Unpacking Labour’s Autumn Budget: Landlords’ Key Takeaways
Gavin Richardson, Managing Director at Mortgage Finance Brokers (MFB), runs through the key announcements from the Budget and discusses how they will impact your property investments.
On Wednesday, 30th, October 30th, Rachel Reeves delivered her first Budget Statement, the biggest tax-raising budget since 1993.
The key change that property investors will be talking about is the surprise increase to the Stamp Duty Land Tax surcharge.
Stamp Duty Land Tax (SDLT) Surcharge Increases to 5%
With most of the rumours circulating about possible increases to Capital Gains Tax (CGT), the announcement that the SDLT surcharge on second homes and investment property would increase to 5% has shaken the market.
The increase from 3% to 5% came into effect the next day, Thursday 31st October, giving landlords and property investors no time to act. The industry is already discussing the possibility that many purchase transactions will now fall through in light of the added costs. This increase further disincentivises landlords who are already mitigating tougher legislation.
The Stamp Duty changes didn't end there. Although not announced by Reeves, she failed to include any extension to the temporary thresholds set by the previous government. This means that, from the 31st March 2025, the 0% threshold will reduce back to £125,000 from its current £250,000, adding an average £2,500 to buyers' Stamp Duty bills.
Furthermore, the 0% threshold for first-time buyers (FTBs) will also be reduced from £425,000 to £300,000, adding £6,520 to the FTB tax bill. The consequence? Many FTBs will need to remain in rental property for longer while they save, increasing the already high demand on the PRS.
Other Key Measures
Amongst the other £40 billion of tax rises were more key announcements for the property market. These include:
- The CGT increase on shares and other assets
The rates of CGT for shares and other assets will increase from 10% to 18% for lower-rate taxpayers, and 20% to 24% for higher-rate payers. This is said to raise an additional £2.5bn to fund public services.
Positively, the current CGT rates on residential property will stay the same.
- Bringing pensions into inheritance tax
To close the "loophole" put in place by the Conservatives, Reeves announced changes which will bring inherited pensions into inheritance tax from 2027. The current £350,000 inheritance tax threshold freeze has also been extended for another two years until 2030.
- Measures to keep taxes down for "working people"
To keep taxes down for "working people", Reeves won't extend the freeze on Income Tax thresholds from 2028. These will rise again in line with inflation, preventing a fiscal drag of more people paying tax, and at a higher rate.
Other measures include no increase to Income Tax, employee National Insurance (NI), or VAT.
- A 1.2% increase on employer's national insurance contributions
With taxes down for the "working people", businesses will be left to cover the shortfall. Reeves announced that from April 2025, not only will employer's NI contributions will rise by 1.2% to 15%, but the threshold at which employers start making contributions will decrease from £9,100 to £5,000.
To protect small businesses, the Employment Allowance will increase from £5,000 to £10,500, meaning 865,000 employers won't pay any national insurance next year.
- Changes to business rates
Labour will reduce the temporary 75% relief on business rates, due to expire in April 2025, down to 40%. This should hopefully soften the blow slightly for retail, hospitality, and leisure businesses. This relief is capped at £110,000 per business until 2026.
Closing thoughts
Whilst there's no doubt that the Stamp Duty announcement is a real blow to landlords, I want to focus on how we can navigate this change moving forwards. In reality, if landlords or potential landlords are put off from purchasing, the shortfall of properties will only increase and consequently, so will demand. Rents will rise even higher which will help mitigate the higher initial cost of purchasing.
Reeves also failed to extend the temporary Stamp Duty thresholds, which will leave many first-time buyers unable to save enough to get onto the property ladder and achieve the coveted homeowner status. Again, this will drive up demand for rental properties.
Finally, over the next year as the Base Rate reduces (albeit perhaps not as much as we'd have to liked), mortgage rates will also start to come down, allowing landlords to access more competitive rate pricing.
So, there's strong demand, cheaper rates and increasing rents to compensate for this initial extra 2% cost on a property purchase. I'm not denying that this announcement is a kick in the teeth for the sector, but property investors have always been resilient and adept at navigating these hurdles - it was only 8 years ago the initial 3% surcharge was introduced. However, it's more important than ever to work with an expert broker like MFB to secure the best deal and ensure all your properties are maximising their potential both in terms of income generation and cost saving.
Additional Resources
Read our full coverage of Labour's Budget here
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Mortgage Finance Brokers (MFB) is a mortgage broker specialising in buy to let finance, homebuyer and commercial mortgages, and short-term finance. Registered office 17 Kings Hill Avenue, Kings Hill, West Malling, ME19 4UA. Company registered in England and Wales No. 2502713. Mortgage Finance Brokers Limited is authorised and regulated by the Financial Conduct Authority (313537) to transact regulated mortgages.