Chancellor Rachel Reeves yesterday increased the amount of tax homebuyers will pay when buying their second home to provide support for first-time buyers and those moving home.
The government is supporting first-time and main home buyers by increasing the Higher Rates for Additional Dwellings of Stamp Duty Land Tax from 3% to 5%.
These higher rates apply to purchases of second homes, buy-to-let residential properties and companies purchasing residential property.
Pundits say that the tax increase has been designed to provide those looking to move home or purchase their first property with a comparative advantage over those purchasing additional property and is expected to result in 130,000 additional transactions over the next five years by first-time buyers and other people buying a primary residence.
Those who exchanged contracts prior to 31 October 2024 are not affected by this rate increase
MIXED REACTION
The increases received a mixed reaction from across the property industry.
Craig Cooper, Chief Operating Officer of epIMS, says: “Landlords have been haunted by a string of legislative changes in recent years, all of which have been designed to dent the profitability of their bricks and mortar portfolio, so it’s reassuring to see that second homeowners and buy-to-let investors have escaped unscathed from today’s capital gains tax hikes.”
TAX REVENUES
Siân Hemming-Metcalfe, Operations Director at Inventory Base, comments: “While we understand the government’s aim to increase tax revenues, we welcome the move not to apply capital gains tax increases to landlords and second homeowners.
“Had it done so, it would have hindered many landlords from expanding their portfolios, which would have further restricted supply across the private rental sector and accelerated the exodus of landlords, causing even more distress to tenants who are already finding it hard to find somewhere to call home.”
LANDLORDS ESCAPED
Adam Pigott, Chief Executive of OpenBrix, says: “Great to see that landlords didn’t bear the brunt of the Budget tax burden.
“The rental market is already in crisis due to the severe imbalance between supply and demand and further penalising landlords would have only intensified the issue further.
“An increase in stamp duty on second home purchases will leave a sour taste though, as it will see an increase in costs for those looking to invest within the sector, although it’s unlikely to deter them from doing so.”
Verona Frankish, Chief Executive of Yopa, says: “With no stamp duty relief extension granted today many homebuyers will be in for a fright should they look to purchase from March of next year.
“Whilst many first-time buyers will still benefit from a stamp duty free purchase should they remain within the previous £300,000 threshold, many existing homebuyers won’t be so lucky.
“Those existing buyers purchasing over the value of £250,000 are set to be hit by the maximum increase in tax which will see an additional £2,500 added to the already high cost of home buying and ownership.”
TRICK NOT TREAT
Marc von Grundherr, Director of Benham and Reeves, adds: “It’s a case of trick not treat for homebuyers following today’s Budget, as they’ve once again been shown the cold shoulder, with the government refusing to extend current stamp duty relief thresholds.
“Whilst this won’t deter homebuyers from pursuing their aspirations of homeownership, it will add to the cost of purchasing for the vast majority, particularly those climbing further up the ladder.”
Richard Merrett, Managing Director of Alexander Hall, says: “Whilst largely forecast to be a painful one, today’s Budget saw little in the way of property market penalties, with landlords and second homeowners, in particular, escaping a capital gains tax increase.
“The lack of a stamp duty relief extension for homebuyers will obviously come as a disappointment, but it was largely to be expected given the fact that the property market has been going from strength to strength so far this year.
“With at least one more interest rate cut expected before the year is out, the forecast remains extremely positive and it’s fair to say that no government intervention was needed to ensure its future prosperity, although today’s Budget was a somewhat missed opportunity to help stoke the fires.”
LANDLORDS PLAY CRUCIAL ROLE
Isobel Thomson, chief executive of safeagent, the UK’s largest not-for-profit accreditation scheme for lettings and management agents, says: “It is disappointing that there was no reference in the Budget to the crucial role that landlords play in delivering much-needed housing.
“With no specific incentives for them to continue to remain in the market at a time when the lack of detail surrounding regulatory reforms is already causing uncertainty, this is disappointing and shortsighted.”
Craig Vile, director of online valuation specialists, The ValPal Network, adds: “I was pleased to see landlords escape second home Capital Gains Tax increases, but the rise in Stamp Duty for second homes to 5% may deter some from expanding their portfolios or even entering the sector in the first place.
“This is obviously going to affect the supply of rental homes and maintain upward pressure on rents as we move forward. And that is the price paid for by the tenants.”
And Nigel Bishop of Recoco Property Search says: “The decision to not raise Capital Gains Tax on residential property will have an immediate impact on the second home market as owners are now less inclined to sell their property.
“This could present new challenges for house hunters who were hoping for the increase in taxes to trigger a selling frenzy that would have created a larger pool of properties to choose from.
“As this is now not the case, previously hesitant buyers will be motivated to finally start their property search to avoid missing out.”
Adam Jennings, Head of Lettings at estate agency Chestertons, adds: “With no changes to Capital Gains Tax, we expect fewer landlords deciding to sell their property. Despite this, demand for rental properties continues to outstrip supply which means asking rents are unlikely to see a downward adjustment.”
And Matt Thompson, Head of Sales at Chestertons, says: “The majority of first-time buyers will label the Budget a missed opportunity as there was hope that the Chancellor would retain the £425,000 Stamp Duty threshold for first-time buyers.
“There is no doubt that it will become challenging for many aspiring homeowners to get on the property ladder now that Stamp Duty rates return to previous levels; particularly in London where property prices are above the UK average.”
