Second home stamp duty raised to 5% from tomorrow, but relief for first-time buyers and home movers remains until April 2025. Capital Gains Tax increased and thousands of affordable homes to be built. How the Autumn Budget impacts the housing market.
In Labour’s first budget for 14 years, the country’s first female Chancellor, Rachel Reeves, emphasised she’d inherited a ‘dire’ situation from the Conservatives and had to make difficult choices to fix the foundations for the UKs economy.
Overall, taxes were raised by £40 billion, the upper end of what economists had predicted. The bulk of the money raised will come from National Insurance contributions paid by employers, which will make up £25 billion of the total.
Further revenue will be raised by Capital Gains Tax, closing inheritance tax loopholes and increases in stamp duty for second home buyers, which will raise a further £9 billion.
So what does it all mean for the housing market?
Stamp duty on additional homes raised from 3% to 5%
From tomorrow, people buying an additional home will need to pay an extra 2% of the entire property cost in stamp duty.
Second-home stamp duty rates today are currently 3%, meaning buyers pay an additional 3% of the entire value of the property on top of any standard stamp duty that’s payable.
But from tomorrow, that 3% rate rises to 5%.
So, the new stamp duty bands will be:
For the portion between £0 – £250,000 – 5% stamp duty
For the portion between £250,000 – £925,000 – 10% stamp duty
For the portion between £925,00 – £1.5m – 15% stamp duty
For the portion above £1.5m – 17%
The move is likely to unsettle property investors, in a market where many landlords are already selling and 12.5% of homes currently for sale are former rental properties.
This is reducing the amount of rented accommodation available to renters, causing competition for homes and in turn pushing up the cost of renting.
Our Executive Director of Research, Richard Donnell, says: ‘The private rented sector has seen static supply since tax changes were introduced in 2016. There is a steady net selling by landlords in response to changes in tax policies, alongside greater regulation of housing and higher mortgage rates.
‘We need to keep as many landlords as possible in the market to provide choice for renters who are currently facing limited options. Rents rising faster than earnings is hitting those on the lowest incomes the hardest.’
Reeves said this increase has been made to support people buying their first home or moving home, and kept the current raised stamp duty threshold in place for first-time buyers and home movers until April 2025.
Stamp duty threshold held for first-time buyers and home movers until April 2025
First-time buyers will continue to benefit from a raised stamp duty threshold until April 2025, meaning they won’t have to pay any stamp duty on properties costing up to £425,000.
However, from next April, the stamp duty threshold will be lowered to £300,000.
For now, for properties costing between £425,000 and £625,000, first-time buyers will need to pay 5% tax on that particular portion of the property. And for properties costing over £625,000, normal stamp duty rates apply.
But from April 2025, first-time buyers will need to pay stamp duty of 5% on the portion of the property between £300,000 to £500,000.
For home movers selling their home to buy their next home, the stamp duty threshold of £250,000 also remains in place until April 2025:
For homes costing over £250,000 you’ll need to pay 5% on the portion up to £925,000.
For homes costing over £925,000, you’ll need to pay 10% on the portion up to £1.5m.
And for homes costing over £1.5m, you’ll need to pay 12% on the portion over £1.5m.
However from April 2025, the stamp duty threshold for home movers will be lowered to £125,000 and 2% stamp duty will need to be paid on the portion between £125,000 and £250,000.
Capital Gains Tax increased but rates on property left untouched
Capital Gains Tax is the tax charged on profits made from the sale of assets, including second homes.
Today the chancellor increased Capital Gains Tax for lower rate taxpayers (those earning under £50,270 a year) from 10% to 18% and the rate for higher rate taxpayers (those earning over £50,270) from 20% to 24%.
However, the rates on residential property sales will remain at 18% and 24%.
‘This means the UK will still have the lowest capital gains tax rate of any European G7 economy,’ said Reeves.
Inheritance tax rules for property held until 2030
The inheritance tax rules for property will remain the same until 2030.
Currently the first £325,000 of a property’s value can be inherited tax-free. This rises to £500,000 if the property is passed on to direct descendants: children and grandchildren.
And £1 million if a property is passed onto a spouse and then inherited by direct descendants.
However, the inheritance tax rules are set to change when it comes to inherited pensions from April 2027, when unused pension funds and death benefits will be included within the value of a person’s estate for inheritance tax purposes.
£500 million for affordable housing
Reeves announced £500 million for affordable housing as part of a package worth £5 billion to deliver 33,000 new homes, boost supply and support small housebuilders.
Several sites across the country have already been earmarked for development, including Liverpool Docks, where 2,000 new homes are to be built, and Cambridge, ‘to help realise its full growth potential’.
The government also plans to increase the supply of affordable housing by reducing Right to Buy discounts so that more council homes remain within the sector.
In a statement, the government said England’s existing social housing supply is ‘depleted every year by the Right to Buy scheme, while also disincentivising councils to build new social housing’.
Local authorities can now retain full receipts from transactions so that the money can be reinvested back into housing stock.
Donnell says: ‘The Budget focus on housing is rightly on the long term plan to grow housing supply and inject funds to support more affordable homes alongside a much needed rent settlement for social housing providers.
‘Many of the pressures in the housing market come from a lack of supply or not enough of the right kind of homes, so growing supply is a top priority but it is far from a quick fix.
‘The housing market needs long term solutions that lead to a better market for all over 5, 10 and 20 years. Growing supply is the no 1 priority and this needs a multi pronged approach, which involves much more than simply adding a bit more money to the affordable housing program.’
Dangerous cladding
Following the Grenfell Tower fire in 2017, Reeves also pledged £1 billion of investment to remove dangerous cladding from high rise apartment blocks next year.
Key takeaways
- Stamp duty increased to 5% on second homes
- Higher stamp duty thresholds remain in place for first-time buyers and home movers until April 2025, but are set to be lowered after then
- Capital Gains Tax increased but rates on residential property sales to remain at 18% and 24%
- £500 million pledged for affordable housing