Labour Chancellor Rachel Reeves has now delivered the government’s first budget of their new term in office; and indeed as the country turned red after 14 years of Conservative rule, some fairly large changes were expected. With headlines crowded on national insurance increases for employers and minimum wage increases, it can be difficult to understand exactly what this budget means for the housing sector. Here, we cover the key takeaways for letting agents, landlords and other related sectors.
Capital Gains Tax (CGT) Freeze for Residential Property
Despite much speculation in the media in the days and weeks ahead of the budget, the government elected to keep the tax on capital gains for residential properties at their current levels: 18% for lower rate and 24% for higher rate taxpayers respectively. The disposal of other related assets was ‘normalised’ to 24% – a relief for those who expected it to be brought into line with income tax rates.
This said, Capital Gains Tax for non-residential assets will rise: from 10% to 18% at its low rate and 20% to 24% at its high rate. ⁽¹⁾
Non-Dom Tax Rules Scrapped
As the previous government had intended also, Labour is set to end the current Non-Dom (non-domiciled) tax rules from April 2025. In its place will be a new residence-based system, with an extension of the temporary repatriation facility for assets brought into the UK from two to three years.
Only gains made after 2017 will be considered under the new system, but international assets may instead be brought into the scope of UK IHT.
Stamp Duty Surcharge Rises
Those purchasing properties that are ‘in addition’ to their main residence (i.e. second homes or buy-to-let properties) will see their stamp duty surcharge liability increase from 3% to 5%. In real terms, this adds £10,000 to the cost of a £500,000 property. The single rate of Stamp Duty Land Tax (SDLR) will rise, but only for corporate bodies purchasing properties of £500,000 or above; which will see a 15% to 17% increase. ⁽²⁾
This move was not unexpected politically from a Labour government as it is intended to ‘level the playing field’ for first time buyers in a crowded market against investors. However, arguably the budget did not include much incentivisation for first time buyers. The zero rate thresholds are still due to drop from £425,000 to £300,000 in Q2 2025 which will clash directly with a further announcement on the extension of 5% deposit schemes. This gives property investors a much more predictable road ahead than those looking to buy their first home.
Inheritance Tax (IHT) Threshold Freeze – but New Rules
The Inheritance Tax thresholds are set to remain as they are until at least 2030. This allows for £325,000 tax free to be left to loved ones, or £500,000 if a home is being left. Couples may continue to inherit each other’s allowance, permitting a maximum of £1 million IHT free.
However, there are new rules being introduced as to assets that were previously considered exempt from IHT. As of April 2027, pensions will be included in the thresholds as will certain agricultural and business property assets. Allowances vary on these by classification and value – and in most cases will permit a rate of 20% rather than 40%, so still somewhat favourable over what could have been. ⁽³⁾
Right To Buy Discounts Reduced
Tenants purchasing their council house through the Right to Buy scheme will have their discounts reduced; intending to raise some £1.2bn for local councils over the next five years. Furthermore, councils will be permitted to retain 100% of their sales revenue in which to invest back into further social housing.
In turn, these changes are expected to benefit the housing market overall – as homelessness will decrease, social housing deficits will improve and local economies will enjoy gains.
Affordable Homes Programme: Increase in Investment
The government’s Affordable Homes Programme is to be topped up with a further £500 million budget investment alongside a consultation for an ongoing five-year rent settlement (which would guarantee the rent cap for providers). The current programme is set to run for a further two years to 2026.
Future grant investment was not announced as part of the budget, and instead is expected to be covered off in some detail during the government’s Q2 Spending Review in 2025.
Increasing LPA capacity and capability
The government will provide £46 million of additional funding to recruit 300 junior planning officers, accelerate large sites that are stuck in the system and to increase local authority capacity.
This news was a boon for developers, with shares in Vistry jumping 3.2% and Barratt Redrow shares up 3% after Ms Reeves’ speech.
Estate Agents as Employers: New NI Thresholds and Contributions
Firms who employ staff will see their employers’ National Insurance contributions increase from 13.8% to 15% as of April 2025, with the threshold for payment reducing significantly from £9,100 to £5,000. ⁽⁴⁾
There are a variety of exemptions and allowances that can be claimed by employers (including for employees aged under 21, apprentices aged under 25 and employees who are armed forces veterans) as well as an increase in the ‘employment allowance’ for SMEs with an NIC liability of under £100,000 in their previous tax year. However, in many cases, this will mean it costs more for employers to retain staff: an increase of almost 50% in NI for employees earning £20,000 p.a., around 23% for employees earning £40,000 p.a., and about 17.5% for employees earning £60,000.⁽⁴⁾
The national minimum wage will also be increased to £12.21 for employees aged 21 and over, and to £10 for under 21’s.
Encouraging News for Buy-to-Let Investors
This budget brings several positive points for buy-to-let investors:
Stable Capital Gains Tax on Property: CGT rates on property are remaining stable, offering reassurance to investors in their long-term plans.
Inflation Stability: With a target of 2% by 2029, there is a positive outlook for steady returns in the rental market.
The Outlook
It’s expected that further positive news will be delivered on the British economy and that more interest rate cuts will be made by the end of 2024; which should support healthy growth in house prices. Supply may remain a little low this side of the new year which could challenge affordability (particularly for first time buyers) but with economic predictions looking positive, we can expect this to increase through Q1 2025 and onward.
The new major announcement from the Chancellor will be a Spending Review in Q2, in which we can expect much more detail alongside some tweaks to any particular unpopular changes. Exactly how this will pan out is yet to be seen, but certainly this first budget has not hit the housing sector as hard as many had feared.
Looking for a property management company in Manchester or Salford? Want to rent or purchase a buy-to-let property in Manchester or Salford? Get in touch with the expert team at Primo Property Management today!
Sources
⁽¹⁾ Which?
⁽²⁾ Gov.uk Stamp Duty
⁽³⁾ Gov.uk Inheritance Tax
⁽⁴⁾ Chartered Institute of Taxation