CHANCELLOR Rachel Reeves will deliver her Spring Statement this month and it could lead to some major changes for homeowners.
The Spring Statement is made once a year and, while it’s considered a smaller event than the Budget, usually delivered in autumn, it can still be used to announce upcoming policy changes.
Some major changes for homeowners could be announced in the Spring Statement[/caption]
This year’s Spring Statement lands on March 26, and while major policy announcements aren’t expected, there could be several changes that could affect first-time buyers, as well as those looking to move to a new home.
The chancellor is looking for ways to raise extra revenue and is making drastic moves to do so. For example, Ms Reeves is set to slash billions of pounds from the UK’s welfare budget.
So, any tweaks are unlikely to be great news for house-buyers.
Here is what could be announced by the chancellor related to housing come March 26…
STAMP DUTY
You pay Stamp Duty Land Tax (SDLT) when buying a property or piece of land over a certain price in England and Northern Ireland.
In September 2022, the Government bumped up the thresholds at which home buyers have to pay the tax.
For first-time buyers, it was increased from £300,000 to £425,000, while for everyone else it was raised from £125,000 to £250,000.
This meant that many people did not have to pay any stamp duty at all, and for others they paid significantly less.
Ministers increased these thresholds in the hope it would encourage more people to move house after the a slowdown in the property market.
What could change?
The enhanced thresholds are set to revert to their previous levels in April 2025 unless the Government decides to extend them.
During her Autumn Statement last year, Rachel Reeves stopped short of announcing an extension to the measure.
While the Treasury has confirmed that the thresholds will return to their earlier levels, the timing of Reeves’ Spring Budget – just days before the changes are due to take effect – has sparked speculation that a last-minute reversal may still be on the table.
But this is unlikely to be the case, as the chancellor is looking to plug a hole in the country’s finances, purported to be worth around £22billion, and Stamp Duty is a way of raising revenue.
If the thresholds do revert back to their previous amounts, as expected, there have been suggestions this could lead to house prices falling as demand for homes drops.
LIFETIME ISAs
Lifetime ISAs are often used by first-time buyers to get on the property ladder.
They are a tax-free way to save up for a property, and for each £4 you put in, the government will add an extra pound, up to a maximum bonus of £1,000.
But the home must cost less than £450,000 – a threshold that has remained the same since 2017 despite rising house prices.
If savers use the money to buy a property that is over the scheme’s £450,000 limit, they face a 6.25% withdrawal penalty.
This means that someone who has saved £20,000 could face only getting back £18,750 of their money if they choose to take it out.
What could change?
Consumer rights advocates have long urged the Government to reduce the LISA withdrawal penalty and raise the property price cap in light of house price growth over the past few years.
House prices have significantly increased lately, so many LISA holders have found themselves exceeding the £450,000 limit, leaving them unable to use their savings without incurring hefty penalties.
The previous Conservative Government did not address these issues, and Rachel Reeves made no reference to the matter during her Autumn Statement, disappointing campaigners further.
Laura Suter, director of personal finance at AJ Bell, said: “The government wants to help people achieve their dream of home ownership but the Lifetime ISA in its current form can be more hindrance than help for many individuals.
“Rachel Reeves should seriously consider reducing the exit penalty to 20% so that savers only give up the government bonus if their withdrawal circumstances trigger the charge.
“The government implemented a temporary reduction in the charge during the pandemic to avoid penalising anyone forced to take their money early when the economy ground to a halt.
“It should now make that measure permanent to avoid putting people off using a Lifetime ISA.”
CASH ISAs
Each year, individuals can deposit up to £20,000 into an Individual Savings Account (ISA), and any returns they receive on their investment – regardless of the amount – remaining entirely tax-free.
Cash ISAs remain the most popular tax-free savings product, operating much like a traditional savings account where your funds are held as cash.
They are considered a safer option compared to stocks and shares ISAs, as your money is not subjected to market dips.
This guarantees that you will always receive back at least the amount you initially deposited.
The tax-free nature of the accounts sets them apart from regular savings accounts, where interest earned is subject to tax once it exceeds the personal savings allowance.
Basic rate taxpayers are required to pay tax on interest earned above £1,000 per year, while higher-rate taxpayers must do so once their annual interest exceeds £500.
Additional rate taxpayers, who are taxed at 45%, receive no allowance at all and must pay tax on all interest earned.
However, the future of cash ISAs has recently been called into question.
What could change?
The future of cash ISAs has come under scrutiny in recent months.
Speculation has been growing that Ms Reeves may alter the rules around these lucrative savings accounts.
This comes amid calls from City lobbyists to abolish cash ISAs entirely, to help encourage people to invest their savings into stocks and shares ISAs instead.
