Inheritance Tax / Capital Gains Tax / Financial planning / Tax / News

UK property: surging sales and the impact of lockdown

Over the past year UK property has enjoyed a real surge in sales. But will it continue? And how does it reflect the way we all live and work? Peter Webb, our Head of Tax Advisory, explores why the UK property market has seen such a boost and what’s to come.

The UK property market is a good example of a sector which has experienced real success during the pandemic. Despite lockdowns it’s enjoyed a very encouraging 12 months with many people choosing to reconsider the type of home they want to live in or deciding to relocate to a new area. The pandemic has certainly prompted a chance for us all to think about what we want from our homes; working from home and home-schooling has led many to look for more space, or the ability to add it, and those in towns and cities have been prompted to move by the need to be nearer green spaces.

Recent reports from HMRC have shown that in March 2021, UK property sales hit their highest levels since 2005, when modern records began. Prices have risen on average by 8.6% in the last year, and astonishingly the number of sales was twice that seen in March 2020. Reports last month saw the sector continuing to enjoy success with the Halifax, the UK’s biggest mortgage lender, reporting a 1.4% increase in house prices. The average selling price has hit a record high of £258,000.

This has all been helped, of course, by the support from the UK government in the form of a Stamp Duty holiday. This tax break, originally running until 31 March 2021, was extended by Rishi Sunak by three months to the end of June to help continue to buoy up the market. Low deposit mortgages were also announced in this year’s Budget, again helping maintain interest and momentum.

It is yet to be seen whether these incentives are the reason for this continued interest, or whether those other factors at play continue as trends in their own right. Certainly, for many, the impact of the pandemic has prompted a real opportunity to take stock and make a significant move perhaps earlier than originally planned. In fact, the trend has been for many to relocate from urban areas to the countryside, with the West Country in particular seeing huge levels of popularity. It’s clear that for many the chance to pack up and move, or realise a new lifestyle, particularly with more flexible working patterns continuing, is an opportunity for a better balance between work and life.

As the furlough scheme and Stamp Duty break both come to an end, there is likely to be more normality in the market. However, with low interest rates likely to be here for some time to come, combined with a readiness of plentiful mortgage options and a solid rebound in the economy, it’s unlikely the UK property market will burst from the bubble it’s currently enjoying.

Over the medium and longer term the UK property sector has been popular for investing in. But it’s worth remembering that UK property is a highly taxed investment. When buying your property, Stamp Duty can be charged at rates as high as 17%, and income from a buy-to-let attracts tax at your highest Income Tax rate. Capital Gains Tax on the sale of a buy-to-let property is also charged at higher rates than on other assets. And UK property presents challenges when planning to reduce your possible 40% Inheritance Tax bill too. Sadly, a popular and effective Inheritance Tax planning route for UK property – where the property could be held in a company/trust structure – was closed down in 2017.

Yet we remain a country of home buyers, not renters. For many they are a major element of our investment portfolio too. Our homes impact so many aspects of how we live. And in the past year they’ve also been the places in which we work, learn and socialise too, prompting a fundamental shift in the way we use the space around us.

If you are considering any aspect of your financial affairs, including alternative, more tax-efficient ways to invest in the buoyant UK property market, please contact your nearest office.