On October 30th 2024, the Chancellor announced a number of housing measures as part of her much-awaited Budget. This was billed as a Budget aimed at restoring ‘economic stability’ where those with the broadest shoulders would be expected to take much of the strain.
Housing was not immune from this, and there were a number of changes announced today that would-be buyers and sellers should be aware of. Here’s our analysis of the issues to look out for.
Stamp Duty for second home purchases
The Chancellor announced that the stamp duty surcharge on second home purchases in England will rise from 3% to 5% from 31st October 2024. This means the stamp duty bill on a £250k buy-to-let purchase will increase from £7,500 to £12,500, with a further hike to £15,000 from 1st April 2025 when the stamp duty holiday ends. Those who exchanged contracts prior to 31 October 2024 are not affected by this rate increase.
Looking ahead, the rising surcharge will likely act as a further disincentive to invest. New landlord purchases are already at a record low across Great Britain, with buy-to-let purchases making up 10.4% of all homes sold this year.
The OBR estimate that this increase will raise an additional £400 million in revenue each year by 2029-30, even though the number of people paying the second home surcharge is projected to fall by 25%, which seems realistic. In Scotland, where the second home surcharge is already 6%, it accounts for 30% of all stamp duty revenue. Meanwhile, in England, the surcharge currently equates to 48% of all stamp duty receipts.
Non-UK residents purchasing a second home in England are also currently subject to an additional 2% surcharge. This means that anyone who is based outside the UK and purchases a second home or investment property in England, will pay an additional 7% on top of normal rates.
Stamp duty holiday ends in April 2025
From 1 April 2025, the nil-rate threshold at which stamp duty is charged in England is set to fall from £250,000 to £125,000, marking the end of the stamp duty holiday introduced in the 2022 mini-Budget. The first-time buyer threshold will fall from £425,000 to £300,000.
Home movers could see their stamp duty bills increase by up to £2,500 from April, while first-time buyers may face a more substantial rise of up to £11,250. These changes are expected to drag approximately 310,000 more property purchases in England into paying stamp duty annually.
While the maximum £2,500 increase is unlikely to deter most movers, first-time buyers will be hit hard. This change will significantly reduce first-time buyers’ purchasing power, particularly impacting those buying their first home in London and the South where property prices tend to be higher.
While 26% of first-time buyers spent more than £300,000 on their home nationally this year, in London, that figure rises to 71%. It’s likely that these buyers will instead purchase more affordable homes, or it could mean having to save up for longer, potentially weighing on homeownership rates.
Stamp duty was first introduced as a way to tax more affluent households who bought property. But over time, successive governments have used it as a tax-raising lever, pulling more movers into the tax bracket. Next year’s increase will mean that around nine in ten movers will be subject to a stamp duty bill, up from just over half today.
If the £125k nil-rate band had risen in line with national property prices since it was first introduced in 2006, it should be around £267,000 today to ensure that the majority of households can move tax-free.
Buyers in London and the South of England have seen bills rise much faster than everyone else. This partly reflects the scale of house price growth seen in these areas, pushing more homes above the nil-rate threshold. However, it also shows how tax rates for more expensive homes have been disproportionately hiked by successive governments over the last twenty years, dragging far more people into paying a bill and reducing the number of moves taking place. Currently, 93% of movers in London are subject to a stamp duty bill. This is set to rise to 99% next year.
VAT on School fees
Removing private schools’ exemption from VAT from January 2025 and business rates relief from April 2025 will almost certainly mean higher fees for pupils. Given that this has been on the cards since before the run-up to the election, those unwilling or unable to pay the higher fees have had time to adapt. Whilst some parents have been waiting for confirmation of the dates, the impact is already spilling over into the property market.
As such, we’ve seen an increase in the number of families seeking homes near top-rated state schools. These areas already come at a premium, and with affordability stretched, for some, this may mean having to compromise on their new home.
Across England, the average house near an outstanding school costs 9% more than a house near an inadequate-rated school. In London, this figure rises to 10%.
Bidding wars have been heating up in the top 10 local authorities with the highest proportion of outstanding rated state schools. Since the beginning of this year, 41% of homes sold in these areas had offers from three or more buyers, reaching the highest level since 2019. Meanwhile, this figure for the 10 areas with the lowest proportion of outstanding schools was 29%.
Capital Gains Tax rates frozen for second homes
While it was rumoured that The Chancellor would hike capital gains tax rates on second homes, it was confirmed in the Budget that this would not be the case. Instead, the government have decided to increase capital gains tax rates for sales of shares and other assets. Rates on the sale of second homes or buy-to-lets will remain at 18% for lower-rate taxpayers and 24% for higher-rate taxpayers.
This will be welcome news for landlords and second home sellers, particularly given that tax bills of this kind have already risen this year. But despite the rumours, we haven’t seen an increase in the number of landlords selling up. Rather, landlords are sheltering in limited companies in a bid to reduce their tax burden in the long-run.
Funding for housing
The Budget set out a series of new investments to promote housing market stability and to kickstart social and affordable housebuilding. This included:
- A £500 million boost to the Affordable Homes Programme to build up to 5,000 additional social homes.
- Investment in building safety remediation will rise to over £1 billion in 2025-26. This includes new investment to speed up the remediation of social housing.
- A consultation on a new long-term social housing rent settlement of CPI+1% for 5 years.
- Reducing discounts on the Right to Buy scheme and enabling councils in England to keep all the receipts generated by sales.
- £3 billion of additional support for SMEs and the Build to Rent sector, in the form of housing guarantee schemes.
- £46 million of additional funding to support recruitment and training of 300 graduates and apprentices into local planning authorities, accelerate large sites that are stuck in the system, and boost and upskill local planning authority capacity to deliver the government’s wider reform agenda.
- The government will engage with industry over the autumn on the mortgage guarantee scheme and plans to make it permanently available to support lending to those with a 5% deposit.
