What Does the Budget Mean for the Property Market?
The UK Autumn Budget has introduced substantial shifts in the property market landscape. Effective immediately, the stamp duty on second homes is raised to 5%, while relief for first-time buyers and home movers continues until April 2025. Additionally, the Budget has increased Capital Gains Tax and allocated significant funding for affordable housing projects. Here’s a look at how these changes could impact the housing market.
Key Points
- Second Home Stamp Duty Increased: Now set at 5%, raising the cost for buyers of additional properties.
- Maintained Relief for First-Time Buyers and Home Movers: Higher SDLT thresholds are preserved until April 2025, after which reductions are expected.
- Capital Gains Tax Hike: Rates are increased, particularly affecting investment properties.
- £500 Million Commitment to Affordable Housing: Funds are directed toward building thousands of new homes.
In Labour’s first budget in 14 years, Chancellor Rachel Reeves underscored the challenging economic backdrop inherited from the Conservative administration, describing it as a “dire” situation that necessitated difficult choices to restore stability to the UK’s economy.
With taxes raised by £40 billion—on the upper end of economists’ forecasts—the bulk of the revenue will come from employer National Insurance contributions, expected to contribute £25 billion. Additional revenue will be drawn from the increase in Capital Gains Tax, closing inheritance tax loopholes, and higher SDLT on second homes, cumulatively generating an estimated £9 billion.
How Does This Affect the Housing Market?
- Stamp Duty on Second Homes Raised from 3% to 5%
Starting tomorrow, anyone purchasing a second home will incur an additional 2% in stamp duty on the property’s total value. Currently, the SDLT surcharge on second homes is 3%, meaning an additional 3% tax on the entire property price above standard SDLT. This is set to rise to 5%, creating new tax bands:
- £0 – £250,000: 5% stamp duty
- £250,000 – £925,000: 10% stamp duty
- £925,000 – £1.5 million: 15% stamp duty
- Above £1.5 million: 17% stamp duty
Chancellor Reeves emphasized this increase as a measure to help first-time buyers and those relocating, with the higher SDLT threshold sustained until April 2025.
- SDLT Thresholds for First-Time Buyers and Home Movers
First-time buyers will benefit from an extended SDLT threshold of £425,000 until April 2025, sparing them stamp duty costs below this threshold. For properties priced between £425,000 and £625,000, first-time buyers will face a 5% SDLT rate on the exceeding amount, while normal rates apply for properties above £625,000. Post-April 2025, the threshold will drop to £300,000, with a 5% tax on the £300,000 to £500,000 range.
For home movers, the SDLT threshold of £250,000 is preserved until April 2025. However, buyers will pay 5% on the amount up to £925,000, 10% up to £1.5 million, and 12% beyond that. After April 2025, this threshold will fall to £125,000, with a 2% stamp duty on the £125,000 to £250,000 bracket.
For a detailed overview, see our [Stamp Duty Calculator].
- Capital Gains Tax (CGT) Thresholds Raised
CGT rates on property sales have risen, with lower-rate taxpayers (annual income under £50,270) now paying 18%, up from 10%, and higher-rate taxpayers (earning over £50,270) paying 24%, previously 20%. For example, selling a home bought at £500,000 for £600,000 would now incur:
- £18,000 CGT for lower-rate taxpayers (formerly £10,000)
- £24,000 CGT for higher-rate taxpayers (formerly £20,000)
While Reeves noted this keeps the UK’s CGT rates the lowest among G7 European economies, the change may unsettle property investors, already impacted by tightened regulations and rising mortgage rates. The Executive Director of Research, Richard Donnell, highlights a trend of rental property sell-offs since 2016’s tax changes, leading to reduced rental supply and rising rental costs due to heightened demand.
- Inheritance Tax for Property Remains Unchanged Until 2030
Current IHT rules allow up to £325,000 of property to be inherited tax-free, with higher allowances of £500,000 for direct descendants and £1 million if passed to a spouse before descendants. This structure will remain in place until 2030, providing estate planning stability.
- £500 Million Investment in Affordable Housing
The Budget dedicates £500 million to affordable housing, part of a £5 billion initiative to construct 33,000 homes, with locations including Liverpool Docks (2,000 homes) and Cambridge, to foster growth. The government aims to increase affordable housing supply by reducing Right to Buy discounts, enabling councils to retain sales proceeds for reinvestment. Donnell noted that the long-term focus on housing supply is essential for market stability, though it requires a multipronged strategy beyond funding boosts.
- £1 Billion for Cladding Removal
Following the Grenfell tragedy, £1 billion will fund the removal of hazardous cladding from high-rise buildings next year, addressing ongoing safety concerns.
This Budget focuses on rebalancing the housing market by increasing entry-level buyer accessibility, stabilizing the rental market, and incentivizing affordable housing development. These adjustments could lead to long-term benefits for affordability, though they might temper property investment growth and rental supply in the near term.