Thresholds, Mansion Tax, and property market shifts
Much of what arrived in November’s Budget speech was already known before Rachel Reeves took the stand, following weeks of rumours and the surprise publication of the measures by the OBR.
Burden on high-earners
It’s high-earning workers that will bear the brunt of this Budget. The Chancellor announced further freezes to income tax thresholds, by 2031 these will have been on ice for a decade, and the salary sacrifice reforms will change how some people save for retirement, though not until 2029.
Older groups, however, got away relatively unscathed. The State Pension is being maintained, and those over 55 are exempt from the reduction in cash ISA limits.
The new Mansion Tax
It’s in housing where the Budget could have a real impact.
The Chancellor introduced a new Mansion Tax which will see owners of properties valued £2 million and above face a minimum annual charge of £2,500. This figure rises as values increase and homes will be revalued every five years.
Knight Frank’s number crunching shows there are just over 150,000 properties worth over £2 million today, and that figure will increase by 40,000 by 2028, when the policy is introduced. People that bought properties decades ago, particularly in London and the South East, and have benefited from the vast increases in property wealth could be caught by this new levy.
There are mixed opinions about its impact. Some commentators expect to see a flurry of downsizing as people look to move into lower-value properties. However, others worry that the extra financial consideration for upsizers will put the brakes on those moving into properties at the top of the housing market.
What the Budget missed
While the Mansion Tax captured headlines, the Budget failed to adequately address the underlying structural challenges in our property market. I would have loved to have seen reforms to Stamp Duty and, importantly, incentives for those moving into age-specific housing. This should come alongside a clearer commitment to build more properties that will suit our population's needs in the years to come.
The older population in the UK is projected to grow significantly, with the number of people aged 85 and over doubling by 2047 to some 3.3 million people.
Despite this, the UK builds only around 7,000 later-living homes each year - a fraction of what is needed. This figure must increase dramatically to between 30,000 and 50,000.
What you can do now
The above are large policy-led issues, and you might be thinking about what you can do now.
Estimate property wealth & review your budgets
Estimate your property's current market value against the £2 million threshold to understand your potential exposure to Mansion Tax - Zoopla / Rightmove are good places to start to get a feel for asking prices of similar properties in similar locations
If you think you might be liable, factor the additional annual charge (starting at £2,500) into your household budgets, alongside your usual costs to maintain your property, to ensure you are comfortable covering these costs
Exploring downsizing options
It's a good time to look at your property and living needs for the years ahead to see if downsizing might be an option
Research the diverse options available, which include smaller properties as well as specialist retirement villages or age-exclusive developments
Even if you don’t think it is for you, I’d implore anyone to look at retirement village living, just to see the facilities available and get a feel for the community before you decide your best next step