Budget Special

Rachel Reeves rings the changes

What does the 2024 budget mean for the rental property sector?

Fixing the foundations!

Rachel Reeves declared that she was looking to raise taxes by a whopping £40 Billion to plug a budget shortfall. It was a unique and bold statement from Reeves, thanks to her being both the first woman to present a budget and the sheer audacity of it. All in the name of fixing the broken bits of the British economy and stimulating growth, the British public was forewarned of the impending hikes and was not disappointed.

All round impact

In a bid to reach budget targets, Reeves has taken a bite out of various revenue pots, which affect all of us – including landlords.

  • National Insurance
    Contributions by employers will rise from 13.8% to 15%, while the threshold at which businesses start paying NI on workers’ earnings will be lowered from £9,100 to £5000.
  • Inheritance tax
    The current threshold (everyone has a £325,000 tax-free allowance), will be frozen until 2030. This means that as inflation increases and the value of assets such as property increase, the tax-free rate does not increase accordingly – a tax win for the government.
    However, on top of this, from 2027 pension funds will also be subject to inheritance tax. So those who have saved hard for their retirement but don’t exhaust their funds will find the government taking a slice of this unspent pension pot, which would otherwise pass to family/inheritors.

A direct hit

But some of the proposed changes will have a much bigger effect on Landlords and subsequently, tenants.

  • Capital gains
    Rates on residential property remain at 18% and 24%. Although there is no increase in this area, this is still seen as a missed opportunity for the government to bring back balance to the financial viability of the rental property sector. Had they reinstated the Indexation Allowance as hoped, it would have made a significant difference to Landlord’s Capital Gains Tax (CGT) threshold. Instead, Landlords are left paying for gains created by inflation rather than real time property value.
  • Stamp Duty
    The greatest impact for landlords is the announcement that the government will increase the Stamp Duty Land Tax (SDLT) for ‘additional dwellings’ from 3% to 5% with immediate effect. It translates as a greater upfront payment for landlords investing in further property. This will likely have the impact of driving smaller landlords away, in favour of larger corporate investors, shifting the traditional balance in the rental market. With potentially fewer properties available to rent, so rental prices increase due to scarcity.

In fact the lack of reform concerning stamp duty is a disappointment for many. Besides the effect on the rental market there is a belief now that allowing the over 65s to downsize without stamp duty would lead to an important shift in the property market as it currently stands. Such a move would free up much needed family homes, opening up the market across the board and redressing the balance of available property – a shakedown.

But back to the rental sector…

Not surprisingly, the budget makes life that bit harder for already struggling landlords. Whilst many cannot understand the machinations of the stock markets, home ownership as an investment has always been viewed as tangible, credible and accessible to the masses. Where once owning a 2nd, 3rd or more properties was considered a worthwhile business venture from which many had drawn their income and staked their pension, the landscape is now complicated and tricky to navigate cost effectively.

On the plus side…

Well there isn’t too much on the plus side unfortunately, however if blessings are to be counted, then at least CGT hasn’t increased. Phew! Another possible improvement on the horizon is the government’s investment in affordable housing which is long overdue. More property stock will bring movement and change in the housing market overall, which long term should see us gravitating back to a more balanced, fairer and more manageable way of keeping a roof over everybody’s heads.

If you need guidance on managing your rental portfolio effectively, speak to our team on 020 3637 7968 OR EMAIL info@mihproperty.co.uk

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