Paul & Amanda's Review on the Autumn Budget. The Huge £40 Billion Tax Raise from Labour Chancellor Rachel Reeves

Podcast Transcript - The Essential Property Podcast

Ep.51 - Paul & Amanda's Review on the Autumn Budget. The Huge £40 Billion Tax Raise from Labour Chancellor Rachel Reeves

Hello and welcome to another episode of the Essential Property Podcast. In this episode review, we cover the last 24 hours where the chancellor, Rachel Reeves, has shared a 40 billion. Yes, that's billion with a B pound tax raising autumn budget. We have included the Well-reported headline tax increases, along with some of the other changes that are less reported on so widely, which affect property investors and small business owners. So listen out for those. We see property as a business and take a more holistic view, covering the wider business community and its impacts. Towards the end of the episode, we cover ways to navigate this news and continue to build a sustainable, long term, profitable property business. We've presented this today in a semi digital format. We hope you enjoy this episode.

All right, everyone, welcome back. We're diving deep today into something. I'm sure you've all been thinking about the recent UK Labour budget. You send in tons of stuff, articles and analyses, even some personal takes. So let's break it all down. Yeah, from what I've seen, it's a lot. Yeah. Especially if you're a landlord or owned property or even have a small business for sure. And that's where you come in, right? To help us make sense of all these changes, how will they actually affect people? Honestly, some of the details surprised me. Labour's going all in on a regulated rental market, really tenant friendly. And then those tax hikes biggest in 30 years. All for stability. But at what cost I wonder. It's a balancing act for sure. And that's where analysis comes in. Even skimming these documents is clear. Labour's trying to set a new direction after 14 years out of power. This is their first budget in a while. They need to make a statement and they did £40 billion in tax increases. They're not playing around. It seems like businesses and higher earners are feeling it most. What do you think the consequences will be of such a massive tax grab? That's the question, isn't it? Fiscal stability is important, but this level of taxation could have ripple effects. We have to think about business growth, job creation and even the potential rise of outsourcing and AI as companies try to offset those costs. It makes you wonder, are they shooting themselves in the foot? If businesses struggle, won't that ultimately hurt the economy they're trying to stabilise?

Okay, let's focus on what this all means for you, the property investor. What are the key budget changes that will directly hit your wallet? There are a few big ones. First, stamp duty. They've increased the rates, especially on higher value properties. And by the let's. It's a classic move to cool down the market and bring in revenue. But it could make buying properties a lot more expensive, especially if you're using financing. Ouch. Yeah, that's going to sting a bit. Anything else to brace ourselves for? Well, if you're thinking about selling an investment property soon, they've also hiked capital gains tax for higher earners. So basically, if you make a profit on the sale, you'll be giving a bigger chunk to the taxman. Something to really think about when making investment decisions. And I saw there boosting tenant protections too, which I guess is good for renters. But but it could be more costs for landlords. Think about things like compliance, paperwork, maybe renovations to meet new standards. It adds up and we can't forget inheritance tax. There are revisions that will hit family owned property businesses, so if you're planning to pass down your property, you might be looking at bigger tax bills. Strategic planning is key. Things like restructuring or using trusts could help. Wow, a lot to take in. So how's the investment community reacting? Is there panic in the streets or are people cautiously optimistic? It's been interesting to watch compared to the chaos after the last governments budget. This time it's been more cautious. But stable. Remember the market turmoil? Back then, how could I forget? Reeves, the Chancellor, has been pushing the message of investment without instability, and it seems to be working. She's laid out a clear funding plan, even if it involves big tax hikes. So that's providing some reassurance. So maybe no explosive growth, but at least we're avoiding another market crash. But you said cautious. So I'm guessing not everyone celebrating just yet. What are some of the concerns? Rightfully so. Some investors worry that this big tax burden could actually backfire, stifling private sector growth and ultimately limiting returns. And it's not just real estate, it's the wider impact on different sectors. Plus, even though government borrowing is supposed to stay stable, some foreign investors are getting nervous about the UK's long term appeal, especially with transaction costs in the property market. So much higher makes sense. Higher taxes and costs can make other places seem more attractive.

