Autumn’s 2024 Budget And What It Means For Landlords

On October 30, 2024, Britain’s first female Chancellor, Rachel Reeves, presented the Labour Government’s Autumn Budget—a key update on the UK’s economic strategy. This budget marks a turning point, with Reeves’ vision to combat “short-termism” and boost the economy through a £40 billion tax increase designed to foster long-term growth. For landlords, this budget has some noteworthy implications, especially concerning Capital Gains Tax (CGT), Stamp Duty (SDLT), National Insurance (NI), and Inheritance Tax (IHT). Let’s unpack what these changes mean for landlords and letting agents alike.

1. Capital Gains Tax: A Relief For Landlords

In her announcement, Rachel Reeves confirmed that the Capital Gains Tax rate on residential properties will remain unchanged, a decision welcomed by landlords looking to sell properties. This means:

CGT Rates on Property Sales Remain the Same: While the general CGT rate has increased from 10% to 18% for lower-rate taxpayers and from 20% to 24% for higher-rate taxpayers, CGT on residential properties will remain at 18% and 28%, respectively.
Impact: Landlords intending to sell properties won’t face additional tax burdens from CGT adjustments in the new budget, allowing for more predictable profit margins and less financial pressure if they choose to downsize or exit the market.

2. Stamp Duty Rises On Second Homes

Another significant change in the budget is the 5% increase in Stamp Duty for second homes:

SDLT Increases for Buy-to-Let and Second Properties: Effective from October 31, 2024, SDLT on additional properties has increased from 2% to 5%. This rise may discourage landlords from expanding their portfolios.
Potential Market Impact: For prospective landlords, this increase could make property investment less attractive, possibly tightening the rental market as fewer properties become available. For existing landlords, it may mean less competition but could result in higher rents as rental supply tightens.

3. National Insurance Contributions For Employers

National Insurance, a significant cost for employers, is also impacted by the new budget:

Increase in Employers’ NI Contributions: Starting in April 2025, employers will see their NI contributions rise by 1.2% to a total of 15%. Additionally, the threshold for contributions will lower to £5,000, from the current £9,100.
Mitigation Through Employment Allowance: To offset this hike, the Employment Allowance will increase from £5,000 to £10,500, helping smaller landlords who may have employees, such as property managers, to reduce or eliminate their NI payments.
Impact on Costs: For landlords operating as businesses, higher NI rates could lead to increased expenses. The increased Employment Allowance, however, offers relief for smaller operators, potentially balancing these additional costs.

4. Inheritance Tax Extension

Inheritance Tax changes, while impacting more general estate planning, have particular significance for property owners:

IHT Thresholds Frozen: The IHT threshold remains frozen until 2030, meaning estates valued up to £325,000 remain tax-free, increasing to £500,000 when including a primary residence passed to direct descendants, and up to £1 million when transferred to a surviving spouse.
Inherited Pensions Taxed Starting 2027: For landlords passing on property assets, it’s essential to consider that inherited pensions will become taxable under IHT from April 2027.
Estate Planning Impact: Property owners should be mindful of these freezes and potential pension taxes, as effective estate planning will be crucial to avoid substantial tax liabilities for heirs.

Other Noteworthy Changes

The Autumn Budget includes several additional elements relevant to landlords and the rental market:

National Living Wage Increase: Wages will rise to £12.21 per hour for those over 21, which could impact tenants’ ability to meet rent, especially as the cost of living increases. This may positively affect rent payments by increasing tenants’ financial security.
Universal Credit Adjustment: A 1.7% increase in working-age benefits aligns with inflation and could help low-income tenants cover rental costs. However, fewer than 10% of rental properties remain affordable to those on Universal Credit, highlighting the ongoing affordability issue.
Housing Supply Investments: The government has pledged £5 billion for affordable housing projects, addressing long-term housing supply. These developments are expected to create more homes, easing pressure on the rental market and potentially stabilising rents in high-demand areas.

Final Thoughts for Landlords and Letting Agents

The Autumn Budget of 2024, under Chancellor Rachel Reeves, takes a balanced approach, focusing on economic stability while aiming to address the UK’s housing market and affordability issues. For landlords, the unchanged CGT rate is a positive, while higher SDLT on second homes and the increased NI contributions may impact their bottom line. With these new policies, it’s essential for landlords to evaluate their portfolios, consider estate planning, and adjust business strategies in light of higher costs and market shifts.

At Reliance Residential, we’re here to help landlords navigate these changes effectively. Whether you’re considering expanding your portfolio, optimising operational costs, or planning for the future, our team can provide guidance and support every step of the way. For more information on how we can assist you in adapting to the new budget changes, feel free to reach out.