On 30th October, Chancellor Rachel Reeves gave this year’s Autumn Budget statement. Although there was some bad news for businesses and those planning to pass on family farms and other business enterprises, there was only one shock for landlords: a rise in stamp duty.
Here, we’ll take a look at the main changes announced and how some of them are likely to affect landlords and property investors.
Higher rate SDLT increased by 2%
Once you own your first property, any property you buy after that worth more than £40,000 attracts a higher rate of Stamp Duty Land Tax and there is no tax-free threshold.
Until the Budget, the higher rate surcharge was 3%, but from 31st October it increased to 5% (unless a property had already been exchanged prior to this date.)
That means every landlord who had a purchase underway at the time will have had to:
a. Check the amount of stamp duty they’ll now have to pay
b. Make sure the investment still stacks up financially for them
c. Find the extra funds to pay HMRC within 14 days of completion.
In addition to this higher-rate hike, the zero-rate threshold for ‘standard’ property purchases is dropping back to £125,000 from 1st April next year.
The portion between £125,001 and £250,000 will have a standard rate of 2% and a higher rate of 7%.
So, today you’ll pay £6,000 more in stamp duty for a £300,000 property than you would have before the Budget, and that will rise to £8,500 more next April.
How big an issue is the stamp duty rise?
Of course, it’s a significant jump in the up-front cost of Buy to Let. However, we don’t think this should stop landlords from investing now.
If you look at the extra cost over the life of a typical rental investment:
Most professional landlords hold rental properties for at least 15 years.
- The extra stamp duty (in the example above) averages out to around £500 a year / just £40 a month.
- Most landlords are making good ongoing profits from rental income:
- Price growth should deliver competitive capital returns over time.
- The stamp duty paid at the start can be deducted from gains when you sell, to reduce your CGT liability.
If you need any more reassurance, it’s worth remembering that Scotland has had an Additional Dwelling Supplement of 6% for the last two years, and the rental market is still active.
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What if this pushes some landlords to sell up?
The Government has said that this stamp duty increase is intended to “provide those looking to move home, or purchase their first property, with a comparative advantage over second home buyers, landlords, and businesses purchasing residential property”.
But if it does put some landlords off making new investments or they decide to sell up and exit the market altogether, the housing crisis could simply get worse.
There’s a serious shortage of social housing and around a million eligible households are currently living in the Private Rented Sector (PRS).
So if the amount of rented stock provided by private landlords reduces, it’s likely that homelessness will rise and more households will require temporary accommodation. And the cost and administration of that will fall to already stretched local councils.
But, as we’ve already said, we don’t think this stamp duty rise should stand in the way of landlords entering the Buy to Let market or expanding their portfolios.
When you look at it in the context of a profitable investment over time, it’s a cost that can easily be absorbed by the vast majority of landlords.
Capital Gains Tax (CGT) has gone up – but not for property
In 2016, CGT rates were reduced to 10% at the basic rate and 20% at the higher rate for all asset gains apart from property.
Rates for landlords remained at 18% and 28%, and although the higher rate was reduced to 24% from 6th April 2024, it’s still been a frustration for landlords.
But from midnight on 30th October, rates for other capital gains were put up to be the same as for property.
Pension pots will be subject to Inheritance Tax (IHT) from April 2027
Currently, pensions can be passed on tax free, which has resulted in some people using them primarily as a tax-planning vehicle, rather than to fund their retirement as they’re intended.
So, from April 2027, inherited pension pots will be included in an individual’s estate for IHT purposes.
IHT threshold freeze extended to 2030
The current IHT threshold of £325,000 (with an additional £175,000 allowance for a residential home inherited by direct descendants), has not been increased since 2009.
This means the tax-free allowance has fallen in value for everyone as it hasn’t kept up with inflation.
The freeze was scheduled to last until 2028, but the Government announced in the Budget that it will now remain until 2030.
