 October. There were a few announcements in the speech and spending review that are set to impact HMO property investors and the property market as a whole.
It’s important to stay up-to-date with the latest legislation, tax laws, and economic picture to help you make the most informed decisions on your property portfolio or HMO business.
Below we’ll cover what HMO property investors should know about the Autumn Budget and current economic outlook. I’ll also offer a few tips to help you navigate these changes and additional changes that could come in the future.
Tax Changes
Prior to the Budget, there had been much speculation that the rates of capital gains would be increased to be in line with income tax. However, it was announced that the rates are staying the same. There was a change made to payment periods though.
The payment period for Capital Gains Tax on residential properties has been doubled from 30 to 60 days after completion. This gives landlords and property investors more time to register, calculate and pay what they owe in capital gains.
This was a change recommended by the Office of Tax Simplification. The 30-day rule first came into effect in April 2020, which replaced a system where Capital Gains Tax was reported in a Self Assessment tax return in the tax year after the property was sold.
In the lead-up to the budget announcement, there had also been calls for changes to stamp duty as well. There were no changes announced, but the Office for Budget Responsibility’s fiscal and economic outlook document, which was published after the budget speech, incorrectly said that the rate for investors and second homeowners had increased from 3% to 4%.
However, the Treasury has confirmed that no change was made to this within the Budget. It’s likely the government changed its mind on increasing the stamp duty surcharge at the last minute. This highlights that there could be changes to stamp duty for property investors and landlords in the future.
Economic Outlook, Inflation and Interest Rates
During the budget announcement, Rishi Sunak also took the time to talk about the UK economy, which is particularly of note due to the COVID-19 pandemic and previous lockdowns.
The economy is proving to be resilient as the Office of Budget Responsibility states it will return to pre-pandemic levels at the end of the year. This is faster than originally expected. Additionally, the UK’s independent forecaster downgraded its unemployment projections from 12% to 5.2%, which is also positive news.
In recent months, inflation has been on the rise. In the Autumn Budget, Rishi Sunak warned the stimulus is likely to cause inflation to increase even further. The Office of Budget Responsibility has predicted inflation to rise by an average of 4% in 2022.
Sunak also suggested that the Bank of England (BoE) could be ready to raise interest rates in order to stop inflation from increasing even more. Many were predicting the BoE would increase the base interest rate before the end of the year. However, in BoE’s Monetary Policy Committee meeting on Thursday 4 November, the base interest rate was held at 0.1%.
Mortgage rates have been historically low. The BoE cut the base rate to 0.1% in March 2020 in the wake of the COVID-19 pandemic. With the base rate potentially rising soon, this could lead to lenders increasing mortgage interest rates.
Tips for Navigating These Changes
1. Focus on Raising Private Finance
Private finance is crucial for scaling your HMO business. With the cost of borrowing likely to go up soon, this makes it even more important to work on your strategy for raising private finance. This will help you raise more cash to put down on your next property or put towards a refurbishment.
2. Future Proof Your HMO Properties
Ensure that your HMO portfolio will work not just today but also tomorrow, next year, in five years and a decade down the line. There are a number of ways you can future-proof your properties and generate recurring income for years to come. Start with being aware of your liabilities and relevant legislation and have a long-term view of your properties.
3. Be Prepared for More Changes
As there could be more changes to property-related tax rates and HMO legislation in the coming year, this is something every HMO property investor needs to be aware of and be prepared for.
For example, a white paper on the Renters’ Reform Bill, which could include a ban on Section 21 evictions, has been delayed until next year. This could bring forward substantial changes impacting HMO property investors, so make sure you plan ahead for these potential changes.
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About the Author:
Andy Graham is the founder and the lead trainer at The HMO Roadmap! He is also the co-founder of The HMO Mastermind and Smart Property, a specialist HMO property investment and management company. He writes as a regular columnist in different magazines about a variety of HMO topics and is the host of The HMO Podcast! Follow Andy on Instagram!