The Autumn 2024 Budget, announced today, introduces a range of significant policy changes that will without doubt influence the market in both the short & long term. From adjustments in stamp duty to new initiatives aimed at increasing affordable housing, here's a detailed look at how these changes might impact buyers, investors, and the market at large.
1) Stamp Duty on Second Homes
One of the most impactful changes is the increase in the Higher Rates for Additional Dwellings in Stamp Duty Land Tax, which will rise by 2% across all bands, meaning that second/additional home buyers will pay a 5% surcharge on top of standard stamp duty rates, up from the previous 3% stamp duty surcharge. Those who have exchanged contracts on a property already will not be subject to this change. This change will take effect on 31 October 2024.
To illustrate this with a numerical example, let’s consider someone looking to buy a second home priced at £300,000:
Current Stamp Duty Calculation:
For second homes, stamp duty relief doesn't apply:
3% on the first £250,000: £7,500
8% on the next £50,000 (from £250,001 to £925,000): £4,000
Calculation: £7,500 + 4,000 =
Total Current Stamp Duty = £7,500 + £4,000 = £11,500
New Stamp Duty Calculation (from 31 October 2024):
The revised rates mean:
5% on the first £250,000: £12,500
10% on the next £50,000 (from £250,001 to £925,000): £5,000
Calculation: £12,500 + £5,000 =
Total New Stamp Duty = £12,500 + £5,000 = £17,500
This means an additional £6,000 in stamp duty for buyers of second homes at £300,000 (approximately the average price of a property in the UK) after the rate increase. Importantly, those who have already exchanged contracts by 31 October 2024 will not be subject to the higher rates, allowing some buyers to avoid this increase.
2) First-Time Buyer Stamp Duty Relief Changes
The government is also ending the stamp duty holiday, which had raised the threshold for first-time buyers. Starting April 2025, the thresholds will revert to £125,000 for standard buyers and £300,000 for first-time buyers, down from £250,000 and £425,000 respectively.
This means that first-time buyers purchasing a property valued at £425,000 will now pay £6,250 in stamp duty, compared to the current situation where they pay £0. There will be no first time buyer relief if the purchase price is above £500,000 (this threshold has been reduced from £625,000 to £500,000).
3) VAT on Private School Fees
In a significant move, the government plans to implement VAT on private school fees, which has historically been exempt. The introduction of this 20% VAT will undoubtedly affect affordability for families opting for private education.
This change could push some families to reconsider their schooling options, potentially leading to a broader impact on housing demand in areas with a high concentration of private schools. If families find private schooling too expensive, they might opt for locations with better state schools, potentially shifting property demand and prices in those areas.
4) Business Rate Relief Changes
The government has reduced business rate relief for retail, hospitality, and leisure properties from 75% to 40%.
This change is likely to have a mixed impact on the property sector. While it may help improve the government’s fiscal position, many small and medium-sized enterprises (SMEs) will feel the pinch as they struggle to maintain profitability amidst rising operational costs. This could lead to increased vacancies in commercial properties, impacting landlords and the overall market. The idea behind this is to help local councils, who rely heavily on business rates, collecting around £13bn annually.
5) Capital Gains Tax Adjustments
The Government has announced plans to increase capital gains tax (CGT) rates effective right away.
The tax is paid on the profits when an asset is sold. Basic rate taxpayers currently face a 10% CGT rate, or 18% on residential property. Higher earners pay 20% on any amount above the basic tax rate and 24% on residential property.
Today, Chancellor Rachel Reeves announced that the lower rate of tax will rise from 10% to 18% and the higher rate from 20% to 24%.
While Capital Gains Tax (CGT) rates for residential property remain unchanged at 18% for basic rate taxpayers and 24% for higher rate taxpayers, the budget has made some adjustments to other aspects of CGT.
This stability in CGT rates may provide some reassurance to property owners and investors, as fluctuations in capital gains tax can significantly affect investment decisions. However, the fact that rates remain high compared to other asset classes might still deter some speculative investments.
6) Government Plans for Affordable Housing
In an attempt to tackle the ongoing housing crisis, the government has pledged over £100 billion for capital investment over the next five years, aiming to deliver 1.5 million homes.
This commitment is a step towards increasing housing supply and addressing affordability issues, but effective execution will be key. Historically, similar initiatives have faced delays and inefficiencies, so let's see how this one plays out.
7) Right to Buy Changes
The UK government will be reducing discounts on the Right to Buy scheme.
Speaking in the Autumn Budget, Rachel Reeves stated that lowering discounts is a measure aimed at “increasing the supply of affordable housing.”
Current Discounts: Currently, discounts can reach up to £87,200 outside London and £116,200 in London. The reduction in discounts will allow local authorities to retain full receipts from any sales of social housing, enabling the government to reinvest those funds back into housing stock. Right To Buy has been an incredibly popular scheme to help people into home ownership, so many aspiring home owners will be affected by this change.
Parting Thoughts
Overall, the Autumn 2024 Budget has been the most significant for the property market in a long time, introducing significant changes that will influence buyers, investors, and the housing landscape as a whole. With increased stamp duty on second homes, the end of the stamp duty holiday for first-time buyers, and a robust commitment to affordable housing, this budget could reshape the market dynamics in the coming years. As we move forward, it’s clear that the success of these initiatives will depend on effective implementation and genuine commitment to tackling the housing challenges we face.
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