The Autumn Statement brought about less upheaval than expected, offering stability and reassurance for those navigating the property market over the coming year.
With no further budget anticipated for twelve months, there is now a more predictable environment for buyers and sellers to make informed decisions – which is welcomed news after a sustained period of uncertainty. Here’s a breakdown of key changes and what they might mean for the property market:
Stamp Duty Adjustments
A significant change in this budget is an increase in Stamp Duty Land Tax on second homes, which now stands at 5% above the standard rates, up from 3%. This measure is likely to deter new investors from entering the rental market, further reducing the already constrained pool of rental properties available for tenants. The challenge is that, unlike large corporate landlords, many individuals who own rental properties are ordinary people managing small portfolios, often due to inheritance or as a means of supplementary income. These owners play a crucial role in providing much-needed housing options, particularly at a time when there’s an imbalance in supply and demand.
First-time buyers will continue to benefit from a raised stamp duty threshold until April 2025, meaning they won't have to pay any stamp duty on properties costing up to £425,000. However, from the start of April, the stamp duty threshold will be lowered to £300,000. Importantly, first-time buyers should be aware that they need to act quickly! They must complete their purchases by 31 March 2025, to take advantage of the current threshold. This deadline realistically means securing a property before Christmas to avoid any risk of losing out on reduced Stamp Duty.
As a result of increased demand for properties appealing to first-time buyers, properties traditionally attracting buy-to-let investors or those looking for pied-à-terres may need to be competitively priced due to the higher SDLT on additional residences.
Capital Gains Tax
Contrary to pre-budget speculation, CGT rates on property remain steady, avoiding potential disruption in the market. With CGT on share disposals increased, the comparative stability of property taxation could make property investments more appealing, especially for those concerned with managing their tax liabilities. This decision provides reassurance for property owners, allowing for strategic, long-term planning in a more favourable tax environment.
‘Non-Dom’ Tax Reforms
What is a ‘non-dom’? This describes a UK resident whose permanent home - or domicile - for tax purposes is outside the UK. A non-dom only pays UK tax on the money they earn in the UK. They do not have to pay tax to the UK government on money made elsewhere in the world (unless they pay that money into a UK bank account). With the recent announcement of draft legislation, there is now clarity regarding the future of non-dom tax status. This provides an opportunity for individuals affected to consult with their advisors on how the new rules will impact them. Key aspects of the new regime include:
Foreign Income and Gains Exemption: New arrivals to the UK will benefit from a four-year period during which they will pay no UK tax on their foreign income and gains, known as the FIG regime. This exemption applies regardless of whether the funds are brought into the UK, removing previous disincentives associated with the remittance basis of taxation.
Temporary Repatriation Facility: Previous users of the remittance basis will have the option to remit foreign income and gains from prior years to the UK at reduced tax rates for a period of three years. The rates will be set at 12% for the 2025/26 and 2026/27 tax years, and then increase to 15% in 2027/28. This offers a significant incentive, especially considering the maximum income tax rate is 45%, encouraging non-doms with substantial previously unreported foreign income to bring it into the UK. This facility will also extend to certain benefits received from offshore trusts.
VAT on school fees
Changes to VAT on school fees and the removal of rate relief for private schools are expected to drive more families to consider properties within the catchment areas of highly rated state schools. With demand likely to shift, activity in these areas may rise as families look to position themselves for access to quality education.
In summary, the Autumn Statement has brought some much-needed clarity to the property market. With inflation easing and borrowing costs stabilising, the sector is well-positioned for a period of growth and increased activity. The market’s response has been broadly positive, as reflected by a 1% rise in the FTSE 250—a positive indicator for domestic investment in the UK property market.
