The general mood among property investors since the UK Budget on 30 October has been: not great, but could have been worse.
The headline change was the stamp duty surcharge for second home owners going up from 3% to 5% straight away. For those investors with deals just about to complete, it would have been a massive kick in the teeth. Elsewhere, there were capital gains tax adjustments to consider, plus a hefty switch in inheritance tax rules. Read on for further details about the key points.
Capital gains tax (CGT) adjustments
One of the more immediate shifts is the increase in the main rates of CGT to 18% and 24%, up from their previous levels. This change means that property investors may face higher tax bills when selling property, potentially altering their investment strategies. While relief rates for business asset disposals remain at 10% for the current year, they will rise to 14% in April 2025 and align with the main lower CGT rate from April 2026. Investors aiming to sell their properties should consider these timelines to minimise tax exposure.
Stamp duty land tax for second home owners
There would have been audible gasps from property investors when the Chancellor, Rachel Reeves, announced this change would be effective 'from tomorrow'. The rate, which was previously 3% on top of the standard rate, is now 5%. This move is likely to dampen enthusiasm for additional property purchases and may shift demand within the housing market. Second home buyers will now need to factor in this higher upfront cost, potentially impacting the decision to invest in rental or holiday properties.
Reform of tax reliefs
Significant reforms to agricultural property relief and business property relief will take effect from April 2026. These reforms introduce a tiered relief system, offering 100% relief for the first £1 million of combined assets but decreasing to 50% relief for anything above that threshold. Unlisted shares will also be affected, with reliefs reduced to 50%. This change may necessitate a strategic re-evaluation for property investors, especially those leveraging these reliefs in their estate planning.
Inheritance tax (IHT) updates
The Budget also announced future changes to IHT rules. From April 2027, unspent pension funds will be counted as part of an individual’s estate for IHT purposes. This change will particularly affect those who rely on a combination of property and pension planning for long-term wealth transfer and retirement.
Impact on holiday let owners
There wasn't a huge amount to worry about in this budget as the damage had already been done with the abolishment of the furnished holiday lettings tax regime. We await to see if the government will announce any concessions following the consultation period, which ended in September.
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