In our last market analysis blog we referenced two key events that would potentially impact the market for the rest of the year. With the UK Autumn Budget in place and the base rate cut by the Bank of England to 4.75% yesterday, we can now explain what has happened and what is likely to transpire as a result for the local Edinburgh and Lothians Property Market.
Autumn budget from Westminster
Firstly, we should note that most matters relating to property like Land and Buildings Transaction Tax (LBTT) are devolved to the Scottish Government, and we await the Scottish Budget on the 4th December to see if there will be any changes for us there.
South of the border, Rachel Reeves, Chancellor of the Exchequer, lowered the tax relief for First Time Buyers threshold from £425,000 down to £300,000, which is still almost double the Scottish rate at £175,000.
We would certainly welcome an increase to this threshold in line with the rest of the UK which would give First Time Buyers a much-needed boost in the competitive Edinburgh and Lothians market where prices for first time buyers often exceed £175,000 nowadays.
The Chancellor also increased the ‘second homes tax’ officially known as the Additional Dwellings Supplement (ADS) to 5%, bringing the rest of the UK closer to Scotland’s 6% but still 1% lower than here in Scotland.
The other matters in the UK Autumn Budget that could impact or relate to property matters all concern tax. Neilsons are not taxation lawyers and can not deal directly with tax related enquiries, so we’ve sought input for this blog from our friends and South Queensferry neighbours, Whyte Sharp Independent LLP. Alastair Pascall, one of their Partners, has outlined these helpful key points for us and our clients:
1. ISA allowances have been frozen until 2030, meaning that an individual can continue to contribute £20,000 to an ISA each tax year. ISAs still remain a tax efficient savings vehicle and where possible we will continue to use ISAs as part of an overall financial plan.
2. Tax Free Cash from pensions has not changed at all. An individual can still withdraw 25% of their pension fund tax free up to the limit (£268,275) that was already in place before this budget. This is very welcome given the speculation that this would be changed with some providers noting an increase in non-advised customers making irreversible decisions with their pensions prior to the budget.
3. Tax relief on pension contributions also remains unchanged. Contributions to pensions will still receive tax relief at the member’s marginal rate, again up to the allowances in place prior to the budget. Contributions to pensions therefore remain very attractive from a tax point of view and for saving for retirement and should therefore remain as the bedrock to retirement planning.
4. Capital Gains Tax rates have increased as was widely reported to be happening; however, the annual exemption (£3,000) has remained the same. Basic rate tax payers will now pay 18% on gains above the annual exemption and higher rate tax payers will pay 24%. The rates on residential property remain the same. Whilst the annual exemption has reduced substantially over the last two years, we are still working on the premise that we can utilise the allowances available to an individual to maintain a tax efficient portfolio.
5. Inheritance Tax allowances and exemptions have remained the same. The Nil Rate Band is still £325,000 and the Main Residence Nil Rate Band (if applicable) is still £175,000. The allowances and exemptions remaining the same does not allow for growth on house values and other assets, however it does give clarity and therefore we can continue to plan for this moving forward without disruption.
6. Unused pension funds and death benefits are to become subject to Inheritance Tax from April 2027 where an individual’s estate is over the limits outlined above. HMRC have launched a consultation on this to seek views on how this will work in practice and we expect the pension industry to give a vast amount of input into this. This is potentially the biggest change to come out of the budget and will take a larger proportion of the population over the Inheritance Tax Nil Rate Band. We expect some more clarity on this once the consultation has finished and this is an area that we are keeping a keen eye on in case there is any further action that needs to be taken.
If you have further questions relating to these tax changes, please contact Alastair at Whyte Sharpe by emailing him here.
In summary, the budget was not as bad as many had anticipated it could be for home owners and investors and we will update you again in December once the Scottish Budget is in place with more news.
Onto the Base Rate…
The Bank of England yesterday announced a cut in its base interest rate to 4.75%, a significant move that aligns with falling inflation, now at a low 1.7% – comfortably below the Bank’s 2% target. This rate reduction, decided by the Monetary Policy Committee, is welcome news for mortgage holders, particularly those on tracker mortgages, which directly follow the Bank’s base rate. For potential buyers and those looking to remortgage, this decision signals a window of opportunity to secure better rates.
This year has seen notable fluctuations in mortgage rates, largely driven by volatile mortgage swap rates—the rates at which banks lend to each other. These rates influence lenders’ ability to offer competitive mortgage deals and tend to reflect broader economic trends. With recent instability in the global economy, particularly in the US, lenders may proceed cautiously. Some banks are expected to react quickly to the base rate cut by offering improved mortgage deals, while others may wait until early next year to see if the US economy stabilises and how that might impact swap rates.
For homeowners, this base rate reduction could ease monthly mortgage payments slightly, depending on individual terms. Meanwhile, those on fixed-rate mortgages won’t see immediate changes but could benefit when their terms end if the base rate remains low. Overall, today’s decision offers optimism for mortgage holders and prospective buyers, suggesting a more stable period for borrowing costs after a turbulent year.
So, there are green shoots of positivity for would be home movers! We anticipate that this years balanced market will progress into 2025. A reasonably fair market that in general favours neither buyer nor seller over the other, with good availability of stock for buyers, realistic prices paid not too far in excess of Home Report values (with a few notable exceptions) and for sellers, a good pace to the market with buyers able to secure the needed finance to move things forward smoothly.
It remains the case that buying or selling a property is one of the most significant financial decisions you’ll make in your lifetime. The experienced team here at Neilsons can provide trusted, professional advice to help you make that decision with confidence.
Book a free consultation with Neilsons here!
