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UK TAX
Weekly News 11th Dec 2023
Bank of mum and dad shells out £25k to first-time buyers
With rising house prices and increasingly challenging mortgage conditions, young people in the UK find it nearly impossible to buy property without parental support. According to a study by the Institute for Fiscal Studies (IFS), parents, on average, need to contribute a total of £25,000 to help their children purchase a house. For university graduates, the average parental support required is around £35,000.
In the high-priced property market of Southeast England, the average gift to first-time homebuyers is the highest at £31,000, followed by £18,000 in the Midlands and £17,000 in the North. With each £1,000 gifted, first-time buyers can afford an additional £10,000 towards the house deposit, calculated at a 10% down payment.
However, for children from families with more modest financial means, the assistance is relatively low. Only 29% of children whose parents are renting receive help with the down payment, with an average transfer amount of £11,000. With parental support, first-time homebuyers can increase their down payment ratio to 25%, thereby reducing mortgage interest rates.
US multinationals underpaid £5.6bn in tax in UK last year, HMRC believes
Data reveals that US multinational companies underpaid £5.6 billion in taxes in the UK last year, marking a 14% increase from the previous year. In the 2022/2023 fiscal year, the UK tax authorities suspect a total underpayment of £11.5 billion by foreign companies, a 7% increase from the previous year. Swiss companies are suspected to have underpaid by £1.2 billion, while German, French, and Irish companies together may have underpaid £1.8 billion.
This shortfall in the UK treasury amounts to nearly half of the unpaid taxes, primarily attributed to US companies. Large US tech companies are accused of channelling UK income to low-tax jurisdictions to reduce tax payments. Some US companies, including Microsoft and Netflix, have agreed to pay additional taxes in the UK.
UK tax level rises to highest on record – OECD
According to the Organisation for Economic Co-operation and Development (OECD), the tax-to-GDP ratio in the UK has reached its highest level since 2000, standing at 35.3% in the 2022/23 fiscal year. Additionally, the UK faces the highest property tax levels among developed countries.
The Altus Group’s latest analysis indicates that the property tax rate in the UK is the highest among the 38 OECD countries, with property taxes accounting for 4% of GDP. In comparison, the EU average is 1.5%, and the G7 economic giants’ average is 2.9%. The Budget Responsibility Office predicts further increases in UK property taxes.
Stubbornly high inflation forces central banks to avoid cuts, but markets expect falls next year
Concerns about high inflation have led the US Federal Reserve, the Bank of England, and the European Central Bank to maintain interest rates to ensure a controlled inflation rate. Financial markets anticipate a possible rate cut next year.
Nomura, an investment bank, suggests that the financial markets reflect a 1.4% probability of interest rate cuts by the Federal Reserve and the European Central Bank by the end of 2024, with the Bank of England possibly reducing rates by nearly 1%. The Bank of England recently announced the last interest rate decision of the year, keeping rates at 5.25%.
UK mortgage lending predicted to fall in 2024
UK Finance reports that the combination of high-interest rates and increased household costs will make it difficult for people to obtain mortgages, leading to a predicted 8% decrease in all mortgage amounts in 2024. However, prospects for mortgages are expected to improve in 2025.
UK Finance forecasts a decrease in UK mortgages from £130 billion in 2023 to £120 billion in the following year. The challenges faced by potential and existing mortgage borrowers include rising interest rates and the burden of increased living costs, maintaining relatively high house prices compared to incomes.
These challenges may result in mortgage arrears, with an expected increase from 105,600 cases to 128,800 cases (over 2.5% of the outstanding balance) by the end of 2023. UK Finance estimates 4,400 homes to be repossessed in 2023, attributing the lower number to historically low unemployment rates. Optimism is expressed for a turnaround in 2025 as financial pressures on households gradually ease.
