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Member Briefing: Budget July 2015

Date: 08/07/15

Budget July 2015

The Budget (Please click here, to read more) contained a number of housing measures which are outlined below.

However of particular interest to home builders, the Treasury announced it will publish a Productivity Plan on Friday (10th July) which will contain measures to improve the planning system. We expect these to reflect many of the proposals put forward by HBF over the last year or so.

In his Budget speech, referring to the Productivity Plan, the Chancellor included a lengthy section on housing:

“another key to raising the productivity of our country is building more homes and creating a fairer property market. This is a government that is unwavering in its support for home ownership.

That’s why we’re introducing the new Help to Buy ISA this autumn. That’s why we’re giving housing association tenants the right to buy. That’s why we will set out further planning reforms on Friday.

Today I set out three important changes that will address unfairness in our taxation of property, and put the security of home ownership first.

First, we will create a more level playing-field between those buying a home to let, and those who are buying a home to live in. Buy-to-let landlords have a huge advantage in the market as they can offset their mortgage interest payments against their income, whereas homebuyers cannot. And the better-off the landlord, the more tax relief they get. For the wealthiest, every pound of mortgage interest costs they incur, they get 45p back from the taxpayer. All this has contributed to the rapid growth in buy-to-let properties, which now account for over 15% of new mortgages, something the Bank of England warned us last week could pose a risk to our financial stability. So we will act – but we will act in a proportionate and gradual way, because I know that many hardworking people who’ve saved and invested in property depend on the rental income they get. So we will retain mortgage interest relief on residential property, but we will now restrict it to the basic rate of income tax. And to help people adjust, we will phase in the withdrawal of the higher rate reliefs over a four year period, and only start withdrawal in April 2017.

Second, the rent-a-room relief is designed to help homeowners who rent out a room in their home. It’s a good scheme, particularly in a world where more and more people are renting out rooms online, but the relief has been frozen at £4,250 for 18 years. Next year, we will raise it to £7,500.

The third change fulfils a long standing promise I made. The wish to pass something on to your children is about the most basic, human and natural aspiration there is. Inheritance tax was designed to be paid by the very rich. Yet today there are more families pulled into the inheritance tax net than ever before – and the number is set to double over the next five years. It’s not fair and we will act. From 2017, we will phase in a new £175,000 allowance for your home when you leave it to your children or grandchildren. It sits on top of the existing £325,000 threshold which will be fixed until the end of 2020-21. Both allowances can be transferred to your spouse or partner. And from today we’ll make sure those who choose to downsize do not lose any of the allowance from the property they used to own. But we will taper the relief away for estates worth more than £2 million. The result for families is this. You can pass up to £1 million on to your children free of inheritance tax. No more inheritance tax on family homes. Aspiration supported. The tax paid only by the rich. The security of home ownership restored. Promise made – promise delivered.

This cut in inheritance tax will be more than paid for by changes we’ve set out to the pensions tax relief we give to the highest earners. From next year their Annual Allowance will be tapered away to a minimum of £10,000.”

Social Housing

Social housing rents in England will have to fall by 1% per year for the next 4 years, a 12% reduction in average rents by 2020-21 following a 20% rise in rents over the three years since 2010-11.

Social housing tenants with household incomes of £40,000 and above in London, and £30,000 and above in the rest of England, will be required to pay a market or near-market rent. Treasury expects this to raise hundreds of millions of pounds of additional money to reinvest in housing. 

The government will also review the use of lifetime tenancies in the social housing sector.

The Budget contained changes to Housing Benefit. In addition, from April 2018, new Support for Mortgage Interest (SMI) payments will be paid as a loan. Loans will be repaid upon sale of the house, or when claimants return to work.


The relief on finances costs for landlords of residential property will be restricted to the basic rate of income tax, phased in over 4 years starting from April 2017. There will also be reform to how residential landlords account for the costs they incur in improving and maintaining residential property. From April 2016, the current deduction of 10% of rent from profit to account for wear and tear of furnished properties will be replaced by a new system in which landlords will only be able to deduct costs actually incurred.

The changes are expected to bring additional Treasury revenue of £225m in 2018-19, £415m in 2019-20 and £665m in 2020-21. Changes to the wear and tear allowance are expected to bring additional revenue of £205m in 2017-18 and £165m the following two years.

