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Chancellor Rachel Reeves has set up a stop-go market for buy-to-let with her long-awaited tax changes for property investors in her Autumn Budget 2024.
The worry for landlords was a massive rise in capital gains tax as they wondered if Labour’s tax promises to working people applied to them.
Speculation suggested CGT rates would align with the basic and higher income tax rates.
Surprisingly, it appears Labour does consider landlords working people, and those pre-budget worries were unfounded.
There were changes to capital gains tax, but they are unchanged for property investors exiting the market.
CGT rates changed for many investors, but only to align with the 18 per cent lower rate and 24 per cent higher rate already paid by landlords and second homeowners.
The Chancellor told MPs she expected the rate rises would net an extra £2.5 billion in taxes from 130,000 house sales over the next five years.
However, as a warning to landlords entering the market or expanding their portfolios, Reeves signalled that any buy-to-lets returned to the housing stock should go to first-time buyers or movers rather than property investors.
Her way of expressing her wishes was to raise the Stamp Tax Land Tax (SDLT) Higher Rate for Additional Dwellings from 3 per cent to 5 per cent.
The stamp duty rise applies to buyers of second homes, buy to lets and houses in multiple occupation.
The change loads stamp duty by 2 per cent - taking the amount of tax due on buying a £180,000 home from £5,400 to £9,000 -a £2,600 increase.
The new tax rate applies to properties where contracts were exchanged on or after October 31, 2024.
The changes in CGT and stamp duty for landlords clearly show Labour wants a smaller private rented market and will encourage landlords to sell up with a CGT tax carrot and stamp duty and Renters Rights Bill stick imposing higher costs and tighter regulation on buy-to-let.
Richard Donnell, head of research and insight at property portal Zoopla, fears the extra stamp duty will reduce demand from second-home buyers and investors.
“Second home buyers are already responding to last year’s Budget, which allowed councils to charge double council tax for second homes,” he explains. “This is resulting in a higher level of selling by second homeowners. In areas with above-average second homes, we have seen four times more homes come to the market,” he said.
“The private rented sector has seen static supply since tax changes introduced in 2016. There is a steady net selling by landlords in response to tax policy, greater housing regulation, and higher mortgage rates.
“We need to keep as many landlords as possible in the market to provide choice for renters facing limited choice and to prevent rents rising faster than earnings, which hits those on low incomes the hardest.”
Ms Reeves is also keen to build more affordable homes, which Labour hopes will reconstruct the social housing sector and compete against small property businesses.
She explained that Labour wanted to build 1.5 million affordable homes during the next five years and kick-started the plan with £5 billion in funding to support Build to Rent and other housebuilding projects.
In response to the Grenfell Tower fire, another £1 billion will be spent removing cladding from unsafe homes.