March 19, 2024 Budget 2024: Supporting homeownership and long-term lets
In the 2024 Budget, the Chancellor made several announcements impacting UK real estate taxation. These policy changes encourage homeownership and long-term lets in the UK economy. We look at a handful of these changes, what difference they may make, and what they may mean for our clients.
A property tax cut for higher rate tax payers
Currently a higher-rate taxpayer wishing to sell any residential property that is not their primary residence will pay a capital gains tax charge of 28% on the profit made from the sale. Note that the profit is considered after deducting the cost of any improvement works and the cost incurred to sell the property.
From 6 April 2024, higher rate taxpayers, being anyone with an annual taxable income of more than £50,270, will only be charged 24% of capital gains tax on profits from the sale of residential property. Those falling within the basic rate tax band will still be charged 18%. Private Residence Relief will remain available on the sale of any individual’s primary residence, so most property sales will still attract no CGT.
This is intended to encourage landlords and second homeowners to sell their properties and drive more demand for homeownership, moving the trend away from the short-term rental market. However, I believe this 4% reduction in CGT will have little impact on a landlord or second homeowner’s likelihood to sell their property. The sale of property is still being taxed at a greater percentage than a gain made on any other form of asset, which will be taxed at just 10% or 20%.
Help for Holiday Lets scrapped
In 2021 there was a preferential tax regime introduced for any furnished holiday lets (FHLs) located in the UK or in the EEA, with the following benefits:
- The owners had the ability to claim Business Asset Rollover Relief, Entrepreneurs’ Relief, relief for gifts of business assets and relief for loans to traders.
- FHL businesses were entitled to plant and machinery capital allowances for items such as furniture, equipment and fixtures.
- The profits generated from the letting of the property are counted as earnings for pension purposes meaning tax advantageous pension contributions could be made from this income.
As of 6 April 2025, this preferential treatment is to be abolished and income tax and capital gains liabilities on FHLs will increase considerably.
Abolishing the tax incentives for short-term holiday letting levels the playing field for long-term lets which the government believes are preferable to support sustained economic growth in local areas. Encouraging property owners to offer their property for long-term lets rather than short-term holiday lets will contribute to increasing the supply of housing which should help to ease the overly inflated cost of the UK property market.
Multiple Dwellings Relief abolished
Multiple Dwellings Relief reduced Stamp Duty Land Tax (SDLT) when purchasing two or more dwellings in a single transaction.
The total transaction price is divided by the number of dwellings being purchased to get an average cost of each dwelling and the SDLT rate is applied to this reduced figure, before being multiplied by the number of dwellings. The effect of this is to give the buyer multiple opportunities to utilise a lower tax band. For example, if a site was purchased with 4 dwellings for £1 million the top slice of SDLT payable would be at 10%, resulting in a SDLT charge of £71,250. Under this relief, the purchase is instead considered as 4 transactions at £250,000 which means that only 3% SDLT would be payable on each of the properties, being the minimum SDLT flat rate charge on the purchase of any additional residential property. This reduces the SDLT payable to £30,000 which is a £41,250 tax saving.
The initial objective behind this relief was to support investment in the private rented sector but external evaluations of the policy found no strong evidence that the relief was assisting in achieving this. As of 1 June 2024, this relief will be abolished. This will result in a much higher SDLT liability where multiple dwellings are being purchased at one time.
It is my opinion that the multiple dwellings relief tipped the scales in favour of investors (recently large and well-capitalised funds) who purchased ‘build to rent’ units in their thousands. Tax reliefs should instead be favoured towards first-time buyers as it becomes increasingly difficult for young people to get on the property ladder.
We already saw this being offered under the First Time Buyers’ Relief which means that no Stamp Duty Land Tax is payable on the purchase of property under the value of £425,000 by an individual who has never owned a property before. If a property is valued at more than £425,000, the remainder of the value will be charged at 5% SDLT up to £625,000. Any purchase of properties valued at greater than £625,000 are not eligible for any relief. Unfortunately, this relief is set to lapse on 1 April 2025.
If you believe any of these policy changes will impact you or if you are unsure of the potential impact, please get in touch and we can review your circumstances and provide advice as necessary. We can assist with the preparation and filing of both personal and corporation tax returns.