Speaking of costs, we can't talk property without the I word. Inflation. Is the budget offering any relief. They're good news. The office for Budget Responsibility, the OBR, forecasts inflation is cooling down. Remember those crazy peaks we saw? Supply chain issues, energy prices, labour Labor shortages. Well, it seems like we're turning a corner. That's a relief. So are we finally getting out of this cost of living crisis? It's looking that way. The OBR predicts inflation to stay contained this coming year, and Rees's budget, with its focus on discipline, should support this trend. What's really good is that wage growth is starting to beat price increases in many sectors, so people should finally feel some relief in their wallets. That's great to hear. But what about interest rates? Will the Bank of England finally start cutting them? With inflation cooling down and the government seemingly committed to keeping spending under control? The Bank of England might have some wiggle room, so lower interest rates are coming. The OBR think so. They're anticipating rate cuts to begin later in 2024 and into 2025 as inflation stabilizes. Okay, so potentially good news for borrowers. But before we get too excited, are there any downsides to this rosy interest rate outlook. Always two sides to the coin right. Even though inflation is easing, the government's plan to tighten its belt could limit how much disposable income people have. Are so less money to spend overall, even if prices aren't rising as fast. Got it? How would that impact the rental market? Specifically, it could dampen rental demand. Especially for certain types of properties. If people have less money, they might downsize or delay moving altogether. Right. So even if mortgages get cheaper, there might not be as many renters out there. It's all connected.

Now, I'm really curious to hear what Amanda and Paul have been. They're those experienced property investors you mentioned. What do they think about all this? What are their main takeaways from the budget? They're incredibly knowledgeable. One thing they're worried about is how those increased employer national insurance contributions and the minimum wage hikes will impact small businesses. Yeah, I can see how that would increase their costs. What do they think it will lead to? They're worried about a domino effect. Higher costs for businesses could lead to higher prices for consumers, which could fuel inflation. And that, of course, goes against the whole stability narrative the government is pushing. It's a vicious cycle. So they're not exactly buying in to the government's approach. They're skeptical, to say the least. They've also noticed a trend of small businesses outsourcing work to other countries to offset rising UK employment costs. They believe that advancements in AI will only accelerate this trend. And they're questioning whether the government fully understands the long term consequences. Interesting point. It's like they're saying, hey, you might be creating more problems than you're solving.

What else are they highlighting? Well, they're not convinced that just raising taxes to fund these big infrastructure projects is the best solution. These specifically mentioned the carbon capture scheme, which is getting a massive $22 billion investment as an example of a project with questionable value. So they're advocating for a more nuanced approach, one that maybe focuses on stimulating the private sector and supporting those small businesses they're worried about. Exactly. They believe that fostering entrepreneurship and innovation is the key to sustainable economic growth. I like their thinking. It's always good to consider different perspectives.

Well, we've covered a lot already, but I feel like we've only scratched the surface. There's a whole other layer to this budget that we need to explore. You're talking about those hidden impacts and strategic opportunities that might be lurking beneath the surface. Exactly. There are changes hidden in these documents that could have a huge impact on investors like you, both positive and negative. Plus, we need to unpack that interest rate outlook a bit more. It's more complex than it seems. Absolutely. Lots more to uncover. All right then let's dive into these hidden impacts and explore those strategic opportunities. You won't want to miss this so stay tuned. Welcome back. So let's get into those hidden impacts. We talked about them earlier. One that's causing a stir is the abolishment of furnished holiday lettings tax benefits. You know FLS are. Yes, the FHL scheme. I was reading about that. What does this mean for investors who've been using those tax perks? Well, from April 2025. The FHL regime is gone. Properties that were classified as FLS will now be treated like regular rental properties. So they lose those special tax advantages things like reduce capital gains tax and business rate relief. It's basically leveling the playing field, bringing them in line with other outlets. So for those who built their strategies around FHL perks, this is a pretty big deal, right? Absolutely. They'll face higher taxes, which should really cut into their profits. It's a major change. Investors can't ignore this. You might be thinking, what's the point of a holiday? Let now. It's a good question. A lot of people are asking it. Definitely something to watch closely. Okay. Besides the FHL shakeup, were there any other under-the-radar changes you noticed?

