The headline news for landlords from Rachel Reeves’ first budget as Chancellor, is that the initial cost of buying a property to let has gone up, with a two per cent increase to the purchase tax (stamp duty land tax) applied to additional properties.
However, existing landlords who aren’t looking to expand their portfolio will be relieved that there were no other tax hikes for property investors, unless you are running a business that would attract higher rates of National Insurance.
With the economy currently stable and inflation back down at its long-term target of two per cent, mortgage interest rates should continue to drop. Meanwhile, average rents are rising at above the rate of inflation, and the 6.7% overall increase to the minimum wage that will take effect from next April will support affordability for many tenants on lower incomes.
That means landlords who are able to keep their ongoing maintenance and business costs under control may actually see their profits rise – particularly as income tax, employee national insurance and VAT remain unchanged.
The Chancellor also said that there would be further investment in transport and infrastructure, and that £3 billion of additional support will be provided to SMEs and the Build to Rent sector “by expanding existing housing guarantee schemes to support a strong and diverse private housing market”. She also confirmed that Labour is committed to “turbocharging the delivery of 1.5 million homes” over their first five years in government, and announced a new housing package that will include an additional £500 million for the Affordable Homes Programme.
This investment in the supply of housing, which totals over £5 billion, will hopefully ease some of the pressure on the private rented sector, which is currently accommodating over a million households that are likely to be eligible for social homes as they are on benefits.
The higher rate surcharge that landlords and second-home owners pay has risen from three per cent to five per cent, as of midnight on 30 October, unless contracts have already been agreed.
The Government says that it is making this change to give first-time buyers and people looking to move home an advantage over those buying second homes and investments. However, given the serious undersupply of social housing and shortage of rental accommodation in general, disincentivising those who are willing to provide rented homes in the private sector seems unwise.
“We continue to see a growing disparity in the number of private rented homes available against a backdrop of increasing demand from tenants. Therefore, it is disappointing to see that the UK Government did not address this fundamental issue in its Autumn Budget and instead has announced yet another blow for landlords by increasing Stamp Duty on second homes.
The private rented sector plays a crucial role in housing the nation with over 4.6 million homes in England alone, therefore it is imperative that the UK Government does not continue to push landlords out of the market.”
- Angharad Truman, ARLA Propertymark President
From April 2025, the minimum hourly rate will increase from £11.44 to £12.20 for over-21s, and from £8.10 to £10 for 18 to 21-year-olds.
And the weekly earnings limit for carers will be increased to the equivalent of 16 hours a week at the national living wage. That means they will be able to earn over £10,000 while receiving Carer’s Allowance – worth an additional £45 a week.
While the rise in the minimum wage and Carer’s Allowance should help those at the lower end of the earnings spectrum afford their housing costs, the Government has confirmed that housing benefit payments will be frozen next year, for at least another year.
According to the Joseph Rowntree Foundation, this means private tenants receiving housing benefits will be £243 a year worse off on average, meaning their landlords may struggle to raise rents in line with inflation.
The result is likely to be that fewer private landlords will want to let to tenants on benefits, especially because the Renters’ Rights Bill makes it harder for landlords to remove tenants in rent arrears. While landlords cannot discriminate against tenants simply because they are receiving benefits, if tenants are unable to pass affordability checks as rents continue to rise, councils could be faced with the huge cost of providing these tenants with temporary accommodation.
As was anticipated, National Insurance contributions for employers will go up from next April, from 13.8% to 15%. What was not expected was that, at the same time, the threshold to pay National Insurance will be reduced, from £9,100 to £5,000.
Although this will certainly hit some businesses hard and mean fewer staff being hired - and even some being let go – the move was aimed primarily at larger companies. To support smaller companies, the Employment Allowance will be increased from £5,000 to £10,500, and the £100,000 eligibility threshold will be removed so that all eligible employers benefit.
