Today, the chancellor of the Exchequer – Rachel Reeves delivered her Autumn Budget alongside the latest economic forecast from the Office for Budget Responsibility.
This article looks to explore and analyse the Autumn Budget and the affects it is likely to have for the UK property market and property investors.
This was one of the most anticipated Autumn Budgets in recent history because of it being Labour’s first term in power since 2010. This budget has set out the direction of the Labour signals a new beginning for UK politics. The aim is to manage tax levels and government spending, and balance with measures to stimulate economic growth.
How has the Autumn Budget changed taxes?
The Labour Government’s manifesto, set out prior to their triumph in the 2024 General Election, was their promise to not increase taxes on ‘working people’. The Labour Government have had to introduce new ways to increase the Treasury income, without relying on tax increases.
Capital Gains Tax
There are no changes to the current Capital Gains Tax (CGT) for residential property, 18% for the lower rate and 24% for the higher rate. Rachel Reeves confirms in the budget that for other assets (shares, crypto etc.), the lower rate for CGT will be increased from 10% to 18%, and the higher rate will increase from 18% to 24%. Reeves says she will increase CGT rates on carried interest to 32% from April 2025 and, from April 2026, deliver further reforms.
Despite these changes in increases, Rachel Reeves confirms that the UK still has the lowest CGT out of G7 countries.
Corporation Tax
There has been a promise to not raise the headline corporation tax above 25% at least until the Autumn Budget of 2029. This can benefit a number of UK property investors who can invest as part of a limited company. This still allows the lowest corporation tax out of all G7 countries.
Inheritance Tax
The inheritance tax is currently levied at 40% for estates over a £325,000 value threshold, but through various tax-free allowances, only 6% of estates will be liable to this tax this year. This inheritance tax was frozen until 2028 but the Labour Party have increased this by 2 more years to 2030. This leaves estates inheritance tax free for the first £325,000 and rising to £500,000 if the estate includes a residence passed to direct descendants, and £1m when a tax-free allowance is passed to a surviving spouse or civil partner.
Many investors with multiple properties may look at putting these into a trust in a bid to avoid this increase after the freeze.
Housing Incentives, Stamp Duty and Mortgages
The budget has confirmed that the Labour Party will leave the current reprieve for first time-buyers, meaning they will not have to pay tax on anything below £250,000. However, for second home buyers, as of tomorrow (31st October), the stamp duty land surcharge for second home purchases will increase from 3% to 5%.
Mortgage Rates
The base rate set by the Bank of England is set to remain the same for the time being. Following the budget, the Monetary Policy Committee will meet on the 7th of November where changes to the base rate may be made. There is an expectation there will be a 0.25% point reduction to the base rate and predictions show inflation will remain around the Bank of England’s 2% target.
Lower rates can boost the housing market and allow for more affordable borrowing. The lower inflation has been well-received by property investors and landlords as it has increased the chances of an interest rate cut and subsequent mortgage rate cuts.
EPC Ratings and Rental Market Reforms
The Labour Government have committed to improving homes to be energy-efficient, with the minimum requirement now being a C rating by 2030 – something that was recently scrapped by the Conservatives. This will come at a cost to buy-to-let property owners who may have to spend to improve their portfolio.
Over a third of landlords expect to spend tens of thousands to meet these requirements. Without suitable energy grants we don’t see how this target will ever be hit.
Housing Incentives and Development
The budget, as anticipated, has brought incentives for property development, especially in urban areas. This will come through tax relief for affordable housing and relaxed regulations. The government will increase the Affordable Homes Programme to £3.1bn, provide £3bn worth of support and guarantees to increase the supply of homes and support small housebuilders. This can bring about many positives for investors, as there will be more developments on offer. These incentives were needed if Labour want to fulfil their promise to build 1.5 million homes over the next 5 years.
The Labour Government also want to relax planning restrictions for development on brownfield sites and ‘grey’ areas across the green belt. This again will benefit investors who like to invest in buy-to-let and large-scale investments.
How Will These Changes Combine to Impact Property Investors?
The stamp duty changes have come into effect as of tomorrow (31st of October) and further reforms in April 2025. This will impact many people with second homes or looking to invest.
After the Prime Ministers confusion with who classifies as a ‘working class person’, it has left landlords, who haven’t been included in the group, ‘fair game’ for potential tax raises. This could affect a large group of people who will be subject to higher taxes.
Conclusion
This budget has left a lot to think about regarding the direction of the Labour Government and where it has left the property market and investors.
The most important aspect of the budget is the increase of stamp duty and the cap on corporation tax. This budget will have an impact in the short and long-term future for the property market and investors.
Next Steps
If you have any questions or are interested in investing in UK properties, call our expert consultants on +44 (0) 113 380 8930. Or alternatively, find out more and read further articles via our website – https://ereproperty.com/
Our CEO and Co-Founder is hosting a webinar on 13th November 2024 covering this topic in more detail. If you’d like to join please click here to sign up here.
Original Source
BBC Live Budget – https://www.bbc.co.uk/news/live/cp9zrg128get
