After weeks of speculation and ominous warnings of ‘tough decisions’ to be made, Rachel Reeves has announced her first Budget as chancellor. So, now that the dust is settling, what will the impact be on property investors?
The initial reaction for many is likely to be one of relief. There were rumours that Capital Gains Tax (CGT) rates would be brought into line with income tax rates but, on the day, the announcement was that CGT rates on residential property will remain unchanged, with CGT on the disposal of other assets being increased to match the residential property rates of 18% and 24%.
The sting in the tail came from a surprise announcement that, as of 31st October 2024, the Higher Rates for Additional Dwellings (HRAD) surcharge on Stamp Duty Land Tax (SDLT) will be increased by 2 percentage points from 3% to 5%.
Arguably, however, this is an easier tax increase for property investors to manage. Whereas increases to CGT would impact the tax payable on existing assets if and when a property investor chooses to sell them, SDLT will impact only new purchases.
There will, of course, be transactions currently in progress that will now be impacted by the SDLT surcharge, which could be an additional £10,000 on a property of £500,000, and some of these may have already exchanged contracts. In these instances an investor may need to raise additional funds to finance the increased sum and bridging could provide a way of doing this. Alternatively, buyers may look to pull out of a deal altogether and there have already been press reports from brokers saying this was happening just minutes after the announcement.
Given the reliance of the country on the private rented sector (PRS) to meet the housing needs of the population – currently a fifth of households live in the PRS – any initiative that potentially reduces the supply of rental property to the sector could be seen as disappointing for investors and renters alike.
However, given the context and the pre-Budget expectation management, a hike in the SDLT surcharge on additional properties might feel like an acceptable compromise and many investors are likely to try to mitigate the impact by negotiating a lower purchase price on future purchases.
After a long period of uncertainty ahead, I’d expect investors to be able to manage their portfolios with greater certainty now that the announcement has been made and this should provide stimulus to the market, which is good news for everyone in the industry.
One area where there remains a degree of uncertainty is the detail surrounding the government’s commitment to delivering 1.5 million new homes. According to the Red Book document, that was published shortly after the Budget announcement: “The government has already taken swift action to kickstart the delivery of 1.5 million homes, including: launching the National Planning Policy Framework consultation, the New Homes Accelerator, and New Towns Taskforce.”
Within the document, the government has pledged a £500 million boost to the Affordable Homes Programme to build up to 5,000 additional affordable homes, £3 billion of additional support for SMEs and the Build to Rent sector and £46 million of additional funding to support recruitment and training of 300 graduates and apprentices into local planning authorities to accelerate large sites that are stuck in the system, and boost and upskill local planning authority capacity to deliver the government’s wider reform agenda. Other than this, however, there was little detail as to how the ambitious 1.5 million homes target will be met.
Overall, perhaps the biggest takeaway for property investors about the Budget is that it’s now taken place. The uncertainty and speculation can end and investors can focus on managing their portfolios and continuing to deliver much-needed housing. This may not seem like much to celebrate, but given the warnings made in the press in recent weeks, it’s perhaps the best outcome investors could have hoped for.
Anna Lewis, Commercial Director at Castle Trust Bank