First-time buyers will get the promised Help to Buy ISA this autumn, Chancellor George Osborne confirmed in the Summer Budget announcement today.
The buy-to-let sector will be hit by a reduction of tax relief for landlords, as the government wants to “create a more level playing-field between those buying a home to let, and those who are buying a home to live in” Chancellor Osborne said.
Buy-to-let mortgages account for 15 per cent of all new mortgages, which the Bank of England believes is putting financial stability at risk. This is why the government has decided to act and limit mortgage interest relief on residential property to the basic rate of income tax (currently 20 per cent), the Chancellor said.
While correcting an imbalance on the property market, the government does not want to harm hard-working people who are depending on rental income. Therefore there will be a gradual withdrawal of the higher taxes over the period of four years, starting from April 2017.
Restricting the mortgage interest relief for buy-to-let properties was one of three “changes that will address unfairness in our taxation of property, and put the security of home ownership first” named by Chancellor Osborne.
The other two were the increase of rent-a-room relief from 2016 and the raising of the inheritance tax (IHT) threshold from 2017.
The current rent-a-room relief (£4,250), which has not been changed in the past 18 years, will be raised to £7,500 from next year.
There will be a £175,000 increase in the IHT threshold (currently standing at £325,000) from 2017 and taxation will be capped at £2 million. The £325,000 tax allowance will be fixed till 2020/21.
Both tax allowances, the old and the new, can be transferred to the spouse or partner. This means that people will be able to leave estates worth up to £1 million to their children tax free and that IHT will be applicable for estates worth more than £2 million.
Revenues lost through the cut in IHT will be offset by the changes to pensions tax relief, as the annual allowance will be reduced to £10,000 for high earners from next year. This means that people on high incomes will not be allowed to put more than £10,000 towards their retirement from 2016.
Chancellor Osborne also confirmed the extension of the Right to Buy scheme to housing association tenants and said there will be another announcement related to housing policy this Friday. The announcement will address the issue of planning reforms.