Inheritance tax (IHT) relief dropping for business and agricultural estates
Business and agricultural property relief, is currently available at 100% for qualifying estates, meaning they pay no IHT when passed on. But from April 2026, this will reduce to 50% relief after the first £1m.
This means businesses and farms will effectively be taxed at 20% on their value above £1m. The Country Land and Business Association estimates that this could harm 70,000 UK farms, “damaging family businesses, destabilising food security and jeopardising the future of rural businesses up and down the country.”
Good and bad news on income and benefits
There will be two positive changes from April 2025 for those at the lower end of the earnings spectrum, which should help them afford housing costs:
- The minimum wage will go up:
- From £11.44 an hour to £12.20 for over-21s
- From £8.10 to £10 for 18 to 21-year-olds.
- The earnings limit for carers will increase to the equivalent of 16 hours a week at the National Living Wage. This means they’ll be able to earn over £10,000 while receiving Carer’s Allowance, which is effectively worth an extra £45 a week.
However, housing benefit payments will be frozen next year, for at least another year. The Joseph Rowntree Foundation estimates that private tenants receiving housing benefits will be £243 a year worse off on average.
National Insurance (NI) costs rising for employers from April
Employers’ NI contributions are rising from 13.8% to 15%, which was generally expected. What wasn’t expected was the announcement that the employee’s salary threshold (at which employers have to pay NI) will be reduced from £9,100 to £5,000.
This, combined with the rise in the minimum wage, is bound to hit some businesses very hard.
However, the move was mainly intended to increase tax revenue from larger companies, and the Government has announced two changes to support smaller companies:
- The Employment Allowance will be increased from £5,000 to £10,500.
- The £100,000 eligibility threshold will be removed.
According to the Government, “more than half of employers with NIC liabilities will either see no change or will gain overall next year.”
More investment in housing and infrastructure
The Chancellor confirmed that Labour is committed to “turbocharging the delivery of 1.5 million homes” over their first five years in government.
- £3 billion of additional support will be provided to Small and Medium Sized Enterprises (SMEs) and the Build to Rent sector “by expanding existing housing guarantee schemes to support a strong and diverse private housing market”.
- A new housing package will include an additional £500 million for the Affordable Homes Programme, bringing total investment in the supply of new housing to more than £5 billion.
If Labour can meet the new home building target of 300,000 a year, we should hopefully start to see the pressure ease on the Private Rented Sector (PRS).
The Government is also making further investment into transport and infrastructure, which always supports the housing market.
HMRC is clamping down on tax avoidance and evasion
By pursuing uncollected tax, HMRC is aiming to bring in an extra £6.5 billion a year, which the Government says will go directly to “funding public services and fixing the foundations of the economy”.
So if you don’t already work with an experienced property tax specialist, it’s worth taking some advice to ensure you’re meeting your tax obligations – while not paying more than you need to!
It’s also worth knowing that if you realise you haven’t been paying all the tax you should, disclosing this to HMRC under the Let Property Campaign could reduce the penalty you have to pay.
All laws passed by the UK Government in Westminster apply to England, but there are certain matters that are devolved to Wales, Scotland and Northern Ireland. That means not all the changes announced in a budget apply across the UK.
Each of these countries has its own individual devolution settlement. In Scotland, matters that are devolved include:
• Income tax and VAT
• Housing & local government
• Health & social work
• Education
• Tourism
• Justice
• Agriculture
• Internal transport
It is more or less the same in Wales, except for income tax and VAT, which was devolved to Scotland in 2016 but not to the Welsh Assembly.
Legislative powers reserved to the UK Parliament include: most financial and economic matters, social security, employment, defence, foreign affairs and immigration.
If you have any questions about the changes announced in the Budget, or you’d like to discuss any aspect of Buy to Let, we’re here to help. You can find the details for your local branch here.
With the year drawing to a close, now would be a great time to review your monthly rental income. To optimise your yield, simply book a free no obligation rental valuation today.
The Your Move Content Marketing Team