You know, there's been a lot of talk about the budget's impact on the property market, and it's not all good. Some critics say that while there's some money for affordable and social housing, it's not nearly enough. So not enough to really fix the housing affordability crisis. That seems to be the consensus. It feels like a missed opportunity to really change the housing sector. A lot of people in the industry wanted bigger incentives for home builders. Yeah. You know, to boost supply, I see. So they're saying to make housing more affordable, you need more homes, not just messing with taxes and regulations. Exactly. More build to rent initiatives could help ease the pressure in high demand areas where rents are crazy high. But the budget only offers a little support there, which could limit future rental supply. So maybe a missed opportunity there. Okay.

Earlier we talked about inflation cooling down, which is great. But now I'm thinking about interest rates. You mentioned the outlook is more complex than it seems. Can you explain that. Sure. Inflation is starting to behave, but the Bank of England isn't ready to celebrate and slash rates just yet. They're being cautious, pointing to some stickiness in certain areas like wages. Wait. So even though inflation is falling, they're hesitant. Why? Well wages are still rising. And that could keep inflation from falling as fast as we'd like. Remember the Bank of England's job is to control inflation. They don't want to do anything that could make it worse. That makes sense. So what's likely to happen? Will we see any interest rate cuts at all? Most analysts think the Bank of England will be gradual, making a series of small cuts throughout 2024. They're predicting the first cut could be as early as November, bringing rates down to 4.75%. That would help people with mortgages and make it a bit easier for new buyers. Okay, so a cautious approach from the Bank of England makes sense. They don't want to scare the markets. But we also talked about the government borrowing more to fund those public investments like that carbon capture scheme Amanda and Paul were skeptical about. Could that mess up the whole interest rate situation? It's a valid concern when the government borrows more, it can push interest rates up, especially if inflation starts to rise again. It's a balancing act. The Bank of England has to consider all these things before making any moves, right? So even though inflation is moderating, interest rates could stay higher than we'd like for a while. Definitely something to keep an eye on. Absolutely. You need to factor that into your investment calculations.

Now, speaking of calculations, you might be wondering if there's any good news in all of this. Earlier, we mentioned opportunities hidden in the budget changes. Remember? Yes. You said something about buying property within a company structure. Tell me more. This is a big one. Amanda and Paul were really keen on this strategy. With all these tax changes and the uncertainty around interest rates, buying property through a company, especially a limited company, could be a smart move. Okay. I'm listening. What are the advantages of doing that? Well, the main one is tax efficiency. When you own property as an individual, you're taxed on rental income at your personal income tax rate, which can be high if you're at a higher bracket. But when you own property through a company, you're taxed at the corporation tax rate, and corporation tax is lower than those higher personal income tax brackets. Right. So big savings. Exactly. It's like a discount just for being a business. And remember those increased capital gains tax rates. Well, if you sell a property owned by a company, any profit is taxed at that lower corporation tax rate. It can make a huge difference. Wow I see why this is appealing. So it's not just income tax, it's minimizing capital gains tax to any other perks. Another advantage is that companies can deduct all mortgage interest as a business expense. This is huge for investors who have a lot of loans. Ah, so it helps with those financing costs which were probably going to stay high for a while. But what about when you sell the property. Do you still get those capital gains tax benefits? Definitely. Any profit from selling a company owned property is taxed at that corporation tax rate, which we know is usually lower than what you'd pay as an individual. Plus, companies can reinvest profits without paying personal taxes right away so you can keep that money working for you. Growing your portfolio without a big tax hit like a snowball effect. More strategic and tax efficient growth. This is making sense.

