Budget Reaction: Everything you need to know

0:02Hey everyone, it's Rob B with Rob D and you are listening to a budget special. We don't hold back.

0:14Yes, welcome to the property podcast. In case you don't know, we run a business that buys more than 100 million pounds worth of property a year for our clients. You can find out about that at propertyhub.net slash invest. And we're here to dissect the budget and tell you what you need to know are we grumpy because it's making us record early on a day we wouldn't normally well we will find out let's get into it well rob you're right i am going to be a little bit grumpy but i just want a word of warning get a health or sanity warning for those who are very very political and are going to get emotional over some of the things that we might say in this podcast i am not pro or against labor the government or any other government i just want the governments to do well this is your warning your health warning your sanity warning that we are party agnostic we do not care we just want the best the best party to do the best things has that happened in this budget hmm to start us off i'd like to paraphrase a message that you sent me immediately after the budget yesterday which was along the lines of was it really worth tanking the economy for months for this and i think it's a fair point i think it's a very fair point i'm glad we didn't record the minute after the budget because i was really annoyed the budget was shambolic not because it was leaked a few hours before because they haven't learned the lessons from last year so as a reminder last year leading up to the budget there were rumors abound of how terrible it was going to be for everybody and then when the budget was revealed it was not too bad and i don't know if that was a tactic i can only assume it was a tactic because i can't understand why else you would do it and the deluded belief being that well if we make everyone think it's going to be horrific and then it's actually not too bad then people will be grateful by the end of it which you can understand would make sense in some circumstances but not when you are tanking the economy people have stopped investing stopped starting stopped doing anything really for the last few months well not everyone but a lot of people have and they've been held back by the fear of this impending doom machine called the budget and then we had the budget yesterday we're going to get into the detail and there are things we need to talk about but what was delivered was just a normal budget so why on earth have labor not learned their lesson from last year like really like i know people from the government listen to this podcast maybe not the prime minister and maybe not the chancellor but if you've got access to that maybe not it's very optimistic but fair enough but there's a chance but there are people in the government who work in government who listen to this podcast have a word.

2:51I mean, what are they doing? This is absolutely nuts. It is absolutely crazy that we lead up to a budget where everyone is absolutely crapping themselves because they think it's going to be horrific. And then we get this, which we're going to go through some details because it is relevant, but it's kind of a normal budget. And we'll give examples as well of what was talked about before and then what was delivered. And you get that sense now there is good news rob which we'll get to as well because obviously it wasn't that bad and hopefully people can reset but i don't know were you as frustrated as me well i think they actually worked on me because i wasn't annoyed at the time i went straight to relief that it wasn't that bad and then only later i went hang on a minute why did we go through all this but my interpretation attempting to mind read in a sector i know nothing about is that this is a can i keep my job please budget i think they actually wanted to do some of the things that being talked about but ultimately shied away from them because that's going to be either unpopular with the public or unpopular with the party or whatever so in the end we'll just do these few things which will no one's really going to complain too much it'll kick the can for another year and then in a year we'll go through it all again because we'll be in exactly the same situation but everyone gets to keep their jobs for another year and maybe everything will magically change maybe i'm being uncharitable but that's the view i've come away with so let's get into what wasn't in the budget because that's as important as what isn't in the budget so there's a lot rumored as we've said already that things are going to be announced in this budget and they haven't been so just in case you thought oh well there's so much noise about it this must be in there somewhere let's set the record straight and then rob once we've been through that i want to also complain about something else that wasn't in the budget there's something i wanted in the budget and it it's not there i've looked and i cannot see it but let's list the things that people be relieved about that weren't in a budget first yeah so national insurance on rental income so that was only ever going to affect people who own properties as individuals not in companies but it won't affect anyone because it's not going to happen stamp duty was another big one there were a couple of conflicting proposals on that but the most concerning from a property investor's perspective was that stamp duty was actually going to be replaced with an annual property tax that would fall on the owner rather than the resident not a word about that not in there and then capital gains tax property investors really hate capital gains tax and there's always talk that it should be aligned with income tax and so the rumor was well maybe they're going to go all the way maybe they're just going to put capital gains tax up significantly no no change to capital gains tax at all i'm sure there are more that i can't even remember because we had months of this stuff and that's just the property ones but of the ones that property investors were particularly looking out for those are the main policies that weren't which is all great rob but you know what else wasn't in what's that word called investment where was the investment where was the ambition of this budget you're right I think this was can I keep my job please budget but it's like they've done enough to keep their jobs probably for another year at least but are they not thinking long term I'm sure it's a lot harder to do than I'm making out but where was the ambition where was that let's get the country back up and running again it's kind of let's slow the decline that's what it felt like let's just make it not too bad that felt like the ambition of this budget where was the big infrastructure projects and for the ardent labour supporters listening to this trying to pick out some snippets of minor investment that ain't going to move the needle there was some little announcements around youth funding and things like that but that's not going to change anything meaningful in the economy might be good things to do but where was the announcements of real change some real ambition something that's going to stimulate the economy even if it's not now just talking about what it could do in the future or what they're planning to do in the future not spending now spending in the future just promises of something but not even that so we get all the negativity leading up to the budget how bad it's going to be but we don't get anything in return of but don't worry in a few years time we're going to be able to do this this and this this government is so frustrating on so many levels yeah not even any vision even if you can't actually do anything now there's not even a vision of where we are going to go yeah it felt to me very much like a let's get through this type event rather than like a right let's set out our platform for the future and i suppose in that respect it's going to work but should we really be complaining rob because we are still stinging from 2015 we're out of nowhere we had all these massive changes to how property is taxed which we are still talking about now ever since then budget day has been a very nervy day so when thinking about the country in general yes we can have complaints but as property investors a quiet budget is normally the best we can hope for.

