The first UK budget to be penned by a woman and the first from a Labour government in over a decade has delivered several changes that will impact landlords purchasing additional properties.
An increase in Stamp Duty Land Tax (SDLT) for second homes and a surprise hold on Capital Gains Tax (CGT) rates for landlords will mean landlords must reevaluate their strategies before moving forward with their current expansion plans.
In this article, we’ll explore how Chancellor Rachel Reeves’s budget could impact landlords in greater detail and examine what steps landlords can take to secure their investment strategy.
From the 31st of October 2024, the basic rate of stamp duty for second homes has increased to 5%, with similar increases for purchased properties of higher values.
For example, second homes costing up to £250,000 will now be subject to a stamp duty surcharge of 5% (up from 3%), while second homes costing between £250,001 and £925,000 will incur a surcharge of 10% (up from 8%).
The threshold at which people begin paying stamp duty was increased to £250,000 by the Conservative government in 2022 but is due to return to £125,000 in March 2025. The current Labour government has not shown any commitment to extending the higher stamp duty threshold, which means that landlords could face greatly increased tax bills when buying additional properties.
One area not targeted in the Autumn Budget was the level of tax paid on the purchase of non-residential properties.
This will remain unchanged at 0% for the purchase of non-residential properties valued at up to £150,000, then 2% on the next £100,000 (the portion from £150,001 to £250,000), and 5% on the remaining amount (the portion above £250,000).
For example, for a landlord buying a freehold commercial property for £300,000, the SDLT owed would be calculated as follows:
0% on the first £150,000 = £0
2% on the next £100,000 = £2,000
5% on the final £50,000 = £2,500
Total SDLT = £4,500
Landlords operating within the non-residential market won’t need to contend with rising SDLT in the near future. There may also be some slight relief for larger residential landlords here, as the purchase of six or more residential properties as a single transaction will still be classed as a non-residential property.
Currently, non-residential property includes:
With the current Government’s commitment to not raise income taxes, there was significant speculation about how the new Chancellor would increase tax revenues in her first budget. One area many had expected to see a shift was in the amount of CGT paid by landlords on property sales.
However, during her budget speech, Chancellor Rachel Reeves announced that the existing rates of CGT would be held for both basic rate residential property gains and higher rate residential property gains.
Presently, the amount of capital gains paid by landlords on the profit of property sales is set at 18% for basic taxpayers and 24% for higher and additional rate taxpayers.
With changes to SDLT for landlords and the Renter’s Rights Bill currently working its way through the committee stage in the House of Commons, it’s perhaps not surprising that 29% of landlords are planning to sell their properties within the next 12 months, according to Simply Business Research.
However, while some landlords seek to exit the market, others will see an opportunity to expand their portfolios over the coming months. This is especially true in light of a recent report from the Office of National Statistics (ONS), which outlined how average UK private rents have increased by 8.4% in the 12 months to September 2024 (provisional estimate) with average rents in England reaching £1,336.
Furthermore, the Royal Institute of Chartered Surveyors (RICS) also recently reported that tenant demand continues to rise within the lettings market. Additionally, the number of high-quality rental qualities coming to market by landlords exiting the market has conversely driven a surge in interest from other investors better prepared to implement an effective forward strategy.
The rental market is certainly evolving but it is far from true that a considered buy-to-let investment strategy cannot be profitable. Landlords must remember that the rental market is a long-term investment, rather than a ‘get rich quick scheme.’
The increase in SDLT for second homes means that landlords should consult with a professional financial advisor before committing to purchase additional properties. This will allow buyers to secure the most favourable mortgage rates to help mitigate the initial cost of expanding their property portfolios.
Where landlords are divesting properties or even exiting the rental market entirely, the hold on CGT at its current rate will offer some relief and provide landlords the opportunity to diversify their portfolios by divesting one asset to finance a future purchase. A financial advisor can help landlords understand what they’ll need to pay in CGT and what they can expect as a final return on a sale.
Edward Mellor has been helping people buy and sell property for over 40 years. With fully integrated financial, planning, conveyancing and surveying services available under one roof, our professional teams are on hand to offer expert advice at every stage of your property journey.
We are also proud to serve both first-time and experienced landlords with a comprehensive range of property management and development services.
If you’re looking for financial or mortgage advice regarding your buy-to-let investment strategy following the Autumn Budget, contact our professional team using the link below.
