What the Budget Means for the Lettings Market
Now the dust has settled on the Budget, let's look at what it might mean for landlords and buy-to-let investors.
The overall themes behind the Budget, according to Chancellor Rachel Reeves, were economic stability and growth, investment, and putting more money in our pockets. But there were also £40bn of tax rises to fill the infamous £22bn black hole Labour says it's inherited.
Key Changes That Might Affect Landlords
Stamp Duty Increase for Additional Properties
The big story here was the increase in the higher rate of Stamp Duty Land Tax (or SDLT), which applies when buying additional properties in England. It was raised from 3% above the standard rate to 5% above, with immediate effect.
It means, for example, that while a first-time buyer will pay zero SDLT on a £250,000 property, a landlord will pay £12,500.
Plus, what many people might have forgotten is that Stamp Duty will rise again next year. A temporary increase of £125,000 in the SDLT threshold currently means it only kicks in at £250,000 (£425,000 for first-time buyers), but this break comes to an end in April 2025.
Many will see this as a shot across the bows of buy-to-let landlords, second, and holiday home owners.
Capital Gains Tax Unchanged for Residential Property
Landlords, second and holiday home owners will probably be breathing a small sigh of relief… for now, at least.
The steep rises in CGT from 10% to 18% on the basic rate and 20% to 24% on the higher rate don't affect residential property in practice. That is already at those rates and residential rates weren't increased to maintain the differential.
Does this mean landlords should hold on to their rental properties or take this window to sell? This is a decision only you can make, but seeking advice from estate and letting agents is a good starting point.
Inheritance Tax Unchanged… but
Rumoured increases to IHT rates didn't happen. The Budget left the Inheritance Tax system pretty much unchanged for now as regards residential property. The IHT threshold will remain at £325,000 for at least two more years.
While it's difficult to predict future changes, landlords considering estate planning should seek advice from financial advisers sooner rather than later.
Final Thoughts
It could be said that the Budget wasn't quite as bad as it might have been for landlords. Steep rises to CGT on residential property and IHT didn't materialise.
There were even a few positives: no rises to Income Tax, VAT and National Insurance (at least for employees), no changes to the Council Tax system, and an above-inflation increase to the minimum wage. Fuel duty has been frozen, and inflation is forecast to sit at around 2% for the next few years.
These changes could help tenants with the cost of living and, in turn, benefit landlords indirectly.
For advice on how to let your property going forward, don't hesitate to contact our lettings team.
Do you have any friends or colleagues who might find this article helpful? Please feel free to share it with them.
Frequently Asked Questions
1. How does the Stamp Duty increase affect landlords?
The higher rate of Stamp Duty for additional properties has increased from 3% to 5%. This means landlords will now pay more when purchasing additional buy-to-let or holiday properties.
2. Are there any changes to Capital Gains Tax for landlords?
No, the CGT rates for residential properties remain the same: 18% for the basic rate and 28% for the higher rate. However, this stability might not last, so landlords should consider their long-term strategy.
3. What do the Budget changes mean for tenants?
The freezing of fuel duty, a rise in the minimum wage, and lower inflation forecasts could ease the cost-of-living pressures for tenants, which may indirectly benefit landlords.
4. Should landlords sell their properties now?
This depends on individual circumstances. With no immediate changes to CGT on residential properties, some landlords might see this as a good time to hold onto their investments. Others might take the opportunity to sell before potential future tax increases.
5. Is Inheritance Tax likely to change soon?
While the IHT threshold remains at £325,000 for the next two years, there's no certainty about future changes. Landlords considering estate planning should seek professional financial advice now.