7:33But while it's quiet from a property point of view Rob there wasn't nothing and we're risking talking about this as if nothing has changed at all. There are a couple of things that property investors need to be aware of. The main one that's going to affect everyone is tax on air quotes unearned income. If you've got rental income from property the rate of tax on that is going to go up by two percent from 2027. So not next year the year after. If you've got income from savings interest that's going to go up by two percent as well and all the rates of dividend tax all the thresholds also going up by two percent and that's from next year that's not from 27 so that comes in in april a quick one on dividend tax rob that's a prime example of the doom and gloom leading up to the budget and then what was delivered being a bit fair enough so the doom and gloom was there was lots of speculation and this speculation has come from somewhere that dividend tax the basic rate could double going much closer to the basic income tax rate of 20 percent so there was speculation that it would be around 16 somewhere between 16 and 20 percent maybe just shy of the income tax rate which is a huge leap and would be really painful to a lot of people but what did we get just got two percent so all that negativity just in this one area there's plenty of examples of this and i won't do it for every single thing we talk about this morning but that's just another prime example of where for months we were led to believe it was going to be horrific and it turned out to be just oh yeah that's right i think we're getting to a point where you might like to go further but you can't go any further or the laffer curve kicks in and it just doesn't raise you anything like if you think about what dividend tax rates used to be they're already so much higher than they used to be the dividend allowance has come right down so you're kind of getting to a point where can it go much higher but you're right the rumor was that it would go much higher in fact is just two percent so pretty much across the board if you've got properties in a company and you're taking money out as dividends, that's up by 2%.

9:24And if you've got property as an individual and you're getting personal income from that, that goes up by 2 % as well. We have a new tax, which is something to be celebrated or not, and it's called high value council tax. Now, actually, this is really just mansion tax. And for those not familiar with the concept of mansion tax, it's a tax on high value properties. Now, I actually don't have a problem with this. I know lots of people who have properties worth 2 million or more, and every single one of them can afford this tax. Every single one probably won't want to pay the tax, but every single one of them can afford the tax.

9:59And we have to get money from somewhere, so I can understand the rationale behind this one. I think what's going to be really interesting, Rob, if this tax holds, and it's here for the future, is how the bandings will be held for many years, and inflation will gather more and more people into this tax banding. So at the moment, this is a really nice house in the southeast of England and some other areas, but it's a detached house in the southeast of England. Where this will start to catch people in a few years if they leave the banding at 2 million is you'll find houses that aren't as big because of the London effect start to fall into this category.

10:36I'm already looking to the future of what this will be. As it is today, I don't think it's that offensive. I don't think that many people will complain or grumble. I don't think there's many people on modest incomes crying into their pillows to see them for those people who have to pay this tax. But I think it's what's really interesting is what this becomes in the future, because it doesn't actually raise that much now. It raises a few hundred million, which sounds a lot to an individual, but to a country, it's not really much at all. No, and the way that they've done it is actually super weird because they're calling it a council tax surcharge, but it's not.

11:08in that council tax it falls upon the person who lives there the occupier but the surcharge is going to fall upon the owner so if you're renting out a two million pound plus property which say virtually no one listening to this will be that's really bad news for you because that's actually falling upon you and affecting your returns not falling upon the person living there and the other strange thing about it is that they have got firm cutoff it's basically like the bad old days of stamp duty where from two to two and a half million it's this and then as soon as you you've got a pound over that, you're into the next band.

