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Summer Budget 2020 Update

By RJP LLP on 8 July, 2020

There has been a lot of speculation over recent weeks regarding the contents of Rishi Sunak’s summer budget. We all anticipated changes to VAT and stamp duty but there were some complete surprises. Did you ever envisage a day when the chancellor would be footing the bill for your meals out?

For property investors, the reduction to stamp duty creates some significant savings too.

Here are the details of today’s announcements together with an analysis of how the stamp duty holiday could impact you, in more detail.

VAT

The VAT rate is being cut from 20% to 5% for the hospitality and leisure sectors starting on 15 July 2020 until 12 January 2021. This is aimed at supporting tourist attractions, restaurants, hotels and holiday accommodation, plus eateries – cafes and restaurants. Alcohol is not included in this new rate.

Jobs Retention Bonus

Closely connected to the VAT reduction policy is an announcement that no one was expecting – a jobs retention bonus. The furlough scheme will be ending in October and there has been a fear that this is just delaying the inevitable with mass unemployment following with workers in the hospitality sector especially vulnerable.

To try and avoid this situation post October, the chancellor is launching a bonus scheme for all employers who bring previously furloughed workers back into the workplace. This scheme applies to any employees who have been on the furlough scheme at any point since it first launched.

An employer needs to be paying their worker a minimum level of £520 per month and be employing them until the end of January 2021 to qualify for the one-off payment. We will update you with the relevant information as soon as it is published.

Stamp Duty Holiday

The health of the housing market has a significant impact on the rest of the economy in terms of consumer demand and general levels of confidence.  Early reports show that house prices have already dropped slightly as a result of the Covid-19 lockdown, so the anticipated stamp duty (SDLT) cut wasn’t a surprise.

The SDLT threshold is being increased to include property values of up to £500,000 and this will become effective from 9 July 2020, lasting until 31 March 2021.

It means 90% of people who are buying a home won’t have to pay any SDLT and for those that do, their average saving will be £4,500. This policy will cost around £3.8bn to implement.

Significantly, it would appear that second homeowners and property investors can also qualify for the SDLT holiday but would still have to pay the current 3% surcharge.

How is the new stamp duty rate calculated?

Stamp duty (SDLT) is applied according to a sliding scale, so even where it is still payable on property transactions, there will be a potential saving through the holiday period.

The new thresholds (from 9 July 2020) are as follows for differing property values: 

  • No stamp duty to £500,000;
  • 5% from £500,001 to £925,000;
  • 10% on £925,001 to £1.5 m;
  • 12% on any value above £1.5 m.

Example

Mr Jones is a first time buyer and buys a property for £795,000.  Here’s how the changes affect him according to different scenarios.

Under the new rules, he only pays SDLT on £295,000 at 5%, because the value up to £500,000 is SDLT free. His total liability is £14,750.

 

Before the stamp duty holiday was introduced, his stamp duty bill would have been:

£795,000 purchase price

No stamp duty up to £300,000

5% on £300,001 to £795,000 = £24,750

Total liability was £24,750

Under the new rules he sees a saving of £10,000

 

If he is not a first-time buyer, the SDLT charge would tax have been:

No stamp duty to £125,000

2% on £125,001 to £250,000 = £2,500

5% on £250,001 to £795,000 = £27,250

Total liability is £29,750

A saving under the new rules of £15,000

 

Landlord with the SDLT holiday

If Mr Jones was a landlord, his new SDLT liability will be:

No stamp duty for first £500,000

5% on £500,001 to £795,000 = £14,750

3% surcharge on full property value = £23,850

Total liability is £38,600

 

Landlord before the summer budget

Mr Jones’ stamp duty liability would have been:

No stamp duty to £125,000

2% on £125,001 to £250,000 = £2,500

5% on £250,001 to £795,000 = £27,250

3% surcharge on full property value = £23,850

Total liability is £53,600

 

A saving under the new rules of £15,000

Other schemes announced

The chancellor is also launching a ‘kick starter’ scheme to help the 700,000 or so young people leaving education or who are early in their careers. Under this scheme, employers will be given a payment in return for six month work placements for a young person aged between 16-24, provided they offer at least 25 hours a week, pay at least the national minimum wage and offer them training.

There will be additional schemes running to encourage employers to recruit trainees and apprentices. £100 billion has been earmarked to provide £1,000 payments for organisations who employ a trainees.

Green grants

A number of other schemes and grants have been launched for consumers, including a £5 billion green homes grant. This is available to home-owners and landlords to improve the energy efficiency of their homes and create local jobs. For the majority of households, up to £5,000 is available.

Eating out grant

Over the past week, the media were speculating about a £500 voucher to spend in the high street, as other countries have offered to kick start their economies.  The chancellor ultimately unveiled something totally unexpected – an “eat out to help out” scheme.

Starting in August, all consumers will have the chance to benefit from up to 50% off when they eat in participating restaurants up to a maximum of £10 per head. Children are included and it will be available from Monday to Wednesday.

Overall, the packages announced by Rishi Sunak today are estimated to be worth up to £30bn, in addition to the schemes launched at the start of the Covid-19 outbreak.

Sunak finished his speech today saying that it is vital the UK ‘does not let itself be defined by this crisis but by our response towards it”.

As more details surrounding the different supports schemes are announced we will share the information with you.

Look out for our updates but in the meantime if you require further information contact partners@rjp.co.uk

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31 December 2020 - Review disposals of chargeable assets to avoid a possible CGT increase

Capital gains tax is due to be reviewed by the government and if a CGT rise is announced, the new rates may become effective from the next tax year on 6 April 2021. Take advice now if you are thinking of selling property or have other assets giving rise to a capital gains tax liability.