The Budget delivered by Rachel Reeves on 30 October 2024 was one of the most anticipated of recent times. Whilst significant fiscal changes affecting the property market were unlikely, there was an expectation that there would be an increase in the stamp duty land tax (“SDLT“) surcharge for non-UK residents and that the temporary SDLT reliefs introduced in 2022 to incentivise first-time buyers would be made permanent. Neither of these measures featured at all.
SDLT rates
With the policy objective being to disincentivise the acquisition of second homes and buy-to-let properties, thereby freeing up housing stock for main and first-time home buyers, the Chancellor announced:
- an increase from 3% to 5% in the higher rate of SDLT payable on the purchase of additional properties by individuals (“the additional dwellings surcharge”) and on purchases of residential properties made by companies and other “non-natural persons”; and
- an increase from 15% to 17% in the higher rate of SDLT payable by companies and other “non-natural persons” purchasing qualifying residential property not used for commercial purposes.
The new SDLT rates took effect for purchases on or after 31 October 2024. In respect of purchases already in motion as at this date: where contracts have been exchanged before 31 October 2024 but complete on or after this, the pre-Budget rate of 3% will apply instead of the new rate of 5%.
The Chancellor suggested that these SDLT increases would support 130,000 additional transactions from people buying their first home, or moving home over the next five years.
The temporary concessions for first-time buyers will not be continued when they expire on 31 March 2025, meaning that the applicable SDLT rates from 1 April 2025 will be as follows.
- SDLT nil-rate threshold – will return to the previous level of £125,000 (currently £250,000).
- SDLT nil-rate threshold for first-time buyers – will return to the previous level of £300,000 (currently £425,000) for purchases of properties up to £500,000 (currently £625,000).
These reductions in the nil-rate thresholds leave a relatively small window of time in which buyers (first-time buyers in particular) can benefit from the current more generous thresholds.
SDLT impact on landlords and investors
As well as first-time buyers, landlords and investors will be affected by the SDLT changes. The 5% additional dwellings surcharge will increase upfront costs for landlords and investors. This could impact rental property availability in the longer term as higher costs could deter new buy-to-let investors. A shortage in supply of rental property will drive up rents. Together with the Renters’ Rights Bill, the changes made to the SDLT regime in the Budget may cause unintended consequences for the UK private rental sector.
Capital gains tax
In terms of disposals of second homes and buy-to-let properties, the capital gains tax (“CGT“) rates remain unchanged at 18% for basic rate taxpayers and 24% for higher rate and additional rate taxpayers. A disposal of an individual’s main home remains exempt from CGT under private residence relief.
Despite widespread predictions, the Chancellor did not remove the “CGT free uplift” on death, the effect of which is that any gain on assets at death is effectively wiped out. Therefore, individuals who do not wish to sell or give away their second home during lifetime, can pass the property to beneficiaries of their estate with an uplifted base cost for CGT purposes. Executors have an annual CGT allowance of £3,000 in the year of death and the following two tax years which can be used if the property is to be sold after death. Having said this, a second home which is retained until death, will likely form part of the individual’s taxable estate for inheritance tax (“IHT“) purposes and be subject to IHT at a rate of 40%, meaning IHT planning during lifetime can be advisable.
IHT planning for second homes
If an individual wishes to reduce their IHT exposure on a second home, they could consider gifting a proportion of their second home during lifetime, for example, to split ownership between family members who may use the property. Provided the donor survives the gift by seven years, the gift will fall outside of their estate for IHT purposes. Gifts trigger CGT in the same way as a sale, so the gain (if any) would need to be calculated and factored into the planning.
Steps also need to be taken by the donor to ensure the gift does not fall under the “gift with reservation of benefit” rules for IHT. These rules bite on death where the donor continues to retain a “benefit” in the property, with the result that the value of the gifted property can be subject to IHT on death as if the donor still owned it. As a result, the donor should take steps to ensure that no disproportionate “benefit” is retained; for example, ensuring that outgoings and expenses on the property are shared and the donor pays rent at full market rate if they are occupying the property exclusively. This is a complicated area of law and detailed advice is needed to ensure the gift achieves the IHT effect intended.
You can read our Autumn Budget analysis across the main areas affecting UK private clients in the following articles.
- Autumn Budget 2024: inheritance tax and capital gains tax planning points
- Autumn Budget 2024: school fees and education trusts
- Ask the Expert: How will the proposed inheritance tax reforms affect farmers?
This publication is for general information only and does not seek to give legal advice or to be an exhaustive statement of the law. Specific advice should always be sought for individual cases.
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