The Impact of Labour’s Autumn Budget on the Property Investment Market
This afternoon, Chancellor Rachel Reeves presented Labour’s first budget in fourteen years. The autumn budget had been eagerly awaited, particularly following Reeves’ earlier statement that her party had inherited a £22 billion ‘black hole in public finances.’ Despite facing the challenges of this substantial and debated national debt, Reeves delivered a budget focused on recovery and investment. But what does this autumn budget mean for the property sector, and how will it impact your investment strategy?
What Was In The Autumn Budget?
Capital Gains Tax Update
Capital Gains Tax (CGT) is applied to profits made from selling, gifting, exchanging, or receiving compensation for assets like second homes or investment properties. Today, the Chancellor announced that CGT will remain the same for residential property transactions, maintaining the basic rate of 18% and the higher rate of 24% on profits from these types of sales.
Stamp Duty Land Tax (SDLT) Update
Stamp Duty Land Tax, or SDLT, is a tax on property purchases above a set threshold. For those buying a second property, there is currently a 3% surcharge on each threshold, so for an investor purchasing a £250,000 property, the current SDLT cost would be £7,500. Chancellor Reeves announced today that starting October 31st, an additional 2% surcharge will apply to SDLT on second homes and investment properties, this would raise the Stamp Duty on a £250,000 property to £12,500. Overseas investors will still be liable to pay an additional 2% surcharge on these new rates, meaning a £250,000 property purchase will now incur £17,500 SDLT for non-UK residents.
Inheritance Tax
Chancellor Reeves confirmed that inheritance tax rates will remain frozen until 2030, offering predictability for individuals passing on assets. Inheritance tax applies to the estate of someone who has died, with no tax owed if the estate is under £325,000 in value. Above this threshold, the tax rate is 40%, but only on the portion exceeding £325,000. In 2023/24, about 5% of estates were liable for inheritance tax, generating approximately £7 billion in revenue. However, exemptions—such as those for businesses, agricultural land, and pension pots—help mitigate its impact.
House Building
Earlier this year, Labour committed to easing the housing crisis by building 1.5 million homes through the “Get Britain Building” program. Today, Chancellor Reeves announced £5 billion in new funding to support housing development, with £3.1 billion earmarked for the Affordable Homes Programme, benefiting first-time buyers and local builders. Additionally, £3 billion has been pledged to guarantee assistance for smaller house builders. Reeves also outlined changes to the Right to Buy scheme, with plans to reduce discounts and allow local authorities to reinvest sale receipts into housing.
What Does This Mean For Property Investors?
Many investors were concerned that changes to Capital Gains Tax could make UK property a less appealing investment vehicle for those looking to create passive income or use their capital growth to fund a pension pot or inheritance. However, it is important to note that the Chancellor’s announcement regarding CGT does not impact residential property and therefore does not impact property investors like many had speculated. As for SDLT amends, these tax increases do not diminish the promising outlook for the property market in the coming years. For investors planning to retain their buy-to-let properties, invest in property for the first time or add to an existing portfolio, it’s important to look at the long-term gains from UK property investment compared to the increase to initial capital employed. With 3.5% annual rental growth and 3.3% average annual price growth predicted across the UK from 2024 to 2028, the potential growth and yields are set to far outweigh the increase to SDLT if investors are willing to hold their assets for the long term.
As for overseas investors in UK property, the 2% increase in Stamp Duty Land Tax will certainly make UK properties more expensive, but should not be a deterrent for investing in the UK property market. The market remains strong and stable and, even with this 2% increase in SDLT, offers exceptional yields for investors – in fact, areas such as Birmingham, Manchester and Edinburgh are set to see rental price growth of over 21% from 2024 to 2028, meaning that yields will remain strong for overseas investors should they invest in the best property hotspots. Furthermore, the government’s vow to invest in transport infrastructure across the North and the Midlands is set to strengthen the already exceptional yields and property prices in these areas, with regions such as Bradford, Leeds and Manchester being explicitly referred to by the Chancellor as focal points of her investment strategy.
How Will The Autumn Budget Impact You?
The Labour Party’s autumn budget will certainly have repercussions for property investors, but Joseph Mews is here to help you navigate these changes in your investment portfolio with ease. Our unrivalled property market knowledge and years of experience are here to help you forward-plan in light of the budget and find the best places to invest in UK property in 2025.
Want to learn more about the impact of these changes on your investment strategy and how you can maximise your returns and minimise your tax liabilities? We’re hosting a webinar full of expert insights and key information on 6th November 2024. You can register for the webinar here.