The Autumn Statement, or Pre-Budget Report as Labour used to call it, is normally not a time of great excitement. But with a General Election just six months away, it was hardly surprising that George Osborne managed to offer voters a few sweeteners as well as some apparently positive economic news.
Changes to stamp duty grabbed a lot of the headlines, as we’ll discuss below, but customers of Zopa and other peer-to-peer lenders will be pleased to hear that the Treasury plans to make their lives a bit easier.
Boost for P2P
Buried in the small print of Wednesday’s statement was the news that P2P lenders will be able to offset any losses from bad loans against their income – and therefore cut their tax bills – from next year. Claims will have to be made through the self-assessment system and will apply to any losses incurred from 6 April 2015.
This will bring P2P into line with the likes of the capital gains tax system, where individuals can offset any losses from investments against profits when calculating their tax liability in any given year.
Zopa’s CEO Giles Andrews says the company, in conjunction with the P2P Finance Association, has campaigned hard for this change. “Overturning this tax law means thousands of consumers will keep more of their returns from lending,” he says. “This is a progressive reform from the Treasury that reflects the growing importance of the UK’s alternative financial services sector.” The government also wants to make it easier for institutions such as banks and building societies to lend through P2P, which is likely to broaden the appeal of these services.
End to stamp duty nonsense
While some of the changes to policy on P2P lending will help to cut people’s tax bills, they are largely just common sense. Exactly the same can be said of the long-overdue reform of the stamp duty system.
The “slab” approach to taxing property purchases, which was abolished yesterday, meant that the whole of the price of a home was taxed at its marginal stamp duty rate.
This created daft situations where the stamp duty bill on a £250,000 house was £2,500 but tax on a property sold for £250,001 was more than £7,500. The same problem applied around the £500,000 cut-off point.
Under the new system, each slice of a home’s value is taxed at an increasing rate, just like income tax:
|£0 – £125,000||0%|
|£125,001 – £250,000||2%|
|£250,001 – £925,000||5%|
|£925,001 – £1,500,000||10%|
Intended and unintended consequences
For most people, these changes mean they’ll pay less tax on their next purchase. The Treasury says 98% of transactions will incur lower stamp duty bills, and only those who pay more than £937,000 will see costs rise.
But some analysts warn that buyers are unlikely to see all the benefit of this tax cut: generally speaking, when transaction costs fall, prices rise. That’s why many are predicting that the reforms will boost property market values, which have cooled a bit lately.
Nevertheless, a first-time buyer considering a £150,000 flat will now be looking at a stamp duty bill of £500 rather than £1,500, which could make a big difference in terms of affordability
HM Revenue & Customs has a useful tool which shows how duty has changed depending on the price of a property. Another potential problem concerns homes valued just over the old cut-offs of £250,000 and £500,000: previously, sellers were effectively forced to cut their prices to just below the point at which stamp duty increased.
This meant a lot of homes were sold for £249,999 and £499,999 but not many for, say, £255,000 or £510,000. Following this week’s reforms, you can expect properties around these price points to start rising in value even more sharply
Other giveaways – Savings and pensions
Other important announcements included news that the 55% ‘death tax’ on inherited pension pots would be scrapped to allow pensions to be passed on to spouses if the owner passes away before the age of 75. This has also been applied to ISAs as spouses will be able to inherit the full ISA pot tax free as of April 2015.
Speaking of ISAs, unfortunately there were no major updates on P2P ISAs, although it was announced that the limit would increase from £15,000 to £15,240.
For drivers out there, fuel duty will continue to be frozen.
And there was a positive update for families as children under 12 will be made exempt from tax on economy flights from 1 May 2015, paving the way for cheaper flights for families.
Let us know what you think of the updates above and if they affect you?