Autumn budget 2024: impact on the property market
Britain’s first female Chancellor, Rachel Reeves delivered the first budget under Keir Starmer’s new Labour Government, which came into power on 17 July 2024, following 14 years of Conservative Party rule. In this article we will focus on the impact of the announcement on the property market, landlords and anyone looking to move
In this budget, Rachel Reeves set out her plans to end “short-termism” and raise taxes by £40bn to boost long-term economic growth. Here are all the key announcements relating to housing, including updates to Capital Gains Tax (CGT), mortgages, Affordable Homes Scheme and most significantly, Stamp Duty which will impact property transactions with immediate effect.
Stamp Duty Land Tax (SDLT)
Stamp duty thresholds for standard residential transactions of a principal residence were not mentioned by Chancellor Rachel Reeves, which means they will revert to their previously lower levels from 31st March 2025. Please click here to read our recent article about the changes to stop duty impacting standard residential transactions and first time buyers.
However, The Chancellor unexpectedly announced an increase to the SDLT surcharge for those buying second homes from 3% to 5% with effect from 31 October 2024. That's right, just 5 hours left in a working day as notice for something which impacts so many peoples lives! We are now campaigning this will be reviewed and implemented in alignment with the threshold changes in March 2025.
Companies buying residential property for more than £500k will also have to pay an extra 2% rising from 15% to 17% with effect from the same date.
Moreover, the Chancellor did not go ahead with a measure that was in the Labour manifesto whereby non-resident buyers of residential property were expecting their surcharge to go up from 2% to 3%- but this was not announced.
5.75 Stamp Duty Land Tax: Increase to the Higher Rates on Additional Dwellings – From 31 October 2024 the Higher Rates for Additional Dwellings (HRAD) surcharge on Stamp Duty Land Tax (SDLT) will be increased by 2 percentage points from 3% to 5%. Increasing HRAD ensures that those looking to move home, or purchase their first property, have a comparative advantage over second home buyers, landlords, and businesses purchasing residential property. This is expected to result in 130,000 additional transactions over the next 5 years by first-time buyers and other people buying a primary residence. This surcharge is also paid by non-UK residents purchasing additional property.
The single rate of SDLT that is charged on the purchase of dwellings costing more than £500,000 by corporate bodies will also be increased by 2 percentage points from 15% to 17%.
This re-affirms a window of opportunity for buyers with a standard purchase of their main residence as the nil-rate tax threshold up to £250,000 will drop to £125,000, while the first-time buyer relief nil-rate tax threshold of up to £425,000 will drop back down to £300,000.
Our thoughts: The execution of this is inexcusable and the Government has completely failed to consider the impact of giving 5 hours notice on the whole industry. Our leaders have no understanding of the real world and the impact it has. How can anyone be expected to manage the fall out with just 5 hours of notice of the change. Unless there is an emergency, this amount of notice for normal businesses and the impact it has on peoples lives is unmanageable. They fail to understand that investment transactions don't work in isolation and traditional sales of people buying their first home, next family home tied up in chains will all be impacted. For many, the increased in SDLT is not affordable and the chains are collapsing which results in a loss of revenue for agents, mortgage brokers, anyone who has spent money on an intended move and also the Government who will no longer get their tax. The only people who do still get paid regardless, is the solicitors. They also forget that without the landlords, the private rental sector wouldn't exist so they have got to stop penalising landlords and the businesses which support it.
The Government are supposed to be supporting business but they have just created an even bigger issue.
The private rental sector accounts for 20% of UK housing and therefore needs landlords. The higher rate might discourage existing landlords from expanding their portfolios and act as a barrier to new landlords. However, this will have a supply and demand impact whereby a high demand for fewer rental properties results in higher rents. As the implementation is with immediate effect, it could even have an impact on existing pending transactions which will come as a shock to many investors. We do however anticipate that overall, rents will continue to rise to cover costs and property remains a sound investment. Coupled with the proposed Renters Rights Bill, it will however be more critical to appoint a reputable agent to find the right tenant and manage your asset to maximise the long term capital growth.