But earlier we talked about inheritance tax and how the budget changed things. Does company ownership help there too? It's like this strategy was made for this budget. Company ownership can really change the game for inheritance tax planning. Shares in a property company are more flexible to transfer or manage than individual properties. This gives you more options to reduce your inheritance tax, which is especially important now that labor has changed the rules for family businesses and those with agricultural properties. So for those who want to pass down their wealth, company ownership could protect their assets and minimize taxes. Sounds like a win win. It can be. But like any investment strategy, you need to weigh the pros and cons. Company ownership isn't for everyone, right? Always those details to consider. What should people be thinking about? Well, there are costs to set up and run a company. You'll also have to do some admin stuff, like filing accounts. It's not something to do without research and professional advice. Make sure it fits your investment goals. Good advice. Always good to get expert help when making big financial decisions. So to sum up, it sounds like company ownership could be a smart way to deal with this higher tax situation. It offers tax savings, flexibility, and even inheritance tax benefits. Great summary. It's definitely worth exploring, especially with these recent changes. It's all about being proactive and adapting to the UK property market.

Now that brings us to another point Amanda and Paul made. They believe that now it's more important than ever to build a resilient and adaptable property portfolio. They had some really insightful suggestions for investors. You did. I thought their perspective was refreshing, cautious but optimistic. They acknowledged the challenges but also highlight the opportunities. Okay, I'm all ears. What are some of their key strategies for building a strong property portfolio in this new world of higher taxes and economic shifts? Let's get into it. First, they emphasize diversifying your portfolio. Don't put all your eggs in one basket. Make sense? So what does diversification actually look like. Well they see just a mix of property types and locations. Don't just focus on city center apartments. Look at suburban areas or even smaller towns where demand might be more stable and yields could be better. So spread your risk geographically and across different types of properties. A classic strategy, but even more relevant now with all the uncertainty. Exactly. They also said it's important to really understand your target market. In a more regulated rental market, you need to know who you're renting to and what they need and expect. This helps you make good decisions about properties, renovations, and rental prices, right? It's about being more strategic, less speculative, no more just buying anything and hoping for the best. Exactly. They also highlighted being more proactive with tenant management with stronger tenant protections. Building good relationships with your tenants and addressing their concerns quickly is even more important. It's about moving from just transactions to more of a partnership with tenants. Precisely. And this leads to their next suggestion.

Embrace technology and streamline your operations. Okay. What do they mean by that? They believe that using property management software, online rent collection and digital marketing tools can save you time and money and also make things better for your tenants and improve your efficiency. Work smarter, not harder. I like that. Adapt to the new market and use technology to your advantage. Any other wisdom they shared? They also emphasized informed and continuously learning. The property market is always changing and this budget has just sped things up. So they're saying don't just wait and see. Be proactive. Do your research. Stay ahead of the curve. Exactly. Go to industry events. Talk to other investors. Stay updated on trends and regulations. Knowledge is power, especially in a market like this. Great advice. Be proactive and adaptable. Now earlier we talked about the FHL scheme ending, which has some investors confused. Did Amanda and Paul have any advice for those who relied on those FHL tax benefits? They did. They know it's a tough change for many investors. They recommend carefully looking at their FHL properties and considering different options. Okay, so what are some of those options? One option is to sell those properties and reinvest the money in other areas that fit the new tax rules. So cut your losses and move on. Makes sense. If those properties aren't profitable anymore, what other options are there? They also suggested maybe converting those FHL properties into regular long term rentals. You keep the asset and get rental income, but you'll have to deal with higher taxes, right? So it's a trade off. You keep the property but maybe make less profit. Exactly. And lastly. They recommend getting specific tax advice to see if there are strategies to reduce the tax impact. There might be creative solutions you haven't thought of. That's where good advisors can help. So for those who are counting on those FHL benefits, it's not all bad. There are options with planning and expert help, you can handle this change successfully. Exactly.

