The Budget: A legal overview of the impact on the property sector

We’ve all been speculating on the impact of the budget for many weeks.

Thursday morning, we woke up to the harsh reality. In my case that meant spending all morning having to advise clients that their stamp duty liability on the home they were in the middle of purchasing had increased substantially.

Stamp duty on second homes is now:

• 5% on homes worth up to £250,000 (a rise from 3%)
• 8% for the next £250,001 to £925,000
• 13% for £925,001 to £1,500,000
• 15% for any value above £1.5m.

So far the increases advised to clients are:-

• Client 1 – £7,900
• Client 2 – £17,000
• Client 3 – £22,000

That’s an extra £46,900 in tax for just 3 clients.  This increase will also apply to those purchasing buy-to-let residential properties, as well as companies purchasing residential properties. However, none of the clients mentioned above are massive portfolio landlords with large housing stock, these are clients who are technically purchasing a property which they are going to live in, having decided to rent out their current homes.

I think we can expect a few renegotiations and even some withdrawals.  And that is the declared aim of this increase. The Chancellor said she believes the increase will result in 130k additional homes being bought by first time buyers (and others buying a primary residence).

However, unlike the previous government, this government is not changing the stamp duty liability for first time buyers.  First time buyers currently pay no stamp duty on homes worth up to £425,000, a relatively modest sum in the Southeast, and this is set to fall to £300,000 in 2025.  Stamp duty, on top of the deposit required, is the main barrier for first time buyers who don’t have the support of the bank of mum and dad.  As readers will be only too aware, in London £300,000 buys you a one bedroomed flat, not a family home.

Capital Gains Tax (CGT) has to be paid on the profit from the sale of an asset, including property. The primary residence is excluded but when a landlord sells a rental property then CGT applies. The rate of CGT on residential properties is not being changed, as feared. Currently we have Capital Gains Tax rates of 18%/24% on residential property and 10%/20% on all other taxable gains. With the changes arising in April 2025, we will now see rates of capital gains aligned between residential property and other assets so all gains will be subject to tax at 18% at the lower rate and 24% at the higher rate.

We have seen some approximations in the statement that the CGT changes will bring in a further £2.5bn by the end of the budget forecast of four years but that may not take into account people’s changes in investment decisions.

It seems likely that investors will move out of property, particularly smaller investors who are trying to manage their own long-term needs.  And my clients will not be the only second home buyers who are reconsidering their purchase, so the budget could have an impact on property prices to make them more affordable.  However, given the shortage of housing and the huge challenges with meeting the building targets the government have set, that seems unlikely.

People who own one or more homes as buy-to-lets have the added disincentive of the recent changes to landlord and tenant laws that ended no fault evictions and extended the time it takes to remove a bad or non-paying tenant.  That change alone resulted in a flurry of sales.

It is clear that this Government wants to decrease the rented sector and increase private ownership and that their tactics for achieving this is to make it far less attractive to be a landlord.  Unlike the Chancellor, I don’t believe this will help first time buyers. We need private landlords to meet the housing demands for the many people who will never be in a position to buy (and those that have no desire to buy).  Based on the reaction of my clients, I don’t think it will take long to see the impact of the changes.  Let’s hope the Chancellor has got it right.