How Labour’s 2024 Budget Will Shape the UK Property Landscape
Prepared by David Cosby Chartered Surveyors and Estate Agents
Our Sales & Lettings team at David Cosby has reviewed today’s budget changes, focusing on how these tax and policy shifts could impact anyone involved in property transactions, as well as landlords and tenants.
In this overview, we outline the major changes, including potential benefits and drawbacks for both buyers, sellers, landlords, and tenants.
Summary of Labour’s 2024 Budget
The Labour government’s budget announcement on 30 October 2024 includes notable changes to property-related taxes and reliefs, aimed at generating revenue to fund public services. These policies bring both opportunities and new costs to property owners, investors, and tenants across the UK.
Stamp Duty Increase on Second Properties
The stamp duty rate on second homes, including buy-to-let and holiday properties, has increased by 2%, bringing the rate to 5% above the usual base rate.
By raising acquisition costs for second homes, the policy aims to reduce investor competition, which has often priced first-time buyers out of desirable areas. This could increase affordability and homeownership rates among first-time buyers, particularly in cities and tourist destinations where demand is high.
However, while the policy may benefit first-time buyers, it also risks curbing investment in the buy-to-let sector. A decrease in buy-to-let investment could mean fewer rental properties, driving up rents—an outcome that could affect affordability for tenants.
Larger institutional investors may be less impacted by the increase than smaller, individual investors. This could lead to a market shift where institutional investors dominate buy-to-let portfolios, leading to more standardised rental practices but potentially reducing rental market diversity. This concentration of ownership could impact tenant choice and landlord flexibility in certain areas, as institutional rental models are often less adaptable than those of smaller landlords.
OUR THOUGHTS:
While the policy aims to create a fairer housing market by reducing investor competition, it may have some unintended side effects. Fewer buy-to-let investors could limit rental supply and push up rental prices. The impact will largely depend on how the property market and rental demand adjust in response to these new acquisition costs.
Inheritance Tax Relief Limitations
Inheritance tax relief for agricultural and business properties is now capped at £1 million, affecting high-value estates.
This means that estates exceeding the £1 million threshold will be taxed at the standard inheritance tax rate on any additional value, marking a significant shift for high-value estates traditionally passed down within families.
This policy will inevitably lead to more agricultural or business properties coming onto the market, as some families may choose to sell rather than inherit properties where tax liabilities exceed their financial resources.
However, the policy may also have unintended impacts on the stability of rural and small business ownership, as the added tax burden could lead to sales of properties previously managed across generations, impacting local economies and potentially reducing the diversity of small, family-run agricultural businesses.
OUR THOUGHTS:
While this inheritance tax relief cap may boost tax revenue and improve accessibility to high-value property for new buyers, it also risks prompting sales of properties that could impact rural economies and reduce the continuity of small, family-owned businesses and farms.
Expiry of First-Time Buyer Stamp Duty Discount
The stamp duty discount for first-time buyers on properties valued up to £425,000 will expire in March 2025.
After March 2025, first-time buyers will be subject to the standard stamp duty rates, marking a change that could significantly affect entry-level buyers’ purchasing power and overall affordability.
The expiry of this discount will mean increased upfront costs, potentially pushing some buyers to act before March 2025 to benefit from the existing discount. However, this looming deadline may also lead to a surge in demand, creating a more competitive market in the short term.
Sellers may benefit from increased buyer interest before the discount expires, particularly for properties near the £425,000 threshold. After March 2025, sellers may face a cooling in demand from first-time buyers, which could impact property prices in this segment.
With fewer first-time buyers able to enter the market, demand for rental properties may increase, which could drive up rents. The increased tax on second properties discussed earlier could further limit the availability of rental properties, and may exacerbate demand for rental property and an upward trend on rental prices.
OUR THOUGHTS:
The end of the stamp duty discount could lead to both short-term benefits for sellers and challenges for first-time buyers as they face higher upfront costs. For landlords, increased rental demand may follow as fewer first-time buyers enter the market, potentially affecting both rental affordability and availability. The long-term impact will depend on how the market adjusts and whether additional policies are introduced to support first-time buyers after the expiry date.
Higher Capital Gains Tax (CGT) on Property Sales
CGT has risen to 18% for basic-rate taxpayers and 24% for higher-rate taxpayers, affecting landlords who sell property investments.
This change affects landlords and property investors, particularly those looking to sell properties as part of their investment or retirement strategy. By raising CGT, the government aims to increase tax revenue from wealthier investors and discourage short-term property trading.
For sellers, the higher CGT rate may reduce net profits on property sales, making selling less financially attractive, especially for those planning to use sales as part of their financial exit strategy. Buyers, on the other hand, may see reduced market competition, as some investors may decide to hold onto properties longer rather than incur the higher CGT, potentially easing competition in some markets. This may lead landlords to retain rental properties for longer periods, which could help stabilise rental supply. However, with fewer landlords willing to sell, some potential buyers looking to purchase rental properties may face limited availability, impacting their ability to enter the market.
OUR THOUGHTS:
The CGT increase is likely to encourage longer-term holding of rental properties, contributing to rental market stability but limiting property availability for purchase. Landlords may need to adjust their investment timelines and exit strategies to account for higher CGT rates.
Conclusion
Labour’s 2024 budget introduces significant tax adjustments with wide-ranging effects on property buyers, sellers, landlords, and tenants. Each policy is intended to increase public revenue, improve accessibility for first-time buyers, and encourage long-term property holding. However, the combined changes could heighten rental demand and create market pressures that affect affordability and availability. As the market adapts, buyers, sellers, landlords, and tenants alike will need to reassess their strategies to align with this evolving landscape.
If you have questions about how these changes may affect you, our team at David Cosby is here to help.
Further Related Reading
For additional information on the recent budget changes and their impact on property markets, property investment, and tax policies, consider these resources:
- Office for Budget Responsibility (OBR) – Economic and Fiscal Outlook
The OBR provides independent economic analysis and insights into how budget changes may impact economic growth and the housing market:
Office for Budget Responsibility Reports - Royal Institution of Chartered Surveyors (RICS)
For professional insights on how budget changes impact the property sector, RICS offers comprehensive industry updates and analysis:
RICS Property Market Insights - Institute for Fiscal Studies (IFS)
The IFS publishes analyses on tax and spending policies, including housing and property-related taxes, to understand the budget’s broader implications:
Institute for Fiscal Studies
