2024 Autumn Budget Summary for Landlords

Oct 31, 2024

On 30^th October 2024, Chancellor Rachel Reeves delivered the first budget under the new Labour Government, bringing in several new measures that will directly affect landlords. The biggest of these was the increase to the SDLT surcharge on second homes from 3% to 5%. Widely feared changes to capital gains tax on second properties did not materialise. Similarly, there were no changes to Inheritance tax rates which will come as a relief to many landlords.

The increase in the SDLT surcharge will undoubtedly have an affect on the BTL market. We expect that many would be landlords may now be thinking twice, particularly on high value property purchases and from Non Residents.

A “new normal” will emerge where the accidental landlord or those looking to do a quick “flip” may find the figures just do not add up anymore. For the serious investor and those who are looking to invest for the long term, see property as part of proving additional income in retirement and who wish to leave this property wealth to the next generation, we expect will continue to invest.

Here is a summary of the key changes of the budget summary for landlords to be aware of.

Stamp Duty Land Tax

The UK government has announced a significant increase in the Higher Rates for Additional Dwellings in Stamp Duty Land Tax (SDLT). Starting from 31^st October 2024, landlords, property investors, and companies purchasing residential properties—such as second homes or buy-to-let properties—will face an increased SDLT rate from 3% to 5% on the full purchase.

The increase means that for properties purchased between 31^st October 2024 and 31^st March 2025, SDLT will be significantly higher. For instance, a landlord buying a rental property for £200,000 will be liable to an SDLT charge of £10,000, an increase of £4,000 from the previous rate. This change underscores the government’s intent to balance the housing market, potentially affecting the profitability of buy-to-let investments.

In addition to the increase in SDLT rates, former Chancellor Jeremy Hunt previously set an end date of 31^st March 2025 for the temporary increase in the residential nil-rate threshold from £125,000 to £250,000. In her recent budget, Rachel Reeves did not extend this threshold increase, which means that a property purchased for £200,000 after 1^st April 2025 will incur an SDLT cost of £11,500.

To account for transactions already underway, the government has implemented a transitional rule: if a contract was exchanged before 31^st October 2024 but completion occurs on or after this date, the previous additional rate of 3% will still apply instead of the new 5%. This allows some landlords and property investors to avoid the increased rate if their transactions were already in progress before the change took effect.

Non-UK residents purchasing residential properties in the UK should note that the 2% surcharge still applies in addition to the new SDLT rates. The effective surcharge for Non resident is therefore now 7%. This can only dampen demand from international investors.

What we are now seeing is a noticeable tax premium charge on BTL landlords that will reduce the number of properties being purchased. In particular, the effect will be felt most acutely on higher value properties, so areas such as London and the South East may see a decline in BTL activity. The impact on rents can only therefore go one way – up.

Inheritance Tax

The IHT nil-rate band will stay at £325,000 until April 2030. This means that estates valued below this threshold will remain free of IHT, while those exceeding it may incur a tax charge on the excess.

Starting in April 2027, inherited pensions will be subject to IHT, adding a new consideration for estate planning. Previously exempt, these pensions will now be factored into the taxable estate of the deceased. Could this lead to a spending spree by the pensioner population or a gifting away of pensions pots? The use of a Family Investment Company may therefore present a more attractive way to pass on wealth, particularly property wealth.

The government will reform agricultural property relief and business property relief from April 2026. The highest rate of relief (100%) will apply to the first £1 million of combined business and agricultural assets. Any remaining value beyond this £1 million limit will see the relief rate reduced to 50%. This tiered approach may impact those with large holdings, so proactive planning is advised.

Offshore trusts, previously a way to protect assets from IHT, will no longer be exempt under new rules. Transitional provisions will be in place for those who have structured their assets based on current regulations, allowing some flexibility as the changes take effect.

Capital Gains Tax

On 31^st October 2024, Capital Gains Tax (CGT) rates will rise from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher rate taxpayers. This aligns CGT rates with existing rates for property sales, which remain unchanged at 18% for basic and 24% for higher rate taxpayers on additional property.

Currently set at 10%, the Business Asset Disposal Relief (BADR) for CGT will increase to 14% from 6^thApril 2025 and then to 18% from 6^th April 2026. BADR offers beneficial rates for landlords selling qualifying business assets but most landlord limited companies are classed as investments so there is limited scope to claim BADR.

Non-dom Regime

The current non-domicile regime will be replaced by a new residence-based regime beginning in April 2025. Initially, a 50% reduction was planned for UK residents who receive foreign income in the first year of the new regime, but this will no longer be applied, meaning all foreign income will be fully taxable from the outset under the new rules.

For Capital Gains Tax purposes, current and past remittance basis users will be able to rebase personally held foreign assets to 5^th April 2017 on a disposal where certain conditions are met.

Other Measures

The government will increase the late payment interest rate charged by HMRC on unpaid tax liabilities by 1.5 percentage points. This measure will take effect from 6^th April 2025.

Starting from April 2025, employers’ NICs on earnings above £175 per week will increase from 13.8% to 15%. Additionally, the threshold at which employers start paying NICs for each employee will be lowered from £9,100 annually to £5,000. This change could affect payroll costs, particularly for small businesses.

To support employers, the employment allowance—relief that helps businesses reduce their NICs bill—will increase from £5,000 to £10,500. This higher allowance may offset some of the increased NIC costs, offering relief for eligible employers.

The government is committed to delivering Making Tax Digital (MTD) for Income Tax Self-Assessment. The government will expand the rollout of MTD to those with incomes over £20,000 by the end of this Parliament, will set out the precise timing for this at a future fiscal event.

The CGT rate on carried interest—a form of compensation often used in investment funds—will rise to 32% under reformed tax treatment. By April 2026, a revised regime will govern carried interest taxation, affecting fund managers and other professionals in finance.

Summary

As a result of these changes, landlords and property investors should consider how these changes impact their buying strategies and seek professional advice if needed to navigate this new landscape effectively.

If you would like to find out more on how we can help you with the budget changes then get in touch with us on 01902 711370 or via email enquiries@uklandlordtax.co.uk.