Labour Chancellor Rachel Reeves, in her speech at the party conference, stressed the importance of stabilising the economy, yet her £22bn financial gap presents a substantial challenge. The property market, especially sensitive to fluctuations in taxes, spending, and benefits.
Here are the key element of the budget that are likely to shape the outlook for the UK property market:
- £22bn Financial Gap: Chancellor Rachel Reeves faces a £22bn financial shortfall, which could lead to tax increases and spending cuts.
- Capital Gains Tax (CGT): Anticipated increases in CGT could impact investors looking to sell second homes or other property investments, potentially cooling investment in certain segments.
- Inheritance Tax (IHT): Currently set at 40% on estates exceeding £325,000; any adjustments could have broad implications, especially in high-value property regions.
- Fuel Duty: With no increases in over a decade, any hike could drive up logistics and transportation costs, affecting development projects that rely on the transport of materials and resources.
- Non-Dom Tax Status: Labour aims to close loopholes benefiting high-income UK residents with overseas income, a move which could alter the tax landscape for wealthier property owners.
- Housing Supply: Labour’s focus on boosting housing supply includes potential incentives for sustainable building, though developers are watching for clarity on planning reforms and infrastructure support.
- Green Initiatives: Likely expansions in grants and tax incentives for eco-friendly developments signal an emphasis on sustainable construction, which could offer significant benefits for forward-thinking developers and investors.
Buy-to-let landlords may face a 17% rise in stamp duty bills as Chancellor Rachel Reeves prepares for the upcoming budget.
Stamp Duty is a tax on property purchases, with an extra 3% surcharge for landlords and second-home buyers.
The Telegraph reveals the Chancellor could unwind stamp duty tax breaks that were introduced by the Conservatives in 2022.
Under Liz Truss, the stamp duty threshold was raised from £125,000 to £250,000, and from £300,000 to £425,000 for first-time buyers.
However, these cuts are set to end in April 2025, with no extension anticipated in the upcoming Budget, which could bring back the 2% rate on properties valued between £125,000 and £250,000.
7% rise in stamp duty bills
Analysis by Hamptons reveals buy-to-let landlords buying a £309,572 home will pay £12,266 in stamp duty in October 2024.
However, this amount is expected to rise to £14,766 by April 2025, representing a significant 17% increase. In August 2016, landlords buying a £231,176 property paid £9,059 in stamp duty.
Aneisha Beveridge, head of research at Hamptons, says "most home movers next year will be subject to higher stamp duty bills. Stamp duty was first introduced as a way to tax more affluent households who bought property. But over time, successive governments have used it as a tax-raising lever, pulling more movers into the tax bracket.
Next year’s increase will mean that around nine in ten movers will be subject to a stamp duty bill, up from just over half today. If the £125k nil-rate band had risen in line with national property prices since it was first introduced in 2006, it should be around £215,675 today to ensure that the majority of households can move tax-free.”
First-time buyers will be hit
Ms Beveridge also warns "first-time buyers could also be hit by higher stamp duty bills. Buyers in London and Southern England have seen bills rise much faster than everyone else. This partly reflects the scale of house price growth seen in these areas, pushing more homes above the nil-rate threshold.
However, it also reflects how tax rates for more expensive homes have been disproportionately hiked by successive governments over the last twenty years, dragging far more people into paying a bill. While the maximum £2,500 increase is unlikely to deter most movers, first-time buyers, who could face an increase of over £11k will be hit hard.
This change will significantly reduce their purchasing power, particularly impacting those buying their first home in London and the South where property prices tend to be higher. It’s likely that these buyers will instead purchase more affordable homes, or it could mean having to save up for longer, potentially weighing on homeownership rates.”
A Treasury spokesman told The Telegraph “we do not comment on speculation around tax changes outside of fiscal events.”
The Budget could spell financial shock for investors, a financial services firm warns.
DeVere Group chief executive Nigel Green says “Capital Gains Tax is due on profits made from the sale of assets such as investment portfolios, property, and businesses. Traditionally, it’s been seen as a levy on the wealthiest, but the reality is that many everyday workers will be dragged into paying higher taxes. As the government aims to raise up to £35 billion, this increase will come at the expense of hardworking people who have prudently saved for their futures.
The notion that this tax is only for the rich is outdated. Ordinary middle-class families, entrepreneurs, and even expatriates will be severely impacted by this CGT hike. People who have responsibly planned for their retirement, invested in property, or run successful businesses are set to be penalised for making sound financial decisions.”
In addition to the direct impact on families, deVere Group warns that the CGT increase will have significant long-term consequences for the broader UK economy. By increasing the tax burden on investment returns, the government risks discouraging the very behaviour that drives economic growth.
Green explains “the proposed changes will have a chilling effect on investments. When people face higher tax bills on their returns, they’ll think twice before investing in property, pensions, or businesses.
At a time when the UK economy desperately needs fresh investment to recover from recent economic headwinds, discouraging people from putting their money into growth-generating ventures is short-sighted and harmful.”
He claims that "such changes also send a worrying message to overseas investors, particularly expatriates who have long supported the UK economy. With the threat of higher taxes on their UK-based assets, many will reassess their financial commitments to Britain. This is a dangerous precedent. International clients are watching closely, and the message they’re getting is that the UK is no longer as welcoming to overseas investment. The ripple effects could be immense, particularly as global investors seek more favourable tax environments elsewhere.”