Now, we've talked a lot about the challenges, but Amanda and Paul also emphasized that there is still opportunities for those who adapt and are creative. I love that attitude. So where do they see the biggest opportunities in the property market after this budget? They're really positive about the bill to rent sector. Oh, we talked about that earlier. Why are they so optimistic about this. Well, with more and more people wanting high quality rentals, especially in growing urban areas. They see a big opportunity for investors who want to develop or invest in purpose built rentals. So it's about targeting a specific group. People who want modern, well managed rentals that are flexible and convenient. Exactly. And they think the government's focus on increasing housing supply could actually help build to rent developers and investors. Interesting. So they see potential government support as a positive for this sector. Precisely. Another area they're excited about is the demand for sustainable and energy efficient housing. With energy costs rising and people caring about the environment. They believe that energy efficient properties will rent for more. Makes sense. People want to save money on their bills, then they want to help the planet. So investing in green features and sustainable building could be a smart move. Absolutely. It's about making sure your investments are good for the future and match what tenants want. Okay, so build to rent and sustainable housing are too big opportunities. Anything else? They also mention niche markets like senior housing and student accommodation as potential growth areas. Right. Those groups have specific housing needs that are often overlooked by developers. Exactly. And they think investors who focus on these areas could be in a good position to profit from that growing demand. I love it. It's about being innovative and finding those opportunities that others miss. Now, we've covered a lot, from the big tax hikes to the small but impactful changes. It's clear that this budget has really shaken up property investment. It definitely has. But with all the change and uncertainty, there are still opportunities for those who are willing to adapt, evolve and try new strategies. Couldn't agree more.

And remember, Amanda and Paul are ready to help you. They've asked listeners to contact them at Essential Property Options. Co.Uk for advice and support in making those big investment decisions. Good advice. They really understand the market and their insights are valuable. Absolutely. Well, we've talked about the FHL scheme ending and the potential benefits of company ownership. We've explored Amanda and Paul's strategies for building a strong property portfolio and their insights into new opportunities.

But there's one more thing about this budget that we haven't talked about yet the impact on small businesses. Oh, yes. Remember those increased employer National Insurance contributions and minimum wage hikes? We can't forget about those. Exactly. Those changes could really impact small businesses profits and they could even affect the whole economy. Absolutely. And this is where things get interesting. Small businesses are the backbone of the UK economy. They create jobs, drive innovation and contribute to growth. But they're also very vulnerable to economic changes and policy changes. So what are the main concerns about how this budget will affect small businesses? Well, as we've discussed, those increased employer national insurance contributions and minimum wage hikes will increase their costs. And that will squeeze their profits. Right. And they might not have the same flexibility as big companies to absorb those costs or pass them on to customers. Exactly. They're also worried about more red tape and bureaucracy. The government has introduced new regulations to improve worker rights and environmental standards, which is good, but it can also create a lot of paperwork for small businesses that are already busy. So they're getting hit from both sides, higher costs and more regulations. Precisely. And then there's the issue of getting loans. Ah, yes, we talked about interest rate cuts. But even if that happens, well, small businesses actually get the loans they need to grow and invest. That's the big question. Banks are still hesitant to lend, especially to small businesses that they see as risky. And this budget with its focus on controlling spending and potential economic problems, might make them even more reluctant to lend money. So it's like a perfect storm for small businesses. They're facing higher costs, more regulations, and maybe less access to loans. It's a lot to deal with. It certainly is.