Inheritance Tax (IHT)

New rules from April 2017 will mean that everybody who owns a residential property in the UK and would otherwise pay inheritance tax on that property cannot avoid paying it by holding it in an offshore structure.

Treasury expects non-domiciles IHT on UK residential property to bring in additional revenue of £35m in 2017-18 and £100m in 2018-19.

“The government will take the family home out of inheritance tax for all but the wealthiest with a new transferable nil-rate band, introduced from April 2017. This will apply when a main residence is passed on death to direct descendants, such as a child or grandchild. The allowance will be up to £100,000 in 2017-18, up to £125,000 in 2018-19, up to £150,000 in 2019-20, and up to £175,000 in 2020-21. This is in addition to the inheritance tax nil-rate band, which is set at £325,000 for the estates of individuals. This creates an effective £500,000 inheritance tax threshold for estates in 2020-21. As with the current nil-rate band, any unused main residence nil-rate band will be transferred to a surviving spouse or civil partner and means the effective inheritance tax threshold will rise to £1 million in 2020-21.

The new main residence nil-rate band will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to £175,000 in 2020-21, are passed on death to direct descendants. For example, an individual might choose to downsize from a home worth £200,000 to a home worth £100,000. They could still benefit from the maximum allowance of £175,000 in 2020-21 if they leave the home and £75,000 of other assets to direct descendants. They will only be liable to inheritance tax if the total estate exceeds £500,000.”

“there will be a tapered withdrawal of the main residence nil-rate band for estates with a net value of more than £2 million. The existing nil-rate band will also remain at £325,000 from 2018-19 until the end of 2020-2021.”

Treasury expects the cost to be £270m in 2017-18, £630m in 2018-19 and £790m in 2019-20.

Help to Buy ISA

The new ISAs will be available for first-time buyers to start saving from 1 December 2015. The maximum Government bonus will be £3,000 on £12,000 of savings. FTBs will be able to deposit £200 per month into their HtB ISA at participating banks and building societies, but they will also be allowed an additional one-off £1,000 deposit to start saving.


As previously announced, the government intends to introduce a seeding relief for Property Authorised Investment Funds (PAIFs) and Co-ownership Authorised Contractual Schemes (CoACSs) and intends to make changes to the SDLT treatment of CoACSs investing in property so that SDLT does not arise on the transactions in units, subject to the resolution of potential avoidance issues (Finance Bill 2016).


“the government has committed to significantly increase the quantity and quality of apprenticeships in England to 3 million starts this Parliament, putting control of funding in the hands of employers.

This goal will require funding from employers. In recognition of this, the government will introduce a levy on large UK employers to fund the new apprenticeships. This approach will reverse the long-term trend of employer underinvestment in training, which has seen the number of employees who attend a training course away from the workplace fall from 141,000 in 1995 to 18,000 in 2014.

The levy will support all post-16 apprenticeships in England. It will provide funding that each employer can use to meet their individual needs. The funding will be directly controlled by employers via the digital apprenticeships voucher, and firms that are committed to training will be able to get back more than they put in. There will be formal engagement with business on the implementation of the levy, which will also consider the interaction with existing sector levy boards, and further details will be set out at the Spending Review.”

We will have to determine how this will operate for the construction industry which already has a levy system and the CITB.


In his Budget speech, the Chancellor said that “devolution within England has only just begun”. Devolution will have implications for housing and planning, but it is too early yet to draw any firm conclusions about this impact.

Economic Forecasts

“The Office for Budget Responsibility (OBR) forecasts GDP growth of 2.4% in 2015, 2.3% in 2016, and 2.4% for the remainder of the forecast period. The OBR forecasts employment to be 31.2 million in 2015, rising each year to 32.1 million in 2020. CPI inflation is forecast to be below target in 2015, returning gradually to 2.0% in 2020.”

“House price growth has moderated over the past year, having grown strongly during early 2014, with annual house price growth slowing to 5.5% in April 2015. Meanwhile, property transactions fell during the second half of 2014 and were 3.1% lower in May 2015 than a year earlier. The OBR forecasts house prices to grow by 5.7% in 2015, followed by 4.1% in 2016, before rising to 5.6% in 2020. Property transactions are forecast to fall by 1.7% in 2015 before growth picks-up, peaking at 5.5% in 2018.”

John Stewart

8 July 2015