Now that the dust has settled on the first Budget from a Labour government in 14 years, we’re taking a look at how it might impact the wider property industry in both the short and long-term. After several warnings of ‘difficult times ahead’, it’s unsurprising that the property industry expected the worst.
What actually occurred was very much a case of give and take, depending on your goals in the property market. While traditional homebuyers are relatively unaffected, several policies directly affect investors, which in turn could have a knock-on effect on the rental market.
The key takeaway from the budget is that taxes have been raised by around £40 billion – the top end of most economic predictions. The majority of this will be raised by employers, who are not only seeing rising National Insurance contributions but also lower thresholds for those contributions. It’s expected these changes will make up £25 billion of the total.
Increase to Second Home Stamp Duty Surcharge
The largest change for investors is the increase to the Stamp Duty rates for buying a second home, which have increased from 3% to 5%.
Prior to this budget, anyone buying a second home – typically for the purposes of buy-to-let – would pay an extra 3% of the property’s full market value on top of the base rate for Stamp Duty. As of the new budget, an investor will now pay 5%.
This means that Stamp Duty rates for UK-based investors are now as follows:
£0 – £250,000 = 5% SDLT
£250,000 – £925,000 = 10% SDLT
£925,000 – £1,500,000 = 15% SDLT
£1,500,000 or more = 17% SLDT
For overseas investors, it’s important to remember that an ‘international’ surcharge of 2% is also still in place, meaning the rates are:
£0 – £250,000 = 7% SDLT
£250,000 – £925,000 = 12% SDLT
£925,000 – £1,500,000 = 17% SDLT
£1,500,000 or more = 19% SLDT
So what is the reasoning behind this change? According to the Chancellor, Rachel Reeves, this change will provide more opportunities for first-time buyers or those moving home, ensuring more transactions in the market and stimulating economic growth.
It’s important to remember that these rates may change in April 2025 – barring any change to policy – as Stamp Duty thresholds are expected to drop again. While there’s concerns this would be counter-productive for attracting new buyers in the market, it’s still set to go ahead.
Residential Capital Gains Tax is Unchanged
Before the official Budget announcement, the majority of headlines were around Capital Gains Tax (CGT) and potential changes to rates. While the primary focus of the speculation was the ‘main rate’ – which focuses on shares and other asset vehicles – there were concerns residential CGT would also increase.
Fortunately for the property industry, the residential rates remain unchanged. The basic rate is still 18% and the higher rate is 24%.
What did change was the main rate, which grew from 10% to 18% (basic) and 20% to 24% (higher), bringing it in-line with the residential rate.
Inheritance Tax Unchanged
In the run up to the Budget, inheritance tax was another subject under heavy speculation. Perhaps surprisingly, no changes were made and the Chancellor confirmed that the current inheritance tax rates will remain the same until 2030.
Inheritance tax currently applies to the estate – and all applicable assets – of someone who has died. Provided the estate is worth under £325,000, there’s no tax to pay. If the estate is worth more than that amount, there’s a 40% tax on that portion.
It’s estimated that inheritance tax generated around £7 billion in revenue over the last year and the Government specified that despite rates not changing, they’ll be looking at closing inheritance tax loopholes as a way of generating the £40 billion total.
Investment into ‘Warm Homes Plan’
The Government also announced plans to invest £3.4 billion into a new ‘Warm Homes Plan’ over the next three years, focused on improving household energy efficiency and combatting fuel poverty.
Within their manifesto, Labour pledged £13.2 billion towards these wider issues and this plan represents the first step in that larger project.
This scheme will also be supported by a ‘boiler upgrade scheme’ – a rollout of heat pumps across homes in England and Wales.
What does the Budget mean for you?
So, the all important question, what does this mean for you?
If you’re a first-time buyer or you’re a homemover, not much. If you’re an investor, however, there’s things to consider.
While the focus of many investors was around Capital Gains Tax and how it could make property assets less appealing, there’s been no changes. Instead, investors need to take the Stamp Duty changes into account and how it may impact their finances.
Although no-one wants to pay more, the important thing to remember is that rising rates doesn’t take away from the exceptional returns property is forecasting over the next four years. Rents in the UK are expected to grow by 3.5% each year until 2028, which would effectively outweigh the increases provided they hold on to their assets.
This, combined with rising property prices, means property investment in areas such as Birmingham, remains a clear opportunity for returns. As always, if you have any questions or you want to know more about the property market, get in touch with us here.
