Property implications of the budget

On my return to writing this blog (my hands have been rather tied as of late) I felt it pertinent to discuss some of the most important aspects of last week's budget. Overall, no major surprises. Osborne delivered a political budget. It wasn't exactly 'rabbits out of hats' but it was undoubtedly populist in tone and, frankly, did little to address the structural flaws in the UK economy. So not quite an omnishambles budget?

The main provisions of interest to the property industry are thus:

• £3bn of extra capital spending was announced for Infrastructure investment- on the one hand this is welcome news for the property industry. Investment in new schools, bridges, roads and railways can only have a positive effect on economic growth. However, the money does not start to come on flow until 2015/16. It would be more beneficial, to have the full effects of the investment coming on stream now.

• New mortgage guarantees and shared equity schemes for first time buyers- the government promised new mortgage guarantee support for first time buyers of new build residential property. We shall have to watch this space to see whether or not it will lead to increased activity in the property market. Funding for Lending had a small effect on the property market. That said, there is disappointment that the Chancellor did not do more to extend the scheme to assist SME's and business tenants. Lenders are more reluctant to lend to a business tenant than they are to a residential mortgagee. We've had project Merlin, quantitative easing, credit easing etc. All seem to have had a negligible effect on increasing lending to SME's.

• A corporation tax cut to 20% and a new employment allowance (through cuts to employer's NI contributions). The benefits are obvious. Cuts to corporation tax and NI will only reduce the business tenant's overheads. This is surely welcome relief at a time when many tenants (particularly in the retail sector) are struggling with rising rent bills. That said, the Chancellor did miss the boat and failed to listen to retailer's concerns regarding business rates. Most retailers will face a rates bill of £175m this year. I have stated before on this blog, that many Leases are up for renewal in the coming years. If no action is taken to alleviate the stress placed on retailers, then tenants may be forced to leave their properties when their Leases come up for renewal. This will result in the nightmare scenario of an empty property for the Landlord.

• An 'annual tax on enveloped dwellings' (ATED) will come into force this April. This applies to companies who purchase high end residential property. This is in addition to a stamp duty rate of 15% (for properties worth £2m or over purchased by a company) and a capital gains tax charge of 28% on a gain made by 'non natural persons.' The government does not want to deter property investment made for genuine commercial reasons. Thus, there are reliefs from the ATED e.g. if the property is purchased for charitable purposes, or is made open to the public for at least 28 days a year. This is indeed laudable, however it does show how heavily property is taxed in this country. This could well become a general trend as the government moves from a tax system based on income (which is highly mobile) to one based on property and other assets (which cannot be moved so easily). This is especially so as politicians continue to explore the possibilities of a much vaunted 'mansion tax' on high value residential property. The above suggests that it may not be necessary.

I have analysed the main provisions of the budget that will be of interest to the property industry. In short, the Chancellor has missed an opportunity by not bringing forward capital investment sooner, by not cutting business rates and by not extending government schemes to increase lending to business tenants. Many Leases are coming up for renewal. The Chancellor missed the chance to deliver a budget that would save Britain's high streets. Perhaps it has turned out to be something of an omnishambles after all...