Autumn 2024 Budget – Impact on Residential Property

Yesterday’s budget contained two major announcements from Rachel Reeves relating to residential property.

First was the increase to the higher rate of stamp duty land tax (“SDLT”) on purchases of additional dwellings from 3% to 5% which has a major impact on the buy to let investor. This is a substantial rise and was not widely predicted. An increase in the additional rate of SDLT payable by non-UK resident buyers from 2% had been considered more likely.

There is a long established history of hikes in SDLT taking effect immediately. The increase is from today and therefore there was a flurry of activity up to midnight last night to exchange contracts on affected acquisitions. Those transactions where contracts were exchanged before today are unaffected regardless of when they complete.

This measure also increases the single rate of SDLT payable on purchases by companies and other non-natural persons when purchasing residential properties worth more than £500,000 from 15% to 17% where those purchases are not part of a commercial purpose.

Secondly it was announced that the higher rate of capital gains tax on the disposal of residential property remains at 24% having already been reduced from 28% from the start of this tax year. There was widespread rumour that CGT on disposals of residential property would be increased to as much as 39% and there were further fears that any increase might take effect from today. Even though rumours seemed extreme there was a widespread expectation that CGT on residential properties would be increased with the rise being introduced before the start of the new tax year in April 2025.

This expectation led to a whirlwind of disposals many of which were agreed at the last minute and with highly conditional contracts. It is worth noting that such conditional contracts were unlikely to have constituted actual disposals until those conditions had actually been fulfilled and therefore attempts at beating CGT increases would be futile.

Both the above send a clear message that Labour want to disincentivise the acquisition of second homes and buy to let properties freeing up more housing stock for main home and first time buyers.

The freeze on CGT can be regarded as an incentive to buy to let investors to sell up without facing the disincentive of higher a CGT charge on exit.

Both tax and regulatory changes have had a hugely detrimental effect on the letting landscape for private landlords. With acquisition costs now automatically increased by 2% but the 24% rate of CGT being retained there will be many buy to let investors who decide to sell up. Whether this increased supply will actually create better opportunity for home ownership cannot be predicted. Affordability is key for that and many factors determine that which were not covered in the budget. It is worth noting that the nil rate band for SDLT returns to £125,000 from April which impacts first time buyers especially. But what can be predicted is that reduced rental stock will push up the cost of renting even higher.

If you have any questions regarding this subject please contact Rosie McCormick Paice or any member of the Residential Property team.

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