Labour’s New Budget: What Landlords Need to Know
In Labour’s first Budget in 14 years, Chancellor Rachel Reeves laid out a plan she says addresses a £22 billion gap in public finances, setting the stage for significant tax increases. This budget is widely regarded as one of the largest tax-raising moves in recent history, with planned tax hikes totaling £40 billion. Here’s a breakdown of what these changes could mean for landlords.
Stamp Duty Changes Effective from October 31, 2024, landlords purchasing additional properties will face a stamp duty surcharge increase from three percent to five percent. For properties priced between £250,001 and £925,000, this means stamp duty will jump from eight to ten percent. This added surcharge, along with the scheduled reset of the stamp duty threshold to £125,000 in March 2025, significantly raises upfront costs for property investors.
Capital Gains Tax Remains Unchanged Despite earlier speculation, capital gains tax (CGT) rates for property sales will stay the same, remaining at 18% for basic-rate taxpayers and 24% for higher-rate taxpayers. Although some landlords hoped for more flexibility, this may provide a measure of stability for those considering selling.
Income Tax Threshold Freeze Ends While income tax thresholds were previously frozen until 2028, Reeves has announced they’ll begin increasing in line with inflation from 2028-29. This shift could result in lower tax burdens as wages rise with inflation, though it’s a long-term prospect.
Inheritance Tax Threshold Frozen Until 2030 Labour also decided to freeze the inheritance tax threshold at £325,000 until 2030. Estates valued up to this amount (or up to £500,000 when passing a residence to direct descendants) will remain tax-free. According to the Chancellor, only around six percent of estates currently meet this threshold, meaning most will be unaffected.
Other Key Changes The government has earmarked over £5 billion toward housing plans, and National Insurance contributions for employers will rise to 15% by April 2025. Fuel duty will remain frozen until 2025, and the national living wage will increase by 6.7%, reaching £12.21 per hour for those aged 21 and over from April 2025.
In a nutshell, Labour’s Budget introduces sweeping financial adjustments, affecting various sectors including property investment. It’s a good time to consider how these changes may impact future investments in rental properties.