With Prime Minister Keir Starmer warning this Budget would be a tough one, the government’s first Budget has been highly anticipated. In this article, we’ll break down what the Budget means for homeowners, potential movers, and the property market at large, focusing on specific changes and what these could mean for your finances.
The Chancellor of the Exchequer, Rachel Reeves, announced that inflation is expected to rise slightly above 2% over the coming years, with economic growth projected at a modest 1-2% annually. She also noted the need to address the infamous £22bn “black hole” through tax rises of around £40bn.
While the Budget addresses economic stability, growth, and aims to “put more pounds in people’s pockets,” some key announcements will directly impact those in the property market. Here’s a look at some of the primary property-related changes:
Capital Gains Tax
Capital Gains Tax (CGT) is payable when you sell an asset such as a property or business and make a profit. Capital Gains Tax on property is often more favourable than Income Tax, especially for higher-rate taxpayers. It’s been anticipated for months that CGT rates would be increased, and this was confirmed in the Budget. The basic CGT rate has now increased from 10% to 18%, while the higher rate has risen from 20% to 24%. These changes apply immediately.
Fortunately for those selling residential property, the rates remain at 18% for basic taxpayers and 24% for higher-rate taxpayers, meaning landlords, second-home, and holiday homeowners can breathe a sigh of relief. It’s also important to note that CGT is not payable when selling your primary residence.
Inheritance Tax
Inheritance Tax (IHT) concerns those looking to leave property and other assets to their heirs. Despite speculation that IHT would be altered, residential property remains unaffected for now. Inheritance Tax planning for property owners remains at 40% on sums over £325,000. Assets passed to spouses or civil partners remain exempt, and a higher threshold still applies for assets passed to children.
Some minor changes were made in the Budget for IHT on inherited pensions and agricultural land, but the general IHT structure remains steady for property owners.
Stamp Duty
Stamp Duty Land Tax (SDLT) applies when buying property. Recent Budgets have seen various adjustments to SDLT, but this time around, the Chancellor kept most of the rates unchanged. However, there is a notable increase in the higher rate of Stamp Duty for second homes, holiday homes, and buy-to-let properties. The additional SDLT rate on these has risen from 3% to 5%.
The current Stamp Duty threshold is temporarily set to £250,000 for most buyers and £425,000 for first-time buyers. This concession, however, is due to end in spring 2025. Calls to extend this threshold were not addressed in the Budget, and so it’s advisable for prospective buyers to plan accordingly.
In Scotland and Wales, property market tax rules like SDLT are determined by local governments and are unaffected by this Budget.
Other Announcements That Could Impact the Property Market
While these changes don’t directly alter the property market, they might indirectly impact it over time. The government has upheld its pledge not to increase Income Tax, National Insurance (NI), or VAT for working people, though employer NI contributions have been raised. Additionally, personal income tax thresholds are set to rise with inflation after a period of freezing, but not until two years from now.
There were also adjustments to the Right to Buy scheme for council houses, and an additional £500m has been pledged to the Affordable Homes Programme. While these don’t directly affect private homeowners, they could play a role in the overall property market.
Final Thoughts
For some, this Budget may have felt anticlimactic, with many expected changes either previously announced or turning out to be mere rumours. However, the Budget does lay out a steady plan, keeping the property market relatively stable.
If you’re curious about what the Budget will mean for your home’s value or any future moving plans, consider consulting with an experienced estate agent and a financial adviser to help you navigate the changes confidently.
Please feel free to share this article with friends or colleagues who might benefit from these insights.
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