And this is where Amanda and Paul's insights are really helpful. They've been running their own property business for years, and they understand the challenges that small businesses face. Okay, so what do they suggest for small business owners who are feeling overwhelmed by all of this? Well, they said it's important to be proactive and adaptable, recognize the new market and change your strategies. Right. Don't just ignore it and hope for the best. Take action. Exactly. They also emphasize collaboration and networking. Connect with other small business owners. Share your experiences. Learn from each other. It's about building a support system and learning from each other. Precisely. They also recommended looking at different ways to get funding like crowdfunding or angel investors. So not just relying on bank loans. Exactly. And they said it's important to have a good website and use digital marketing to find new customers. It's about adapting to the changes and using those new digital opportunities. Couldn't have said it better myself. Now we've talked about the potential downsides for small businesses, but Amanda and Paul also pointed out some potential benefits. They believe that this budget could actually encourage innovation and creativity in small businesses. Okay. I'm interested. How so? Well, they think that the pressure to be more efficient and save money could force small businesses to be more creative and come up with new solutions. They might try new technologies, streamline their operations, or develop unique products and services that make them stand out. So it's like necessity is the mother of invention. Exactly. And they also believe that the government's focus on sustainability and green initiatives could create opportunities for small businesses that are working in those areas. Right. So it's about aligning your business with those trends and being ready to profit from the growing demand for eco friendly products and services. Precisely.

Now, we've covered a lot, but there's one more important aspect of this budget that we need to talk about the long term implications for the UK property market and the economy. Okay. Let's talk about that. What do you think about how this budget will change the UK's economy in the years to come? What's clear that Labour wants a more regulated and tenant friendly rental market. They also want long term financial stability, even if it means higher taxes now. So a more controlled and less speculative property market. Exactly. And this raises an important question for investors. How might this change investment strategies and opportunities in the UK in the future? Well, it feels like we've covered a year's worth of information in just a few deep dives from those massive tax changes to all the little details, what it means for you as an investor. But you know what? I think change can be good, especially if you're ready for it. You're telling me we've been through the wringer with this budget. But yeah, knowledge is power, right? The more we understand these changes, the better we can adapt. Exactly. So let's think long term. Now, what are the lasting impacts of this budget? How will it change the UK property market and maybe even the whole economy in the years to come? It's like predicting the future, right? But we can make some educated guesses based on what we've seen. One thing that's pretty clear is Labor's commitment to a more regulated, tenant friendly rental market. Definitely, they're really focused on protecting tenants, which is good overall, but landlords need to adjust to these new rules and expectations, for sure. And then there's Labor's focus on long term financial stability, even if it means higher taxes. Right now it's a trade off. It is a more stable market but maybe less of that fast growth we've seen before. It's a big shift towards a more controlled, less speculative property market. It really is. And this brings up a big question for investors how will this change investment strategies and opportunities in the UK over the next few years? That's the question. I'm sure you're already thinking about it. Yeah. But remember Amanda and Paul, they really understand this market. Oh yeah. They're a great resource for anyone trying to figure this all out, and they've encouraged our listeners to reach out to them for personalized advice. I love that they're so approachable. So if you're feeling lost or just want to talk to the experts, their website is essential property options. Co.Uk. Don't forget that it's full of great information and advice. They're offering help to make the most of this new landscape. It's worth reaching out. All right, let's do a quick recap. We've covered a ton today right. We talked about Labor's big revenue goals, then dug into how taxes like stamp duty and capital gains are affected. We even explored company ownership as a strategy, especially with those higher taxes. And let's not forget the FHL scheme ending a big change for some investors. It's been quite a journey. We've uncovered hidden impacts, analyzed opportunities, and I think we've all learned a lot. I agree this budget has definitely shaken things up. It'll be interesting to see how it all plays out, but I think the main takeaway is this knowledge is power. The more we understand these changes, the better we can make smart decisions and succeed in this new world of UK property investment. Absolutely.

Be proactive, be adaptable and remember, Amanda and Paul are there to help you along the way. Their expertise and advice can be so valuable as you figure this all out, so don't hesitate to reach out. But beyond that, keep asking questions, keep learning, and stay curious. The property market is always changing, and that's what makes it exciting.

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