Autumn Budget – The Impact on Landlords

Autumn Budget 2024

On 30 October 2024, Chancellor Rachel Reeves presented her first budget to parliament. Ms Reeves looked to address a £22bn deficit in the economy and proposed an additional £70bn in additional public spending, paid for in part by a budget which raised taxes by a further £40bn.

This budget proposes a number of promises for increased investment in Healthcare, Education and Defence.

Included in the budget were a number of changes in taxes associated with property purchases and sales the key points of which are summarised below, those of most relevance to our customers have been highlighted.

Our Managing Director, Matthew Jones, a qualified accountant has analysed the impact of these changes on our customers.

Budget Headlines for Property

• Social housing providers to be allowed to increase rents above inflation under multi-year settlement
• Discounts for social housing tenants buying their property under the Right to Buy scheme to be reduced
• Stamp duty surcharge, paid on second home purchases in England and Northern Ireland, to go up from 3% to 5%
• Point at which house buyers start paying stamp duty on a main home to drop from £250,000 to £125,000 in April, reversing a previous tax cut
• Threshold at which first-time buyers pay the tax will also drop back, from £425,000 to £300,000
• Current affordable homes budget, which runs until 2026, boosted by £500m

This article addresses the impact on property investors and landlords.

IMPACT ON LANDLORDS AND INVESTMENT PROPERTIES

PURCHASE OF INVESTMENT PROPERTIES

Landlords purchasing a new investment property will with immediate effect now incur an increase in Stamp Duty Land Tax.  The rate of SDLT for a second property will be as follows:

The average buy to let property in the UK is £220,000, therefore the increased 2% for SDLT equates to an increased tax of £4,400 on this typical property.  However here in Bolton and Bury we find that the majority of investors purchase properties with a value of £150,000 or less.  So the additional 2% equates to an additional taxation of less than £3,000.

While an additional tax is not ideal from an investment point of view it is worth realising that spread over a 25 year mortgage this additional £3,000 would mean an additional cost of just £10 per month (before interest).

Given that rents have practically doubled in recent years, investment in property represents an excellent return on investment.

Illustrated Example.

Cost of purchasing a typical 2 bedroom terraced property

House Purchase price                     £120,000

Stamp Duty Land Tax (5%)                £6,000

Total Purchase price                        £126,000

—–

Monthly Rent £800 per month = £9,600 per year

Yield 7.6%

The above demonstrates that a rate of return (yield) of nearly 8% can still be achieved even accounting for the increased taxation.

Top Tip

If you are looking to buy an investment property with a purchase price in excess of £125,000 we would strongly recommend that you secure these purchases now to ensure that they complete before the additional tax rise in April 2025.

DISPOSAL OF INVESTMENT PROPERTIES

One piece of good news in the budget of 30^th October is that Capital Gains Tax on disposal of second properties remains unchanged.

These rates are as follows

Basic Rate            – 18%

Higher Rate         –   24%

You receive a tax free allowance of £3,000 meaning that the first £3,000 profit made on disposals in a tax year is exempt from CGT.

Top Tip

If you are thinking of disposing of a property, if that property is in joint names then all owners will receive a £3,000 tax allowance, thus reducing your tax liability.

GOING FORWARD

If you would like any information about buying your first home then please feel free to phone your local Bolton estate agents, our office on 01204 598979.  Our Branch Manager, Kelly and our Sales Manager Leon are waiting to take your call. You can also find out more information on how we can help you sell your home here.