According to the Government, these changes mean that “more than half of employers with NIC liabilities will either see no change or will gain overall next year.”
While many investors were worried about a rise in capital gains tax for property, there has been no change and it remains at 18% for lower-rate taxpayers and 24% for those in the higher-rate bracket.
However, the rates have risen for other capital gains:
As with stamp duty, these changes took effect immediately, from 30 October 2024.
The Government has made two significant changes to inheritance tax:
While the 100% relief will continue for the first £1m of the value of these assets, it will drop to 50% over £1m, giving an effective inheritance tax rate of 20%. The Country Land and Business Association estimates that this could harm 70,000 UK farms, “damaging family businesses and destabilising food security."
(source: https://www.bbc.co.uk/news/articles/c8rlk0d2vk2o )
Together, these tax changes are predicted to raise £2 billion to support public services.
It was also announced that the current inheritance tax threshold of £325,000, with an additional £175,000 allowance for a residential home that is inherited by direct descendants, will remain unchanged until April 2030.
Undoubtedly, the hike in the higher rate of stamp duty land lax for additional properties means an increase in purchase costs for landlords. And because the change becomes effective overnight (from midnight on 30 October 2024), landlords with a purchase already underway, but not under contract, will have had to re-evaluate their investment and make sure they will have the extra funds ready for payment to HMRC within 14 days of completion.
If you had bought an investment property for £300,000 up to 30 October, the SDLT calculation would have been:
The first £250,000 x three per cent £7,500
The next £50,000 x eight per cent £4,000
Total tax due: £11,500
Buying between 31 October 2024 and 31 March 2025, it will be:
The first £250,000 x five per cent £12,500
The next £50,000 x ten per cent £5,000
Total tax due: £17,500
(versus £2,500 if it were your own home, or zero for first time buyers)
So, the purchase cost for a property worth £300,000 has increased by £6,000.
And from 1 April 2025, the zero-rate threshold is dropping back to £125,000, with a two per cent ‘standard’ tax applied to the portion from £125,001 to £250,000. The total tax for an additional property in this band will therefore be seven per cent, and the tax for a £300,000 investment will rise from £17,500 to £20,000.
See the government website for full details on SDLT rates.
“A landlord buying a residential property to let for £500,000 faces a SDLT bill of £37,500, a huge amount to pay and a discouragement to invest. This, coupled with fears that exist because of the imposition of more stringent letting and eviction rules, through the imminent Renters’ Rights Bill, means there is likely to be no let-up in the severe shortage of rental properties.”
- Tom Entwistle, founder of LandlordZONE
However, it’s important to keep this tax rise in perspective and consider the extra cost within the context of the rental market:
“Although this latest stamp duty hike was an unpleasant surprise, I don’t believe it will stop good, professional landlords from investing. An extra two per cent on the average buy to let property purchase price of around £265,000 is just £5,300. With the average UK rent currently at £1,245 a month and house price growth delivering decent capital returns for landlords over time, this extra purchase cost really shouldn’t get in the way of making a profitable long-term investment.”
- Steve Barnes, Head of Broking at Total Landlord
In light of these tax changes and the Government’s commitment to cracking down on tax evasion and avoidance – which they estimate could bring in an additional £6.5 billion a year - it is vital for landlords to take specialist property tax and estate planning advice from experts. They can help make sure you don’t fall foul of the rules, while mitigating your tax liability so that you don’t pay any more tax than necessary.
And given that the Renters’ Rights Bill looks likely to be passed in spring 2025, it is highly advisable to work with a professional letting agent that can help you make the transition to the new rules, to make sure that your rental property assets are always let and managed legally.
Another important part of protecting your property assets and finances is having the right landlord insurance that covers you not only for damage to the property, but also for a range of other eventualities, including:
You can easily get a quote online, or contact the Total Landlord insurance team directly by
calling 0800 634 3880 or emailing enquiries@totallandlordinsurance.co.uk
