KEEP A LEVEL HEAD AS THE BUDGET APPROACHES

When Chancellor Rachel Reeves delivers her first Budget on 30 October, we are likely to see some radical tax changes, writes Nick Williams. 

Whilst the Labour manifesto ruled out any rises in income tax, national insurance and VAT, it seems certain that capital taxes will be high on the Chancellor’s list when it comes to looking for new sources of income. 

Shifting the balance of taxation on earned and unearned income has long been an aspiration of the Labour Party, and with a newly-minted huge majority, now is the politically adept time to be tackling this issue.

What this will mean for property taxes is less clear.  Various commentators – and not just on the left of politics – have called for a unified land and buildings tax to replace the current system of council tax (which is based on valuations which are now more than three decades old), stamp duty (which, as it is only payable when a property is purchased, could be said to encourage people to stay put) and business rates (which many argue is not working well).

It is unlikely that such a radical change will be brought in without consultation, so therefore probably not in next month’s Budget.  But we may see some signposting of the Chancellor’s aspirations in this area when she delivers her speech.

Much more likely will be an increase in capital taxes, with the potential for higher rates and/or lower allowances, as well as the possible reining in of benefits such as Business Property Relief.  It is almost certain that the headline rate of capital gains tax will rise; the direction of travel will be to equalise these with income tax rates, although that may happen in steps and not all at once.

So what should the property investor do, given that they could be facing considerably higher tax bills when they come to divest their portfolios? 

Someone who is considering selling anyway should probably get on with it (it is not impossible that any change will be introduced immediately), but planning your investment strategy solely based on tax considerations can be one-dimensional. 

There are many things to take into consideration: potential income from rents; future capital growth; and the fact that property investment can be leveraged in a way that a cash investment never can.  The answer is, as ever, to think in the long-term; short-term panic is often the wrong answer.