This afternoon, Chancellor Rachel Reeves delivered the first Labour Budget in almost 15 years. The first female Chancellor of the Exchequer in UK history, Reeves previously announced that she inherited a significant ‘black hole in the public finances’ of £22 billion, the nation has been gearing up for a budget laden with cuts and tax increases. For those in the property sector, the budget presents a number of significant changes, namely in regard to the construction of new homes, Stamp Duty Land Tax, and investment. Here’s what you need to know:
Capital Gains Tax (CGT) is the tax levied on the profit earned when an asset, including many investments such as a second home or investment property, is sold, gifted, swapped or compensation received for it (such as insurance claims). The Chancellor has today announced an increase in CGT for non-residential assets from 10 to 18% for the lower band, and 20% to 24% for the higher band when it comes to selling assets, but this does not impact those selling residential property. For residential sales, the existing 18% and 24% rates will be maintained.
Stamp duty, or SDLT, is a tax applied when purchasing properties above a specified value. Currently, buyers pay no stamp duty on properties valued under £250,000, but for those above this threshold, a rate of 5% applies up to a value of £925,000, with rates increasing further for higher values. Today, Chancellor Reeves announced that from October 31st, SDLT on second-homes and investments will see a 2% increase to 5%. Akin to capital gains tax, this will not impact first time homebuyers, or those moving home – only those purchasing additional homes and investment properties will experience this surcharge.
Today, Reeves announced that inheritance tax rates will remain frozen until 2030, providing stability for those passing on assets such as properties as part of their inheritance. Inheritance tax is a charge applied to the estate of someone who has passed away. Importantly, no inheritance tax is due if the estate’s value is under £325,000. This tax is set at 40%, but it only applies to the portion of the estate that exceeds this threshold. In 2023/24, only about 5% of estates incurred an inheritance tax bill, generating around £7 billion in revenue. However, the IFS notes that numerous special exemptions reduce the impact of this tax, including reliefs for businesses, exemptions for agricultural land, and the ability to pass on pension pots tax-free.
The Chancellor’s announcement, especially in regards to Stamp Duty, may concern investors. However, this budget’s changes to property investment does not negate the growth outlook for the property market over the next few years. In fact, the Chancellor’s maintenance of existing rates of Capital Gains Tax on all residential property transactions, including second homes and investments, could make it more likely for investors with diverse portfolios to keep hold of their property assets. Furthermore, for investors looking to keep hold of their buy-to-let properties and have no interest in selling, many domestic and international investors will continue to benefit from the predicted 3.5% average rental growth across the UK each year until 2028.
As with any budget there are often winners and losers – and in the case of Rachel Reeves’ Autumn 2024 budget we’ve seen a raft of economic growth measures that aim to boost the overall GDP of the UK. But for those in an exit position immediately whilst the dates on CGT increase are yet to be announced it will mean a reduction in retained profits. With this in mind the CGT changes may encourage more investors to maintain a hold position rather than offloading assets in the short term, for many property investors this may not be a poor choice, with the positive trajectory of the UK property market over the past number of years – and onward predictions of 3.3% each year between 2024 and 2028 a positive factor in their portfolio make up. Mortgages didn’t feature highly in the 2024 Autumn Budget statement however they could have a significant impact on those looking to hold, grow and even leverage their portfolio in 2025 and beyond and we’re yet to see what impact the budget will have on the financial markets.
Earlier this year, the Labour Party committed to building 1.5 million homes across the UK as part of its pledge to ‘Get Britain Building’. Today, Reeves committed £5 billion to building new homes across the UK, with additional support being channelled directly into the Affordable Homes Programme, which will see £3.1 billion in investment – this will surely be welcomed by first time buyers and could ease the burden on house builders as planning systems see additional resources. Reeves has also stated that she will be allocating £3 billion in support of guarantees, directly benefiting local house builders. As for the Right To Buy scheme, Reeves stated that Right to Buy discounts will be reduced, and local authorities will now be able to retain sales receipts and use these to reinvest in housing.
The Chancellor also made reference to her desire for more government devolution, giving local councils the ability to determine how their funding is allocated – this will allow individual districts to build the housing they need, where they need, when needed according to local demand. Explicit references were made to property hotspots, Liverpool Central Docs and Cambridge, which we anticipate will continue to attract investors and homebuyer interest.
The Chancellor’s budget hinged upon a desire to invest heavily in British public services, and Reeves’ plans for infrastructure investment certainly spells good news for the property market. The announcement of a continued commitment to HS2 between Birmingham and London, investment in Transpennine rail in the North between Manchester, Leeds and Huddersfield, the backing of East-West rail from 2025, and a huge £1.3 billion for inner-city travel. This is fantastic news for property investors, with investment in local transport in both cities and towns across the UK likely to boost local property prices and rents as both homebuyers and tenants benefiting greatly from improved transport infrastructure.
Do you have questions about how the Autumn Budget will impact you and your investment strategy? Join Centrick Invest for our free webinar on November 6th where we will be delving deep into the budget, its anticipated impacts, and how you can prepare yourself for the changes – register your interest here.
For any pressing questions and advice on how to navigate the property and investment markets post-budget, get in touch with our team using the form below.
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