The Budget delivered on 30th October, billed as a budget to lay the foundations for economic stability and growth, included a number of changes that impact housing:
Stamp Duty Land Tax (SDLT)
The stamp duty for second home purchases will rise from 3% to 5% meaning the stamp duty paid on a £200,000 buy-to-let (BTL) acquisition will increase from £6,000 to £10,000. This comes into effect on all contracts exchanged from 31st October 2024. Non-UK residents purchasing a second home in England are also subject to an additional 2% surcharge.
This is concerning for a letting market which is already lacking supply of property. Over the last few years, we have seen the number of new investors coming to the market fall, and although – with the right advice – it is still possible to invest successfully, this is likely to further discourage many landlords from expanding their portfolio.
SDLT Holiday Ending
In 2022’s mini-budget, the nil-rate threshold at which SDLT is charged was increased from £125,000 to £250,000. This is set to be reversed from 1st April 2025, bringing the stamp duty holiday to an end. Increasing tax for second properties could increase the availability of homes for first-time buyers, but from April 2025 those purchasers will also face stamp duty hikes with their exemption set to fall from £425,000 to £300,000, reducing their purchasing power.
According to Land Registry data, the average house price across Oxfordshire in August was £428,230, so the change in first-time buyer exemption will have a big impact. If this group is being kept in rented property due to these increases, it will further constrict supply of rental property.
VAT on School Fees
Private schools’ exemption from VAT will be removed from January 2025 and the 80% relief applied to private and independent schools on their business rates will be removed in April. The Labour Party manifesto stated this intention back in July, so this was not a surprise. As we stated at the time, we see this impacting the PRS by increasing demand for housing close to good state schools, which may result in premium rents being charged, or families downsizing to free up funds for schooling.
It is also likely to impact the sales market. According to recent Yopa research, the cost of homeownership differs widely depending on the Ofsted rating of the local school. Nationally, property costs an average of £359,000 near schools rated ‘outstanding’, £305,000 near ‘good’ schools, and £277,000 in postcodes where a school ‘requires improvement.
Capital Gains Tax and Second Homes
It had been heavily rumoured that capital gains tax on second homes was going to be increased in this Budget. However, The Chancellor confirmed that rates on the sale of second homes or BTL properties will remain at 18% for lower-rate taxpayers and 24% for higher-rate taxpayer.
Following this announcement, we expect fewer landlords to decide to sell their property, which will be a good thing in Oxfordshire. According to Hamptons research, landlords are instead setting up as limited companies to reduce their tax burden long-term. If you are considering setting up as a company landlord, speak to your Property Manager who can recommend an accountant.
Over the last few years, renters have faced less and less choice of rental property. The result has been increasing rents for tenants. Unfortunately, we do not see this Budget encouraging landlord investment to improve supply or easing pressure on rental demand.
Published 31st October 2024
Image credit: https://members.parliament.uk/member/4031/portrait
