Spring Budget 2024: Implications for Landlords and Property Market

Chancellor Jeremy Hunt's recent decision to lower the capital gains tax on property sales from 28% to 24% has stirred a mix of reactions and concerns within the real estate industry.

What happened?

Scheduled to take effect from April 6th, this adjustment was detailed in documents accompanying the Budget, with the Treasury emphasizing its aim to stimulate property transactions by encouraging landlords and second homeowners to sell their properties. The underlying rationale is to increase the availability of properties for a diverse range of buyers, including those aspiring to enter the property market for the first time.

One of the notable implications of this change is the potential savings it offers to higher-rate taxpayers.

For instance, a taxpayer realizing a £20,000 gain on a second property would stand to save £680 under the new scheme.

Existing Concerns

However, despite the intended benefits, some industry experts express reservations. One voiced concerns about the government's apparent inclination to discourage private buy-to-let landlords, potentially prompting them to exit the market altogether.

Similarly, Steve Richmond, general manager UK&I at Reapit, warned of unintended consequences. He suggested that while the Chancellor's move might spur more property transactions, it could also lead to a shift in supply dynamics, possibly exacerbating the shortage of rental properties and driving up rents as disillusioned landlords opt to sell.

In contrast, Kate Davies, executive director of the Intermediary Mortgage Lenders Association (IMLA), proposed an alternative approach. She argued that instead of focusing solely on capital gains tax reductions, the government should have considered revising the 3% stamp duty surcharge, which has burdened property purchases since 2016.

Davies highlighted the financial strain this additional tax places on private landlords, particularly amidst projections of a significant increase in mortgage costs over the next two years. She emphasized the urgent need to incentivize landlords to expand their property portfolios, thereby addressing the persistent supply-demand imbalance in the rental sector.

Looking ahead, there is also anticipation surrounding the scheduled decrease in the capital gains tax exempt amount from £6,000 to £3,000, starting January 1st, 2025.

This adjustment is expected to partially offset the reduction in the tax rate.

Despite the concerns raised, Ryan Etchells, chief operating officer at Together, struck a more positive tone. He regarded the Chancellor's decision as a proactive step towards diversifying the property market, offering newfound opportunities for both buyers and property professionals.

Etchells expressed confidence that this initiative could prompt individuals contemplating downsizing to take action, thereby freeing up more family homes and creating openings for first-time buyers. Overall, he viewed the move as a potential catalyst for injecting vitality into the property market.

Plan To Construct One Million Homes

During the Spring Budget, Chancellor Jeremy Hunt reiterated the Conservative party's pledge to erect one million homes by the conclusion of the current Parliament term. This commitment involves allocating £242 million towards new house-building endeavours.

Noteworthy projects earmarked for development include initiatives in the Canary Wharf precinct of London, as well as in Blackpool, Sheffield, Liverpool, and Cambridge.

The targets for house construction have undergone several revisions in recent years. In 2021, the Conservative Party initially set a goal to construct 300,000 homes annually by the mid-2020s.

However, Housing Secretary Michael Gove altered course on this stance in December 2022, labelling these targets as merely "advisory." Nonetheless, in 2023, the Government reaffirmed its determination to fulfil the objective of erecting one million homes by the culmination of the Parliament's term.

Additional Announcements Impacting Landlords, Letting Agents, and Tenants

Amidst the Spring Budget, several other directives were unveiled, poised to influence professionals within the property realm. These encompass the following:

Reductions in National Insurance Contributions

A noteworthy adjustment involves the reduction of the contribution rate by 2 percentage points, dwindling from 10% to 8% of pay. The primary aim is to alleviate the weight of the historically high tax burden, offering benefits to both employers and employees.

This measure extends its advantages to agents, landlords, and tenants, fostering a collective relief.

Continuation of Fuel Duty Freeze

The freeze on fuel duty persists, maintaining it at 53p per litre. According to the Chancellor's estimation, this decision is set to save the average car driver approximately £50 annually. Notably, letting agents reliant on vehicular transport for property viewings stand to gain the most from this prolonged freeze, potentially enhancing their operational efficiency and cost-effectiveness.

Stability Expected in Energy Bill Adjustments

Despite the clamour for relief in energy bills, no significant changes were announced. The Chancellor articulated intentions to pivot towards cleaner energy sources, envisioning that 25% of homes would be powered by nuclear energy by 2050.

However, there was a conspicuous absence of specific measures aimed at aiding households grappling with escalating energy costs.