Others have proposed a drastic reduction in the annual tax-free allowance, slashing it from £20,000 to as little as £4,000.
If you’re using a cash ISA to save for a home, any reduction in the allowance could drastically alter how much you can put away each year.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “The current uncertainty sown by rumours around the future of cash ISAs is unhelpful for savers.
“The October 2024 Budget froze allowances at the current level until 2030, and it would be good to see this speculation ruled out, bringing certainty for a family of products that people need to be able to rely on.
“To build confidence in long term investment, we need to use the carrot of providing better support.
“Chopping and changing products like ISAs is more likely to put people off saving and investing for the long term.”
Ms Suter added: “Given the line is it isn’t a Budget, I wouldn’t expect any big tax and spend decisions that take effect quickly. However, they could still lay the groundwork for ISA reform.
“For example, by announcing a review focused on simplification and, inevitably, raising the question of whether the Cash ISA allowance should be cut from £20,000.
“Our view is still that any reforms in this area need to focus on simplifying for the long-term rather than scaling back the investment options available.”
SUPPORT FOR MORTGAGE INTEREST
Support for Mortgage Interest (SMI) is a loan you can get from the government to cover mortgage interest or loan interest if that loan was taken out to pay for home improvements or stamp duty.
The loans also cover the cost of you making changes to your home if someone living there is disabled or ill, plus if you are buying your ex-partner’s share of your home.
You can get SMI if you’re on a number of benefits, including but not limited to: Universal Credit, Pension Credit and Income Support.
You do pay interest on a SMI loan, however they can be beneficial as they spread costs over a wider time frame making your repayments more affordable.
What could change?
Rachel Reeves is looking to slash billions from the UK’s benefit budget ahead of the Spring Statement.
The government currently spends a whopping £137.4billion on benefits every year.
The Chancellor won’t announce tax hikes during the Statement later this month and her fiscal rules ban the government from borrowing to fund day-to-day costs.
But that means the only resort left to boost the coffers is spending cuts.
And last week, the Chancellor sent proposals to drastically cut public spending across Whitehall to the OBR.
This could mean Reeves announces a reduction in the SMI offer or stops it completely.
Britain’s most memorable Budgets
Today is the first Labour budget for 14 years – and the first ever to be delivered by a female Chancellor.
Brits are bracing for a raft of tax hikes as Rachel Reeves tries to plug the “£22billion black hole” she says she’s found in government accounts.
Here are five other budgets which have caused a stir over the years.
1979 – Geoffrey Howe, Conservative
Margaret Thatcher’s Chancellor Geoffrey Howe slashed both the top rate of income tax and the standard rate.
He also doubled VAT – shifting the tax burden from income to consumption in a huge change for Brits.
Howe also eased controls on foreign exchange in a bid to control inflation.
The budget signalled a massive break from the last Labour government and set the pattern for decades to come.
1988 – Nigel Lawson, Conservative
Nigel Lawson (dad to domestic goddess Nigella) massively slashed income tax again.
The deputy Commons speaker twice cleared the chamber amid noisy protests from Labour MPs slamming the tax cuts.
Lawson also set off a property bonanza by announcing an end to double mortgage tax relief for couples buying homes.
1993 – Norman Lamont, Conservative
In March 1993 the economy was still reeling from Black Wednesday, when the pound crashed out of the European exchange rate mechanism.
Lamont announced tax rises including VAT on domestic gas and electricity.
Later that year Lamont’s successor Ken Clarke froze personal tax allowance and brought in stealth taxes on insurance and plane passengers.
The Lamont and Clarke budgets marked the end of the Tories’s scything tax cuts – and set the stage for Labour’s return to office in 1997.
2002 – Gordon Brown, Labour
Brown raised national insurance by a penny on the pound to fund higher spending on the NHS.
The future PM had fretted over a possible backlash from voters who had re-elected Labour in 2001.
But he managed to pull off the largest rise in health spending in the history of the NHS.
2009 – Alistair Darling, Labour
Labour’s last budget before today came amid the credit crunch and soaring unemployment.
Darling ramped up taxes and borrowing in a bid to fill up draining Treasury coffers.
Tory leader David Cameron blasted Labour’s ‘utter mess’ – and was in power a year later.
2022 – Kwasi Kwarteng, Conservative
Kwarteng unveiled his economic package less than a month after becoming Liz Truss’s Chancellor.
Technically, it was a fiscal statement rather than a budget – but it turned out to be just as seismic.
Rising Tory star Kwarteng announced £45billion in tax cuts including a drop in all rates of income tax.
Markets took frights and the pound went into freefall before the Bank of England waded in to stop a run on UK pension funds.
Mortgage rates soared and Kwarteng was out of the job just three weeks later.
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