When the new government revealed a £22 billion “black hole” in the nation’s finances, it was immediately clear that big tax rises were on the way.
In the months leading up to the Autumn Budget, speculation about what may be targeted has been rife. This only increased when the government confirmed their election manifesto pledges that Income Tax, National Insurance, Corporation Tax and VAT would remain untouched.
On the 30th October, Chancellor Rachel Reeves announced that the government would be orchestrating an enormous £40 billion tax raise on the country. To do this, a series of changes will be implemented, which include alterations to Capital Gains Tax and tax on second homes. However, these reforms, at least in regard to property, have arguably not been quite as far-reaching as many commentators feared.
Below is a summary of changes that will impact the property market specifically.
Changes to Capital Gains Tax
As we revealed in our September article, Capital Gains Tax was very likely to come under scrutiny by the new Chancellor.
During the Budget announcement, Chancellor Rachel Reeves confirmed that Capital Gains Tax rates would be increased. However, they will not be rising as much as was previously forecast. For lower rate taxpayers, Capital Gains Tax will rise from 10% to 18% with higher rate taxpayers paying 24%, up from 20%.
Conversely, the Capital Gains Tax levied on residential properties, including buy-to-let, will remain unchanged. This will come as a relief to those who were unable to sell their properties in the run-up to the Budget.
Stamp Duty
First-time buyers will be relieved to hear that their Stamp Duty relief, at least for the time being, remains intact. This means that until April 2025 they can still purchase homes worth up to £425,000 and pay no Stamp Duty charges. From April, this threshold will lower to £300,000.
However, those buying a second home or a buy-to-let property are not so fortunate. For these buyers, Stamp Duty will rise from 3% to 5%, as of the 31st October 2024.
Amendments to Inheritance Tax
It was widely expected that Inheritance Tax would be targeted in this Budget. However, the Chancellor announced that the government would in fact be extending a freeze on the threshold for the tax. This means that £325,000 can still be inherited tax-free.
On the other hand, the Chancellor revealed that inherited pensions would be included within the tax regime from April 2027. There will also be reformed relief for business and farm assets, which will now be taxed at 20% for estates with a value over £1 million.
Proposals for the abolition of the special tax regime for non-doms have now also been clarified. These will take effect from April 2025 and will affect the Inheritance Tax position of this group.
Housing
In the Budget, the Chancellor reiterated the government’s commitment to deliver on housing promises. As a result, she pledged to hire ‘hundreds’ more planning officers to accelerate housebuilding programme approvals. This could be beneficial for those eyeing up plots of land to develop.
The Chancellor also announced that more than £5 billion will be invested to deliver on the government’s social housing plan.
Looking forward
The government had warned that this would be a difficult Budget, and it has been revealed to be both good and bad for the property sector.
Commenting on the changes, Jeremy Prior, Managing Director of Auction House, said: “It will come as a relief to many to see that the predicted changes to property Capital Gains Tax have not materialised. This will be particularly welcome to those who decided to sit tight on their properties and see what the Budget held.
“However, the changes to Stamp Duty for landlords and those buying second homes will be keenly felt, particularly as the change is almost instantaneous. This could affect confidence in the market, despite the lack of change to Capital Gains Tax, and reduce those looking to invest in additional property. It was also disappointing to see that there is no additional relief for those looking to downsize, which could have encouraged more sales and freed up property for those wishing to upsize.
“On the other hand, it is good to hear that first-time buyers will continue to profit from Stamp Duty relief. This will contribute towards supporting the property sector as these buyers currently account for a significant share of the property buying market. However, it is nevertheless disappointing to hear that the threshold for their relief will be dropping next year, which will create extra challenges for those buying in more expensive areas, such as London and the south.
“On the whole, the Autumn Budget was a mixed bag. Going forward, we have to hope that these changes will contribute towards growth and investment, which will support the property market and the economy at large.”
(Image credit: House of Commons. Copyright of the House of Commons.)
