Autum Labour Budget 2024 - What to Expect
Mon 28 Oct 2024
The upcoming Autumn Labour Budget is poised to bring substantial changes to the UK housing market, particularly impacting landlords and investors as Labour aims to address the £22 billion budget shortfall. Here are the key expected measures and their potential effects on the housing market:
Capital Gains Tax (CGT) Increases
Labour is considering raising CGT rates on residential properties from the current 18% (basic rate) and 28% (higher rate) up to potentially 30% or even aligning them with income tax rates, which could see rates go as high as 45% for higher earners. This change would particularly affect landlords selling properties, who may face higher tax liabilities. The Institute for Fiscal Studies warns that increased CGT may deter new investments and prompt some landlords to exit the market to avoid these higher taxes before implementation.
Inheritance Tax Adjustments
Adjustments to inheritance tax (IHT) thresholds and rates are expected, which may increase the tax burden on landlords passing properties to heirs. There are discussions about reducing the current IHT threshold (£325,000) and potentially applying an additional CGT at death, which could impact landlords holding properties long-term as an investment for generational wealth transfer.
Housing Supply and Stamp Duty Adjustments
Labour’s renewed commitment to local housebuilding targets includes potentially reinstating mandatory building quotas, aiming for around 370,000 homes annually to increase housing availability. This policy could eventually ease demand in the rental market, potentially stabilizing rent prices over time. However, the previously increased stamp duty thresholds will expire in April 2025, reverting to lower limits (£300,000 for first-time buyers), which could impact affordability for buyers in the mid-range market.
Energy Efficiency Upgrades for Rental Properties
The Budget is expected to include incentives or requirements to improve energy efficiency in rental properties. This may involve extending grants or requiring landlords to meet higher Energy Performance Certificate (EPC) ratings (e.g., a minimum of “C” by 2025). Although beneficial for long-term energy savings, these requirements could create additional costs for landlords needing to upgrade older properties.
Impact of Renters’ Rights and Reform Bill
Labour's Renters Reform Bill is anticipated to end Section 21 “no-fault” evictions and introduce additional tenant protections, potentially including rent caps in high-demand areas. Landlords may need to adjust to longer-term leases and potentially higher compliance costs. Additionally, the government might allocate resources to streamline the court system to handle rental disputes more efficiently, addressing concerns about enforcement and tenant protections.
Conclusion
These anticipated measures are designed to increase housing supply and affordability but could also lead to higher operating costs for landlords. The potential increases in CGT and IHT, combined with stricter energy efficiency and tenant protection requirements, may prompt some landlords to reevaluate their portfolios. Investors should carefully consider the financial impacts of these policies and may wish to explore tax-efficient structuring or property improvements.
Capital Gains Tax (CGT) Increases
Labour is considering raising CGT rates on residential properties from the current 18% (basic rate) and 28% (higher rate) up to potentially 30% or even aligning them with income tax rates, which could see rates go as high as 45% for higher earners. This change would particularly affect landlords selling properties, who may face higher tax liabilities. The Institute for Fiscal Studies warns that increased CGT may deter new investments and prompt some landlords to exit the market to avoid these higher taxes before implementation.
Inheritance Tax Adjustments
Adjustments to inheritance tax (IHT) thresholds and rates are expected, which may increase the tax burden on landlords passing properties to heirs. There are discussions about reducing the current IHT threshold (£325,000) and potentially applying an additional CGT at death, which could impact landlords holding properties long-term as an investment for generational wealth transfer.
Housing Supply and Stamp Duty Adjustments
Labour’s renewed commitment to local housebuilding targets includes potentially reinstating mandatory building quotas, aiming for around 370,000 homes annually to increase housing availability. This policy could eventually ease demand in the rental market, potentially stabilizing rent prices over time. However, the previously increased stamp duty thresholds will expire in April 2025, reverting to lower limits (£300,000 for first-time buyers), which could impact affordability for buyers in the mid-range market.
Energy Efficiency Upgrades for Rental Properties
The Budget is expected to include incentives or requirements to improve energy efficiency in rental properties. This may involve extending grants or requiring landlords to meet higher Energy Performance Certificate (EPC) ratings (e.g., a minimum of “C” by 2025). Although beneficial for long-term energy savings, these requirements could create additional costs for landlords needing to upgrade older properties.
Impact of Renters’ Rights and Reform Bill
Labour's Renters Reform Bill is anticipated to end Section 21 “no-fault” evictions and introduce additional tenant protections, potentially including rent caps in high-demand areas. Landlords may need to adjust to longer-term leases and potentially higher compliance costs. Additionally, the government might allocate resources to streamline the court system to handle rental disputes more efficiently, addressing concerns about enforcement and tenant protections.
Conclusion
These anticipated measures are designed to increase housing supply and affordability but could also lead to higher operating costs for landlords. The potential increases in CGT and IHT, combined with stricter energy efficiency and tenant protection requirements, may prompt some landlords to reevaluate their portfolios. Investors should carefully consider the financial impacts of these policies and may wish to explore tax-efficient structuring or property improvements.