Labour’s first Budget in 14 years—and the first ever delivered by a female Chancellor—marked a significant moment in the UK’s economic landscape. With £40 billion in tax rises and a pledge to “invest, invest, invest” for economic stability, Chancellor Rachel Reeves’ Budget introduced major shifts in property taxes, inheritance tax, and housing investment. Here’s a breakdown of the main measures and their potential impacts on the housing and mortgage markets.
1. Stamp Duty Surcharge Increased to 5% for Second Homes and Buy-to-Let Properties
The Budget increased the stamp duty surcharge on additional properties, such as second homes and buy-to-let (BTL) investments, from 3% to 5%. This impacts both domestic and foreign investors in additional properties across England and Northern Ireland.
Investment Clarity: The stamp duty increase provides investors with a predictable, upfront cost that can be accounted for from the start. This is seen as a more stable approach than fluctuating capital gains taxes, which depend on property value changes over time. Investors may offset some of this cost by negotiating lower purchase prices.
Impact on Rental Market: Higher upfront costs for landlords may discourage investment in rental properties. Without a substantial increase in housing supply, this could reduce available rental stock and potentially lead to higher rents.
2. Extension of Inheritance Tax (IHT) Freeze to 2030
The government decided to continue freezing the inheritance tax nil-rate band (NRB) at £325,000 until 2030. With inflation, the real value of this threshold has significantly decreased since 2009, potentially pulling more estates into the tax net.
Effect on Family Wealth: The frozen NRB may result in more families being subject to inheritance tax, even if their estates are relatively modest. Rising property prices mean that family homes could become partially taxable if they exceed the frozen threshold, particularly if families do not qualify for additional reliefs.
First-Time Buyer Support Implications: Inheritance often plays a crucial role in helping younger generations onto the property ladder. Higher tax burdens on estates may limit families' ability to provide financial support for first-time homebuyers, potentially slowing down generational wealth transfers toward homeownership.
3. £5 Billion Investment in Housebuilding and Support for Smaller Builders
The Budget allocated £5 billion to housing, with £3 billion specifically aimed at supporting smaller builders and the Build-to-Rent sector. Additionally, the government is discussing the possibility of making the mortgage guarantee scheme permanent, which would assist buyers with smaller deposits.
Progress on Housing Affordability: While funding for smaller builders is a positive step, there are questions about whether this investment alone will enable Labour to meet its ambitious 1.5 million new homes target. Increasing housing supply could help address affordability challenges, but additional measures may be necessary to make housing truly accessible.
Need for a Long-Term Housing Strategy: While this investment signals progress, industry leaders highlight the need for a comprehensive housing strategy that addresses both supply and affordability issues on a larger scale.
4. Employer National Insurance Contributions to Rise
Employer National Insurance contributions are set to increase from 13.8% to 15% starting in April 2025. This increase will add approximately £865 per employee to employer costs, which could influence decisions on hiring and compensation.
Impact on Mortgage Affordability: Higher employer costs may reduce discretionary compensation like performance bonuses, potentially affecting employees' disposable income and mortgage affordability. For higher-income employees, this increase could reduce take-home pay and limit savings for home purchases.
Effect on Construction Jobs: Increased employer costs may impact job creation in sectors like construction, which could affect housing supply. Additionally, frozen tax thresholds may push more workers into higher tax bands as wages rise, reducing disposable income available for savings or mortgage payments.
5. Impact of Higher Taxes on Financial Planning for Older Homeowners
The changes to stamp duty and CGT for secondary properties may require older homeowners to reconsider their financial and inheritance planning strategies.
Equity Release and Retirement Planning: For older homeowners, higher taxes on second homes or buy-to-let properties may influence retirement and inheritance planning. With additional tax burdens on property investments, homeowners nearing retirement might need to adjust their strategies for property management, equity release, and inheritance.
Labour’s Autumn Budget 2024 Final Thoughts: Stability with Challenges Ahead
The Autumn Budget 2024, delivered by Chancellor Rachel Reeves, introduces a stable yet challenging framework for property owners, investors, and prospective homeowners. While the Budget offers some predictability, there is a need for strategic planning to address housing affordability and supply issues in the coming years.
Consulting a mortgage adviser or financial planner can help property owners and buyers navigate these changes effectively. With rising stamp duties, extended inheritance tax thresholds, and substantial housing investments, this Budget brings both opportunities and challenges. For personalised advice on how these changes may impact your property goals, reach out to our expert mortgage advisers today.
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