The first quarter of 2024 has been mixed for the UK economy with markets performing strongly despite only marginal GDP growth. Read our summary of key developments and the potential impact for investors:
FTSE 100 hits record highs
Despite weak economic growth, asset prices have continued their upward trajectory, demonstrated by the FTSE 100 hitting a record closing high on 22/04. This comes amid hopes of interest rates cuts and a five-month low for the pound.
As the BBC reported: “Yesterday’s rally came as geopolitical tensions eased in the financial markets, with investors relieved there were no further clashes between Israel and Iran last weekend.”
Hopes of interest rate cuts this year also supported the market, after deputy Bank of England governor Sir Dave Ramsden said last Friday that UK inflation could be lower than expected over the next three years, near the BoE’s target of 2%.
The money markets are now fully pricing a cut to UK interest rates by August, lowering from 5.25% to 5%, with two cuts expected this year.
Spring Budget 2024 update on ISAs and housing
British ISA delayed
It’s now just over a month since the Spring Budget 2024, giving us plenty of time to digest the announcements and look at some likely effects. The much-heralded new ‘British ISA’—giving investors an additional £5,000 allowance exclusively for UK equities—has been delayed until after the general election and is now likely to be available to investors in April 2025.
>> Invest in UK property via an IFISA.
Capital Gains Tax cut
The higher rate of tax paid on profits from selling property cut from 28% to 24% from 6th April.
This move is largely expected to drive transaction volume through earlier disposals of second homes, buy-to-let properties and other residential properties where accrued gains do not fully benefit from private residence relief (PRR). Keep an eye on HMRC residential transactions for March and April to see if there was a dip post-announcement before the CGT came into effect.
Tax breaks for owners of holiday let properties scrapped
From April 2025, furnished holiday let owners will no longer receive generous tax breaks.
Transactions involving furnished holiday lettings will now be subject to standard residential capital gains tax rates, capital allowances will no longer be available for fixtures and furnishings, mortgage interest will no longer be tax deductible and .
Stamp duty tax break on multiple properties purchase
Another plan announced in March will see investors in rental housing pay more tax on deals via the withdrawal of multiple dwelling relief on stamp duty.
The policy was introduced in 2011 to boost investment in private rental homes, with buyers paying less transaction tax when purchasing two or more homes in a single deal.
As reported by the Financial Times, this move has already had substantial push back from real estate groups who argue that it has already hit property valuations and made some proposed projects unviable.
What wasn't in the budget
Whispers that the Chancellor was going to scrap (or at least cut) both inheritance tax and stamp duty didn’t materialise. This would have been a sizable boost to HNW investors but would have received criticism from wealth equality campaigners concerned about asset price inflation and the affordability of homes.
Join us for our next Market Commentary webinar on 25/04/2024 at 1pm BST.
