31/10/2024

Autumn Budget 2024: Tax changes that will impact landlords and businesses

Holiday home insurance

The 2024 Autumn Budget has been announced by the Labour Government.

In this article, you’ll find out exactly how these tax changes make it more expensive to own and sell rental properties, and how likely it is to impact property owners.

Key tax changes that will impact landlords:

  • Lower rate of capital gains tax to increase from 10% to 18%.
  • Higher rate of capital gains tax to increase from 20% to 24%.
  • Residential property thresholds to remain unchanged.
  • Stamp duty on second homes to increase from 3% to 5% in England and Northern Ireland.
  • Increase on Employers’ National Insurance contributions.

1. Increases in Capital Gains Tax (CGT) on second homes

A key tax change in the Autumn Budget is the rise of capital gains tax on second homes. The lower rate will rise from 10% to 18%, while the higher rate will rise from 20% to 24%.

These increases will make it more expensive for landlords to sell their second properties such as buy-to-let properties.

For instance, let’s say a landlord sells a second property with a profit of £50,000 which falls into the higher rate:

  • Under the previous 20% rate, property owners would pay £10,000 in CGT.
  • Under the new 24% rate, property owners will now pay £12,000 in CGT.

The rates for capital gains tax on residential property remains unchanged.

What does this mean for property owners?

Property owners who may have been considering exiting the market may decide to now hold off, in hope for more favourable tax conditions in the future.

With the potential for higher taxes on profits, landlords may be discouraged from investing in more buy-to-let properties for the foreseeable.

Some landlords may need to rethink their strategies. Instead of selling properties to realise gains, they might look for ways to restructure their portfolios to minimise tax liabilities.

Click here to read how some landlords are tackling this challenge

2. Residential property stamp duty thresholds

The temporary cut to the stamp duty threshold – which was implemented in the 2022 mini budget – is set to expire at the end of March 2025.

This means the tax-free threshold for buying residential property will revert from its current level (£250,000) to its previous level (£125,000) from April 2025 onwards.

For example:

  • Today: You buy a residential property for £200,000, you pay £0 in stamp duty.
  • From April 2025: You buy a residential property for £200,000; you pay stamp duty on £75,000. This is because it will be above the soon-to-be limit of £125,000. The stamp duty for this residential property is 2% of £75,000, which is £1,500.

First-time buyers won’t pay stamp duty on the first £300,000, as long as the property is not more than £500,000.

So, first-time buyers are less affected by this change. But for most buyers, buying after April 2025 will mean paying more in stamp duty.

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3. Stamp duty on second homes to increase from 3% to 5%

The tax on purchasing second homes and buy-to-let properties in England or Northern Ireland will increase by 2 percentage points from 3% to 5% with immediate effect from 31st October 2024.

This means that people buying a second home with pay an extra 5% on top of the standard stamp duty rate.

This increase is expected to have a direct impact on the buy-to-let sector as reducing it reduces the attractiveness of purchasing additional investment properties. Analysts say the increase rate could affect landlords’ willingness to buy more properties.

 

4. Increase on Employers’ National Insurance (NI) contributions

The rate of Employers’ National Insurance contributions will increase by 1.2 percentage points from 13.8% to 15% starting in April 2025.

Additionally, the threshold at which employers begin paying National Insurance on employee salaries will be reduced from £9,100 to £5,000 per year.

This will impact businesses generally in the economy, and more specifically landlords with a large property portfolio employing a small team.

Some have warned that the rise of these employer contributions could result in stalling pay rises or removing other employee benefits.

Micro businesses aren’t likely to see the impact of this.

 

A close up of a businessman typing on a laptop.

Record number of landlords set up limited companies to cut tax on buy-to-lets

There is a rising trend of UK landlords opting to set up limited companies to hold their buy-to-let properties.

Between January and September in 2024, 46,449 buy-to-let companies were set up, a rise of 23 per cent on the same period last year. More limited companies have been set up by landlords so far this year than during the whole of 2021.

The reason? Financial and tax benefits.

There is the advantage of corporation tax rates, which are generally lower than income tax rates for individual landlords. And with the ability to fully offset mortgage interest against rental income, it allows landlords to retain more profits.

While there are tax advantages for some, for others it won’t be as advantageous. Additionally, setting up and managing a limited company brings additional costs and administrative burdens.

We recommend speaking to an expert in this field to find the right option for you.

 

Other key budget announcements

  • National Insurance (across the UK) and Income Tax thresholds (in England, Wales and Northern Ireland) remain frozen until 2028. There had been speculation that this would be extended to 2030. But what this now means is that from 2028, income tax will rise in line with inflation which is good for workers.
  • Pensions will be subject to Inheritance Tax (IHT) from April 2027. This means that 40,000 estates will be liable for paying more IHT as a result. There are other factors that come into play here including the age of which the deceased passes away and who the estate will be left to – which can impact the IHT contribution.
  • The £325,000 Inheritance Tax (IHT) tax-free threshold frozen until 2030. The threshold was previously frozen until 2028, but it has been extended to April 2030.

 

Summary

The Autumn Budget provides challenges for landlords and businesses generally to raise tax for public services including the NHS and schools.

In a nutshell:

  • Increases in stamp duty for second homes could see less people opt for buying additional investment properties.
  • The rise in Employers’ NI means larger landlords could reduce their workforce if they employ multiple people.
  • The increase in capital gains tax means landlords will pay more in tax if they choose to sell their properties.

These tax changes forces landlords to consider alternative strategies to manage tax liabilities.

The changes in the Budget will create uncertainty for landlords and other investors in the UK housing market. We advise closely monitoring the budget announcements to understand how the proposed changes will impact you.

If you would like any guidance on keeping your assets protected, or for a personalised holiday home insurance quote today, our team of Personal Client Managers will be more than happy to help.

 

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Sources:

Autumn Budget 2024: Live updates as Chancellor Rachel Reeves unveils Labour’s £40 billion tax raid | Daily Mail Online

Autumn Budget 2024: Martin Lewis analyses what it means

Record number of landlords set up limited companies to cut tax on buy-to-lets | This is Money

Stamp duty tax on second homes to rise – BBC News

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