Yesterday, the Chancellor of the Exchequer made her annual statement to the House of Commons, outlining the government’s key financial plans. The Prime Minister, Keir Starmer, warned this budget would “shed a harsh light” on the country’s current financial situation but promised it would be a “moment of light” and would “get Britain building again”. After many weeks of speculation, here are some of the key policies announced and what they mean for the property sector.
Capital Gains Tax
Paid on the profit made from the sale of assets, such as second properties or investments, the rates of Capital Gains Tax have been increased from 10% to 18% at the basic rate and 20% to 24% at the higher rate. This is likely to have a significant effect on many in the property industry.
Those with second homes are stuck in a sticky spot. If they want to sell their property, they will have to pay more tax on whatever profit they make, potentially cancelling out any money spent on the property in the first place. However, they will also be taxed more should they decide to rent out the property, making the prospect of becoming a landlord or doing holiday lets much less enticing.
As a result of more landlords potentially selling up, there is also a risk to renters. With fewer properties available to rent, prices could easily increase. Many places in the UK have already seen significant price rises in recent years following increased mortgage rates so many may be put at risk of being priced out.
Stamp duty
Those looking to buy property or land over a certain price will have to pay Stamp Duty Land Tax. In 2022, the Conservative government increased the threshold at which people start to pay the tax, from and £250,000 and £425,000 for first-time buyers. As of April next year, this will drop to £125,000 and £300,000 for first-time buyers.
These lower thresholds will mean more people are having to pay the tax and lower the amount they can pay for their property. Despite pledging to help give first-time buyers the chance to get on the property ladder, this group is likely to be significantly affected.
Private school VAT
One of the most discussed Labour manifesto pledges was that of removing private schools’ charitable statuses, therefore introducing tax on school fees. The Chancellor confirmed today that tuition and boarding tuition fees will be taxed at 20% from next year. OnTheMarket data already shows an impact in the property sector, with a rise in property searches near the country’s top-rated state and grammar schools. With more people looking in specific areas, prices are likely to increase, possibly in favour of those moving from farther away and pricing out locals looking to move within the area.
Affordable homes and social housing
Continuing from previous announcements regarding housing, the Chancellor committed an extra £500 million to the current affordable homes budget, which runs until 2026. While Labour aim to get more people on the property ladder by building more homes, the previously discussed lower stamp duty thresholds may counteract this move.
Announcements regarding social housing may cause concern to some. Social housing providers will now be able to increase rents above inflation under multi-year settlements. Discounts for social housing tenants buying their properties under the Right to Buy scheme will also be reduced.
Dangerous cladding
The Chancellor also announced more than £1 billion for cladding remediation. The Prime Minister had previously pledged to speed up the remediation of buildings identified as having dangerous cladding following the tragedy of Grenfell Tower. As of September, only around 29% of the properties identified had had the unsafe materials removed. More information about who can access this funding and how is expected in the coming months.
Warm homes plan
A further £3.4bn was pledged towards a Warm Homes Plan with the aim of upgrading 5 million homes in the UK to be more energy efficient. Each home will be able to access £15,000 for energy performance improvements, plus another £15,000 to install low-carbon heating, such as heat pumps. Landlords will have access to the full amount for one home and 50% for each additional home they own.
Inheritance Tax
Rachel Reeves also announced an extension to the threshold freeze on Inheritance Tax. Thresholds had previously been frozen until 2028, however this has been pushed back to 2030. This means the first £325,000 of an estate will remain tax free, increasing to £500,000 when a residence is passed to direct descendants and £1 million when passed to a surviving spouse or civil partner. The tax is payable at a rate of 40% on the excess after the free amounts mentioned above.
Other policies to consider
As always, the Autumn Budget covers a wide range of areas, not just the property sector. While many announcements may seem irrelevant to property, they all have an impact on the public’s relationship with money and therefore their capabilities in terms of housing. For example, there are several changes to the way private pensions tax is calculated. This will have a major impact on how much money people of all different ages plan their futures. If more money is being paid in tax, there is less to be used to buy or rent property.
The changes to Winter Fuel Payments will lead to many older Britons reconsidering the property they live in. Should the update make them ineligible for the payment, they could no longer be able to afford their home and therefor have to consider moving or making adjustments to their property.
With this budget, the Chancellor of the Exchequer and the Prime Minister promised the public that positive changes would be seen before the next General Election in just under five years’ time. Some feel excited about the next few years, others are less optimistic. With so many changes related to the property sector, we will be paying close attention to those affected.
