"There is widespread speculation in the market that Capital Gains Tax rates could increase, bringing them in line with Income Tax rates. Ultimately, this will affect profits from sales of properties on investment properties, potentially leading to wariness among landlords"
- Mitchell Walsh - Integritas Property Group
After almost four months in power, the new Labour government will unveil its latest plan for UK spending in Chancellor Rachel Reeves’ first Autumn Statement on 30 October 2024.
With potential changes to property taxes and regulations that could have notable impacts on homeowners, investors, and landlords on the horizon, the announcement is generating significant interest in the UK property sector.
For the broader property market, the Autumn Statement comes at a time when the UK housing market is cautiously recovering.
After a volatile 2023, house prices have stabilised, with modest growth expected for 2024. In fact, Knight Frank predicted a 3% rise in property prices this year, with regions like London showing particular resilience.
The Bank of England’s interest rates have come down, so mortgage rates have been easing this year, making borrowing slightly more affordable for homeowners.
However, the prospect of potential tax hikes in the Autumn Statement, combined with uncertainty around what the Bank of England intends to do next with interest rates, could dampen some of this optimism, particularly in prime city areas.
Let’s take a closer look at what the Autumn Statement is likely to have in store – and uncover what it means for the UK property market.
A taxing time for property?
Labour has vowed not to increase so-called ‘working taxes’, such as Income Tax, National Insurance, or VAT, but has left the door open for sweeping changes to property-related taxes.
A key concern for the industry is how far the new government will go in revising property-related taxes, such as Capital Gains Tax or Stamp Duty.
There is widespread speculation in the market that Capital Gains Tax rates could increase, bringing them in line with Income Tax rates. Ultimately, this will affect profits from sales of properties on investment properties, potentially leading to wariness among landlords.
Similarly, it’s widely known that changes to Stamp Duty may be at play, particularly for buy-to-let investors and second homeowners.
If the Chancellor were to adjust Stamp Duty thresholds or rates, it would have an immediate, tangible effect on property transactions.
For instance, a cut might stimulate more purchases, especially for first-time buyers or those purchasing higher-value homes. On the flip side, increasing Stamp Duty on second homes or buy-to-let properties could dissuade the market in those sectors.
If the government also committed to tightening rules on tax relief for landlords, rental yields will be impacted. Again, this might discourage investment in both the short and long term.
The Autumn Statement tends to signal intentions regarding government borrowing and inflation. If the Chancellor’s spending decisions lead to higher borrowing or inflationary pressures, it might influence the Bank of England to raise interest rates.
Higher mortgage rates typically reduce affordability and slow down demand for property, while lower rates can do the opposite.
The Chancellor faces the challenge of toeing the fine line between reducing public spending while generating more income for the country – and the property market will be affected either way.
Stimulating housing supply
Labour’s election manifesto contained several proposals for policies that may signal an era of increased regulation for the lettings industry.
The proposals included the abolition of Section 21 ‘no-fault’ evictions and a Warm Homes Plan, to improve the energy efficiency and set a better minimum standard of accommodation in the private rented sector. Labour has also previously proposed rent control measures to better protect tenants, with these plans potentially coming to the fore while the party is in government.
For investors, the rental market remains attractive, but the potential property tax increases and regulatory changes could squeeze landlords’ long-term profits.
If the Autumn Statement includes concrete next steps for both, it could affect the buy-to-let market. For example, though necessary and welcome, stricter regulations might lead to some landlords exiting the market, affecting the rental supply.
That said, the Chancellor will likely use this opportunity to lay down funding for initiatives to tackle the housing crisis.
This is a major focus for the new government that is being led by Deputy Prime Minister Angela Rayner in her role as Secretary of State for Levelling Up, Housing and Communities. Increasing funding for affordable housing, relaxing planning laws to bring forward more homes, more quickly, or encouraging development in underutilised areas may all crop up in the announcement.
These measures could increase supply for owner-occupiers, easing house price growth over time and helping to level out any negative impacts of changes to the rental market.
In short, the Autumn Statement should hopefully be one of balance: addressing public spending while providing the private sector with an impetus for investment. Increases in property-related taxes could have a direct impact on the financial landscape for both buyers and sellers.
As the announcement approaches, both investors and homeowners are advised to closely monitor these developments.
Overall, there is a reason to be optimistic about the property market, with steady growth in property values and a robust rental market. The uncertainty surrounding potential tax reforms and new regulations is the thing that will surely be keeping the industry on its toes.
