Now that the dust has settled on the Chancellor’s Budget speech, did we see anything positive for the property sector? Zoe Roberts, Tax Partner in our specialist property team, discusses the key measures announced.
There had been hopes that the Chancellor would look to provide a boost to the building of new homes and support for purchasers, for example by reducing Stamp Duty Land Tax (‘SDLT’) or extending reliefs for first time buyers, neither of which came to pass.
While there were various announcements of funding to boost housebuilding in certain regions. The eyebrow raising inclusion of Canary Wharf in the Levelling Up funding, which will also support the delivery of new homes in areas such as Sheffield, Blackpool and Liverpool, is controversial to say the least.
But perhaps the biggest announcements were the ones targeting the viability of short-term holiday lets and the reduction in the Capital Gains Tax (CGT) rate for individuals owning residential property. These measures may encourage landlords to release properties back into the market, but any reduction in supply of rental properties combined with the withdrawal of the SDLT Multiple Dwellings relief will likely just increase the squeeze being experienced in the rental sector.
In terms of the key announcements this is what you need to know:
Capital Gains Tax on residential investment property
From 6 April 2024, the higher rate of CGT for residential property disposals will be cut from 28% to 24%. The Chancellor will hope this will encourage an increase in the number of properties being brought to the market, which will naturally mean a welcome increase in the Capital Gains Tax received from these sales even at a lower rate.
The lower rate of CGT will, however, remain at 18% for any gains that fall within an individual’s basic rate band. While the cut in rates will be good news for some, it will offer little to landlords being driven out of the sector due to the restrictions applying to relief for interest expenses.
Abolition of the Furnished Holiday Let (FHL) regime
The abolition of the FHL regime with effect from 6 April 2025 will hit many landlords hard. We have yet to see the detail around the abolition but restricting relief for mortgage interest and capital allowances may in many cases make ongoing investments uneconomical.
The FHL tax regime is advantageous compared to that which applies to more usual buy-to-let investment properties, including full relief for mortgage interest, capital allowances on white goods and furniture and more generous rates of CGT on sale.
The costs of exiting will be significantly higher for those deciding to leave the sector after the 6 April 2025 too, where disposals are caught by the higher rates of CGT on residential property after that date.
We expect the restriction on tax relief on interest to prompt individuals who own FHLs to consider transferring their business into a company structure before the new rules come into effect.
Stamp Duty Land Tax: abolition of Multiple Dwellings Relief
From 1 June 2024, Multiple Dwellings Relief, a bulk purchase relief in the Stamp Duty Land Tax (SDLT) regime in England and Northern Ireland, will be abolished. Property transactions with contracts that were exchanged on or before 6 March 2024 will continue to benefit from the relief regardless of when they complete, as will any other purchases that are completed before 1 June 2024. However, the withdrawal of the relief will increase the SDLT costs on many larger real estate transactions going forward.
Business rates
In announcements that will be welcomed by many, the small business multiplier has been frozen for a further year. Another positive piece of news was the continuation for another 12 months of the 75% relief for hospitality sector.
But changes to tackle rates avoidance and evasion were also announced, with the Empty Property Relief “reset period” extended from six weeks to 13 weeks from 1 April 2024 in England. The Government has also completed its consultation on a “General Anti-Avoidance Rule” for business rates in England, and has published at the Spring Budget a summary of responses to this.
Ultimately, this year’s Budget presented a movable feast of changes. That’s why it’s important that anyone impacted by the Chancellor’s announcements should seek qualified advice. To receive expert guidance and help on what this means for you, email me zoe.roberts@bhp.co.uk or call 0333 123 7171.
We’ll also be covering the essential Budget outtakes and latest updates for commercial landlords and investors at our next free webinar next Thursday 21 March. Sign up here.
