Budget 2024: What it means for the prime property market
As the Labour government’s much-anticipated Budget is announced, our experts share their insight on how it could affect your property portfolio
The speculation is over: Chancellor Rachel Reeves has now delivered the Autumn Budget. Labour’s first in 14 years, this significant occasion has brought with it equally large ambitions, with Reeves announcing taxes will rise by £40 billion to address the “black hole” in public finances. But what, in practice, does this mean for the prime property market?
Stamp duty increases
Catching the headlines is the rise in stamp duty land tax on second homes. As of Thursday 31st October 2024, this has increased from 3% to 5%, and has already made an impact. Speaking on the day of the Budget announcement Stuart Bailey, Head of Super Prime Sales in London at Knight Frank, said, “As expected, there have been a flurry of exchanges the day before the budget as a defensive hedge against any unexpected announcements. Another busy day today, post budget, comes as no surprise as buyers rush to exchange contracts before the additional 2% on second homes comes in tomorrow.”
How it plays out in the longer term remains to be seen. “There should be no change to the principal home market, so this should provide the confidence for discretionary buyers to come off the fence and commit to moving. For second home buyers all eyes were on capital gains tax, when she tinkered with additional rates of stamp duty instead,” shares Edward Rook, Head of Country Department at Knight Frank. “Any rises in stamp duty tend to stall the market for a period until the increase is absorbed by values. Ultimately the vendor pays the stamp duty and it will be massaged into values by the spring selling season.”
Capital gains tax remains unchanged
While capital gains tax for other assets rose, for residential properties (such as buy-to-let and second homes) it is to be held at the current rate of 24% for higher rate taxpayers. “What I would expect now is an active release of months of pent up demand in the Super Prime market,” predicts Bailey. “Wealthy UK buyers will be pleased to hear no increase in capital gains tax for second homes. This concern has been stalling a significant amount of buyer decision making in the £10m million plus price sector.”
Impact on landlords
Any relief from the capital gains tax rate may be short lived for landlords, with the impact of the stamp duty tax increases to potentially be felt acutely by the sector. “It’s disappointing the new government has taken over from where the last one left off, by punishing landlords. With the shortage of available properties in the rental market, we need to encourage investment and supply, not penalise it,” says Gary Hall, Head of Lettings at Knight Frank.
In turn it may also have a trickle-down effect on tenants, as the availability of private rented accommodation becomes increasingly squeezed. As Tom Bill, Head of UK Residential Research at Knight Frank, notes, “The rise to 5% may reduce the supply of rental property further and push up rents, which would ultimately cause more financial pain for tenants. Together with the Renter’s Rights Bill, there may be unintended consequences for the UK private rental sector.”
The implications for non doms
On the issue of non doms Bill says, “The government stuck closely to its manifesto plans for a four-year residence-based regime that doesn’t look hugely competitive compared to countries like Italy.
“However, the transition period during which people can bring money into the UK under the new system at a lower tax rate (12% in the first two years followed by 15% in the final year) will be extended to three from two years, which is designed to encourage more inward investment.
"Furthermore, pre-existing overseas trusts will not be charged inheritance tax at 40% and will instead be subject to the so-called relevant property regime, which levies a maximum of 6% at each ten-year anniversary of the trust’s creation.
“Other than that, there was little comfort for non doms. Indeed, the abolition of business property relief for inheritance tax meant the announcement was in some ways worse than feared for lobby group Foreign Investors for Britain (FIFB).”
