Stamp Duty Rises on Buy-to-Let Properties Amid New Budget Reforms
Today’s announcement from Chancellor Rachel Reeves has sent ripples across the property sector. Starting tomorrow, stamp duty on buy-to-let and second properties in the UK will jump from 2% to 5%, a significant increase aimed at raising government funds and addressing housing market demands. This move, part of the new Budget, is anticipated to impact landlords, investors, and housing market dynamics in notable ways.
The stamp duty change is expected to be particularly burdensome for landlords who rely on rental income, as this tax hike reduces profitability for those managing multiple properties or entering the buy-to-let market. In addition to the stamp duty increase, the Chancellor announced an increase in Capital Gains Tax, now set at 18% for the lower rate and 24% for the higher rate, with residential property rates remaining unchanged at these figures. For landlords, these measures increase the tax burden, potentially influencing their property investment decisions, and may prompt some to reconsider buy-to-let investments altogether.
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Beyond stamp duty and Capital Gains Tax, the Budget also addressed inheritance tax and non-dom tax status. Reeves confirmed an extension to the freeze on the inheritance tax threshold until 2030, maintaining the tax-free allowance for estates under £325,000. Non-dom status, previously benefiting wealthy individuals with ties abroad, will now be replaced with a residence-based system. This reform aims to ensure that all who make their home in the UK pay their share in taxes, a shift likely to influence the property investments of wealthy international buyers, particularly in high-demand areas like London.
These updates come at a time of ongoing pressures in the housing market. Following the lifting of Scotland’s rent cap, market observers noted a surge in rental prices, with some speculating that the new stamp duty changes may similarly affect rental rates. Higher costs for buy-to-let properties could result in reduced rental supply if landlords decide to leave the market, potentially raising rental prices for tenants as demand exceeds supply.
Industry professionals, including estate agents and property developers, have voiced concerns over these new measures. For estate agents, the Budget also brings a rise in employer National Insurance contributions, from 13.8% to 15%, alongside a lower threshold of £5,000 before contributions begin. Combined, these adjustments heighten the operational costs for those in the property and estate management industries, posing challenges for firms, especially smaller agencies.
In support of first-time buyers, the Chancellor upheld existing stamp duty relief for purchases under £425,000. However, the nil-rate threshold will reduce to £300,000 next year, a decision sparking discussion within the property community. Some experts believe that keeping the higher threshold for first-time buyers could have provided stronger support, encouraging new buyers to enter the housing market.
The Budget’s implications reach far beyond stamp duty, as the government’s overarching tax strategy seeks to address a £22 billion gap in public finances. With over £40 billion in tax increases announced, the property sector is poised for adjustments. In the coming months, as these changes take effect, property investors, landlords, and industry professionals will closely monitor market reactions and prepare for an evolving landscape in UK real estate.
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