Key takeaways from the 2024 budget affecting property investors:
Increased Stamp Duty for Additional Properties was raised from 3% to 5% for properties valued up to £250,000. For properties valued between £250,001 and £925,000, buyers will now face a total stamp duty rate of 10% for additional property purchases. This change adds substantial upfront costs for property investors and second-home buyers, which may impact their immediate purchasing appetite and long-term investment strategy.
Capital Gains Tax for non-residential assets will rise at its lowest rate from 10% to 18% and the higher rate from 20% to 24%. But there will be NO change to Capital Gains Tax for residential property – which already has 18% and 24% rates.
Inheritance Tax (IHT) is the tax a person must pay when they inherit assets from a deceased’s estate. They must pay Inheritance Tax at 40% on the chargeable value of the estate. It is possible to reduce the IHT liability by utilising the tax-free exemption threshold of £325,000. If the value of asset is less than that threshold, there is no IHT to pay.The potential for reduction of IHT threshold was another subject of speculation. However, taxpayers can get a sigh of relief as it is confirmed that the £325,000 threshold will remain frozen until April 2030. Additionally, the Nil Rate Band threshold will increase to £500,000 if the estate contains residential properties passed to direct descendants.
In the lead-up to the budget, there was considerable concern about potential changes to Capital Gains Tax.
Many property investors considered selling privately held properties to avoid anticipated tax hikes.
It appears the government engaged in what’s often called “kite flying”. In other words, testing the waters by leaking potential policies to gauge public reaction. This approach may have backfired. Rumours suggested CGT rates could be aligned with income tax rates, but thankfully, that hasn’t happened, especially in terms of property assets.
Currently, CGT remains unchanged for personal property sales. Low-rate taxpayers still face an 18% rate, while high-rate taxpayers pay 24%.
However, it’s uncertain how this budget will foster the growth that the Chancellor is keen to stimulate.
For property investors and developers, this budget has been quite directive. The Chancellor has clearly indicated a preference for certain investment strategies. In particular, there’s been an increase in the additional Stamp Duty Land Tax (SDLT) rate for buy-to-let residential properties, moving from 3% to 5%. This may prompt investors to reconsider the viability of buy-to-let residential property investments, especially given that SDLT for commercial properties remains unchanged.
As Rachel Reeves highlighted, buying a £500,000 residential rental property under the new regime incurs a hefty £37,500 SDLT fee. In contrast, the SDLT on a commercial or mixed-use property of the same value is only £14,500. Reeves appears to be discouraging residential buy-to-let, while favouring commercial property investments, such as retail units with residential flats or small offices for conversion.
There’s also a hint at planning reform, though details are lacking. The Chancellor has expressed a commitment to reform, but specifics have yet to be outlined. This could signal positive news, though time will tell.
Reeves also announced beneficial changes in business rates for the retail, hospitality, and leisure sectors, which is welcome news for commercial property investors. Lower business rates for small business tenants could make commercial properties even more attractive.
Overall, Rachel Reeves’ budget has not unsettled the market. The FTSE 250 saw gains during her speech, and 10-year gilt yields declined slightly afterward, suggesting market confidence in her fiscal approach and commitments to balanced books.
Government borrowing costs have decreased slightly as well.
In summary, there’s no CGT increase for privately held properties on sale, and commercial property investors stand to benefit from unchanged SDLT rates and reduced business rates for tenants.
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