The first Budget of this Labour government has been announced, introducing several significant changes set to change the financial landscape across the UK. For Landlords, there are some key changes set to impact the way that properties are bought, sold and let. While the government has refrained from making any drastic alterations to the taxation of rental properties, subtle tweaks and policy shifts could still have notable consequences and effects on the private rental sector. To help you understand what the budget means and how it may affect you, we’ve put together this guide to get you started.
Capital Gains Tax: No Immediate Changes
In the run-up to the budget, there was a lot of talk and speculation surrounding changes to Capital Gains Tax (CGT) rates with some suspected policy updates potentially making big changes for those looking to sell property. However, this speculation seems to have fallen flat, as the Autumn Budget had brought no immediate changes. For Landlords, this means no relief from current tax rates, but a relief that those rates aren’t going to increase in the near future as was initially suspected.
The rates remain unchanged, meaning landlords will need to continue to pay the same tax amounts on any profit made when selling properties. It is worth noting that the government have expressed an intention and an interest in changing the CGT rates in the future, with any potential changes set to change the buying and selling market considerably, so watch this space!
Stamp Duty Land Tax: A Higher Hurdle
Stamp Duty Land Tax (SDLT) is perhaps one of the most immediate and significant changes within the Budget set to affect Landlords. The Budget announces a higher rate surcharge for SDLT on additional residential properties, including buy-to-let properties. The changes include a rise of 3% to the new additional stamp duty rate of 5% for properties up to £250,000, from 8% to 10% for properties between £250,001 to £925,000, 13% to 15% for properties between £925,001 to £1.5million, and 15% to 18% on properties above £1.5million.
This change is likely to dampen investment in the buy-to-let sector. As the cost of entry increases, some landlords may reconsider their expansion plans or opt to sell existing properties. This could lead to a reduction in the supply of rental properties, which, in turn, could drive up rental prices for tenants or make for a more difficult market to navigate.
Inheritance Tax: A Stealth Tax
Also announced within the Autumn budget was a freeze of the Inheritance Tax (IHT) nil-rate band thresholds. This means that the first £325,000 of any estate can be tax-free, with that total rising to £500,000 if the estate includes a residence that is passed to direct descendants. If the tax-free allowance is passed to a surviving spouse or civil partner, this rises to £1 million.
As inflation affects the value of money, more and more estates will fall within the scope of IHT. For landlords who own properties with significant value, this could result in a larger tax bill for their heirs. While IHT primarily affects long-term estate planning, landlords need to be aware of the implications and consider strategies to mitigate the tax burden, such as gifting assets or using trusts.
The Broader Impact on the Rental Market
The combined effect of these changes could have a significant impact on the UK’s rental market. A reduction in the supply of rental properties, coupled with increased costs for landlords, could lead to higher rental prices or a more competitive market that is more difficult to navigate. Tenants may face increased financial pressure as landlords seek to recoup higher costs.
The changes could also influence the type of properties landlords invest in or the properties available to be purchased in the first place. With higher upfront costs, landlords may be more inclined to purchase more expensive properties as a more effective investment, potentially reducing the availability of affordable rental housing.
Navigating the Changing Landscape
In order to approach the changing landscape, landlords should stay informed about the evolving tax landscape and make sure they are financially protected and prepared. Key considerations include:
- Tax Efficiency: Implementing tax-efficient strategies, such as utilising tax-deductible expenses and capital allowances.
- Diversification: Spreading investments across different property types and locations to mitigate risk.
- Long-Term Planning: Developing a long-term investment strategy that aligns with personal financial goals.
- Insurance – Making sure that you are properly insured will keep you protected financially from unexpected events. Property damage or tenants missing their rent payments in the coming months could affect your stability, which is where Landlord’s insurance comes in. The financial protection is a must.
By understanding the implications of the Budget 2024 and taking proactive steps, landlords can navigate the changing landscape and protect their investments.
Ashburnham Insurance is on hand to help you find the right insurance policy to support you in the coming months. For more information, simply get in touch with a member of our team on 0800 1696137.