The new Labour government will present its first Budget on 30 October 2024 in what will be the first major test for the new Chancellor, Rachel Reeves. Following pre-election pledges to deliver economic stability and kickstart growth, it seems likely that we will now face the spectre of tough new spending rules and tax rises to plug an alleged £22bn black hole in the books. As the new Chancellor faces a challenging balancing act, we consider what measures may be announced for the UK’s real estate sector.
Getting Britain building
Labour has been vocal about the need to increase the supply of affordable housing, saying that it plans to deliver 1.5 million new homes over the course of the next Parliament.. However, both developers and investors need clarity on the Chancellor’s long-term strategy here.
Whilst steps taken to improve the planning process will be welcomed, these alone seem unlikely to deliver the level of activity Labour hopes to see. Further targeted measures will be needed to unlock new investment into Britain’s housing supply, deliver new modern working spaces and revitalise town centres. However, with no budget for centrally funded and large-scale investment into a new generation of social housing, the Chancellor will need to explore options to instead unlock private investment into large-scale projects.
Targeted tax incentives to unlock new build housing supply and revitalise high streets could be an effective option. For example, the use of ‘local’ and smaller-scale ‘enterprise zones, offering tax incentives would be a powerful tool to revitalise those communities and local projects most in need of support.
The Chancellor will, however, be mindful that tax incentives alone are unlikely to be sufficient, and housebuilders will make decisions based on demand within the economy. Support for first-time buyers and those upsizing their homes would, therefore, be welcomed, whether that be a new iteration of the popular Help to Buy Scheme or offering SDLT incentives to mitigate the cost of a first home.
Banking that increased activity will generate sufficient additional tax revenues to fund such measures is, however, a gamble that the Chancellor may not be willing to take.
Retail and hospitality
Retail and hospitality operators will be keen to see support. In particular, both would benefit from a reform of business rates. We hope that the Chancellor will listen to the calls from the CBI and other business groups and move towards a simplification and updating of the current regime.
Targeted measures such as enhanced capital allowances or a new tax credit regime to help make businesses make the investments required to move towards a net zero carbon footprint in their built environment would also be well received. Whilst its unclear how such measures would be funded, the Chancellor may well take the view that stimulating such investment into the UK’s built environment is essential.
Private rented sector
Residential landlords will be hoping that the Chancellor will resist increasing the already onerous tax burden already driving many to consider leaving the sector but again, few will be expecting any good news.
Labour noticeably didn’t rule out an increase in Capital Gains Tax (CGT), and many believe that higher rates will be announced at the Budget. Indeed, the spectre of increasing CGT rates has already encouraged many to advance plans for the sale of second properties.
The Chancellor does, however, need to be careful. Push landlords too hard, and she risks a largescale exit from the sector, damaging the supply of much-needed rental properties.
A more likely target may well be the owners of second homes and holiday lets. Introducing additional annual tax costs on owning such properties would likely force many to either sell up or transition to a longer-term lettings model.
Whatever detailed announcements are made, balancing the interests of both landlords and tenants will be essential in order to preserve supply within the UK’s rental sector, where many are already finding a shortage of properties to let and spiralling rents. Whilst rental reform to protect the interests of tenants and preserve affordability in the lettings market is to be welcomed, the Chancellor faces a difficult challenge. A further tax raid on already beleaguered private landlords may well result in additional costs being passed on to tenants, or more simply selling up further reducing the supply of rental properties.
Focusing on those with the broadest shoulders
There are 68,800 individuals living in the UK who are non-domiciled and don’t pay tax on their worldwide income. Whilst it seems unlikely that Labour will want to scare wealthy individuals from the country it’s equally difficult to believe that changes will not be announced.
While Labour has ruled out a formal “Wealth Tax”, revenue will need to be raised in other ways. Measures to increase the inheritance tax (‘IHT’) net have not been ruled out, and measures to bring more estates within the charge to IHT would be a comparatively easy target.
We expect to see carefully targeted tax rises, focusing on key areas. The taxation of carried interest and second homeowners would be easy targets, but we believe the Chancellor will resist the temptation to go too far too fast. Whilst tax rises for some are inevitable, we would hope that the new government will proceed cautiously and avoid the temptation to simply target the wealthy, who, if pushed too far, may simply decide to either relocate or divest from UK real estate.
What is certain is that the Chancellor faces a challenging balancing act on 30 October.
If you’d like to discuss your own position, please get in touch with Tom Roseff or Zoe Roberts.