Landlords who have been calling for alterations to the Section 24 of the Finance Act 2015 which removed a landlords right to deduct mortgage interest payments from their rental income, were, again disappointed. No change was announced.
Mortgage guarantee scheme
The government intends to continue supporting 95% loan-to-value (LTV) lending.
"3.36 The government will be engaging with industry over the autumn on the mortgage guarantee scheme and plans to make it permanently available to support lending at 95%, ending the stop-start availability of the scheme and giving lenders confidence throughout the cycle, while making it easier for first-time buyers to realise the dream of home ownership. The government will bring forward further details in Phase 2 of the Spending Review."
Our thoughts: Many lenders offer 95% lending and some new-build developers also offer the Deposit Unlock scheme to facilitate 95% lending so there are still other schemes available for anyone looking to buy with a 5% deposit. Any Government support is welcomed and analysts are still predicting there will be a reduction in the Bank of England base rate at the next announcement on 7th November. Click here to read more about the predictions and the impact it could have on the property market.
Capital Gains tax
Capital Gains Tax (CGT) is a tax levied on the profit made from the sale of particular assets, including property. When landlords sell a rental property for more than they paid for it, CGT applies.
In the Spring 2024 Budget, the Chancellor announced that the higher rate of property CGT would reduce from 28% to 24%. In Autumn 2023, CGT remained unchanged.
The Autumn 2024 budget confirmed the lower rate of CGT will increase from 10% to 18%, while the higher rate will increase from 20% to 24%. However, the rate on residential properties will not change which has come as a relief to landlords.
Affordable Homes Programme
3.34 The Budget sets out a series of new investments to promote housing market stability and to kickstart the biggest increase to social and affordable housebuilding in a generation. This is an important step to providing the conditions needed for the market to deliver 1.5 million homes:
* A €500 million boost to the Affordable Homes Programme to build up to 5,000
* additional affordable homes.
* The government will set out details of future grant investment beyond the current Affordable Homes Programme at Phase 2 of the Spending Review, to support greater investment in new affordable housing from social housing providers. Investment will run for at least the duration of this Parliament, and will support a mix of tenures, with a focus on delivering homes for social rent.
The Budget also confirmed £47m of funding to support the delivery of up to 28,000 homes that would otherwise be stalled due to nutrient neutrality in affected areas.
Our thoughts: Any support for affordable housing is welcomed to give more people a chance to get onto the housing ladder. We would just hope the Government conducts sensible research into where the demand for homes is and any building is with consideration to the environment, infrastructure (healthcare, schools, roads, services etc), protecting green spaces and using eco-building methods where possible. E.g. all new homes should have solar panels. To ensure the housing is "affordable" the prices need to align with the salaries and income of local people so they are able to purchase them. We also favour the smaller medium sized (SME) house builders over the profit driven larger developers. The smaller developers tend to build more architecturally striking homes, designed for modern living with quality materials and care to the finished product.
Inheritance tax (IHT)
Currently, IHT is payable on gifts made by a person up to seven years before their death. IHT is charged where the value exceeds their nil rate band (£325,000) at the date of the gift. The amount of the nil rate band has been £325,000 since 6 April 2009, but has been supplemented by the residence nil rate band since 6 April 2017.
5.55 Inheritance tax: nil-rate band and residence nil-rate band – The inheritance tax nil-rate bands are already set at current levels until 5 April 2028 and will stay fixed at these levels for a further two years until 5 April 2030. The nil-rate band will continue at £325,000, the residence nil-rate band will continue at £175,000, and the residence nil-rate band taper will continue to start at £2 million. Qualifying estates can continue to pass on up to £500,000 and the qualifying estate of a surviving spouse or civil partner can continue to pass on up to £1 million without an inheritance tax liability.