11:38So it's going to create all these weird distortions around those price points. The other strange thing is how they're going to know that a property is worth more than 2 million, because you haven't actually revalued everything for council tax since 1990-whatever. So I'd say there's lots of oddities around this, and it's not coming in until 2028, so there's a chance that some of this will be changed and ironed out a bit. But yeah, it's not going to affect a lot of people, and at least at the moment, as you say, it's not going to be a big earner either. You touched on stamp duty there, Rob, and it's worth saying that stamp duty has not changed again there was lots of rumors leading up to the budget modernization of stamp duty is something we've advocated for for many years so if it was delivered in the right way this is something we would have been fully behind but nothing has happened there so no change on stamp duty which i think is a shame yeah so no big reforms on anything really you've got these little tweaks and so the extra two percent we talked about is supposed to raise 2.3 billion the new mansion tax if you want to call it that will raise 400 million that's really nothing in the grand scheme of things so where is the money going to come from we knew that they needed to come back for more money where is it going to come from the answer is everyone because by far the biggest revenue raiser in this budget is something that's seemingly so innocuous which is freezing income tax and national insurance thresholds they were meant to be frozen anyway but they're now being frozen for even longer until 2031 and this rob ties into exactly what you were saying about a two million pound house today being different from a two million pound house in the future everyone's going to end up paying more because everyone's going to get dragged into a higher tax band and that is supposed to raise eight billion pounds and this trick is one that's always been loved by politicians i feel like everyone's wise to it now everyone kind of knows that a freezing of the thresholds is the same as a tax increase effectively but nevertheless you can see why they've done it because it's not as much of a headline grab as taxes go up now and it does raise a lot of money it's the only thing in this budget that is raising a significant amount i remember talking about this in the last few weeks saying i can't believe that they would increase income tax rates even though it was wildly rumored that it was going to happen because you could just do this trick which has been repeated over many many times before so again i don't really understand why you wouldn't just do this because no one's going to start marching for bands being frozen because it doesn't feel immediate to everyone i don't think everyone really understands it how it's going to work i've listened to this podcast are very familiar with the concept of inflation but not everybody is and that's why some people even have to write books on it rob but this isn't like you said rob an age-old trick that works that not too many people are going to get really cross about just accept it and it's a way of raising lots of money it's a shame though that some of that can't be translated into investment but i've said my piece on that i think what's important rob from all of this is rather than me having a bit of a mini therapy session with you and hundreds of thousands of people listening is that what does the future hold now and the great thing is once everyone's over this which i will be by the end of recording I promise once we're all over this people can just start again and I want to applaud a certain segment of people which is what I would call the smart money the smart investors because leading up to this we've talked about how there's been some incredible deals on the table for investors and they've been brave enough to take action because they thought well even if the budget is really bad I'm in it for the long term I could see past an event I can see the fundamentals here and i can see how incredible the market is at the moment to me as an investor now all that uncertainty is going away those deals would be as strong i can't see that continuing it may be for a small amount of time a very small window because sentiment is still really bad but i think what will happen rob is everyone will start to go after christmas maybe go well wait a minute i've got to do something i can't just keep doing nothing so i'm going to start that business i'm going to make that investment so i'm going to hire that person whatever it might be but people will just start getting on with things again there's been a big pause for the last few months for reasons we've talked about and i don't think everyone's going to start going mad now but i think new year new year optimism the realization that the budget wasn't horrific for most people that actually i need to do something so i will now yeah i think so uncertainty weighs on markets so much and because it has been such a circus this year and there's been so much rumour it's understandable but you can see how now that's out the way the market is going to start moving again also because it did turn out to be a bit of a non-event the bond market didn't really move so i'd say that's good for mortgage rates as well interest rates are still on the cards next year so the combination of those factors uncertainty going away mortgage rates staying steady maybe getting better yeah the market's not going to explode but you can see how it's going to start improving so for all the frustration i think we're in agreement that things will be a bit better next year i don't think that's a wild claim to make because it's been so bad this year mainly driven by sentiments the actual economic performance of the uk hasn't been that bad but the sentiment has been so hopefully we get that new year optimism and things start to improve but even if it doesn't that creates opportunity as we've discussed so you can win in either scenario you may feel more comfortable with the optimism that makes sense but if it doesn't come back you just take advantage of it in a different way you've got to be a little bit braver you've got to think long term but you can win so whatever happens you can win and i think that's really important here to understand i know i've got a bit frustrated in this podcast but it's more because I want the country to do well.

17:19I don't think this or any budget, unless it was very extreme, would ever really impact me. Even if it hurt a business to a point where that business no longer works, I'd still back me. I'd still go again. And that's what you should be doing. You should be backing yourself that external events will happen. Bar a handful of things, most things aren't that bad. So all these outside influences, don't kid yourself that that is going to be what will make you successful or not it does not matter what government is in power it's you the individual that is going to make the difference or not if you win it wasn't because of the government if you lose it wasn't because of the government it is you so you as an investor you as an employee you as a business owner the governments can help and they can hinder but ultimately it's down to you and i think that's something you really need to carry into next year if you're going to be successful in whatever you do, and most of you are coming at this from a property investment point of view, if you're going to be successful as a property investor, if you do well next year, it's because of you.

18:21And if you don't, you've guessed it, it's because of you. Well, we've just got time for Hub Extra before we wrap up. And this is perfect, Rob. You've been very frustrated this morning. People might be thinking, well, could you do any better? Well, you can find out because there is an interactive game on the Guardian website where you can play Chancellor, you can change all the tax thresholds, you can introduce new taxes you can take them away all with the aim of getting rid of this shortfall without upsetting the markets or the voters too much i've had a bit of a play with it and yeah it isn't easy you'll find a link to that in the show notes well that's just done for another week we will be back on time apologies again for the the tardiness but we did want to bring you the immediate reaction to this budget we'll be back on time next week next birthday and we have a very very special ask rob and rob on tuesday with a very special guest so make sure you join us for that one So until those wondrous events take place, take care, have fun.

19:12Bye-bye. Bye-bye.