In Focus: Home ownership  

Chancellor had little good news for the property sector

Tim Walford-Fitzgerald

Tim Walford-Fitzgerald

The chancellor’s Autumn Statement contained little good news for the property sector.

Among other things, we learned that the sun will set on the cuts to stamp duty land tax in 2025.

The announcement by Jeremy Hunt’s predecessor to cut stamp duty land tax was highly welcomed by the property sector, in a bid to encourage more market activity and to help first-time buyers onto the property ladder. 

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Kwasi Kwarteng’s retained reforms meant that no stamp duty is payable on the first £250,000 of any property purchase. For first-time buyers, the threshold was increased to £425,000 and applicable for houses up to the value of £625,000 (an increase from £500,000).

However, the new chancellor has confirmed that these changes will be reversed in 2025. 

The capital gains tax exemption too has been halved – and will halve again in 2024.

The Office for Budget Responsibility estimates that for the current tax year, CGT accounts for £15bn of overall tax receipts, but only represents 1.5 per cent of all UK tax receipts.

This explains why the government had to make a significant change to CGT for it to result in a substantial and meaningful contribution to the Treasury.

However, the decision to halve the £12,300 tax-free allowance for capital gains to £6,000 was particularly unwelcome news for landlords and second home owners looking to sell their property, as CGT is applied at a much higher rate for residential property sales.

Even more so with the news that the threshold will be halved again to £3,000 in April 2024.

Added to this is the impact of frozen tax bands. The rate of CGT jumps by 10 per cent from the basic rate to the higher rate, and the frozen bands mean that more people will be higher rate taxpayers. 

For residential investors that aren’t looking to exit the market, there are additional tax increases to consider.

While the frozen personal income allowance is the most obvious culprit, the impact of the restriction of mortgage interest relief should not be overlooked. 

With bands frozen, interest rates increasing, and the reduction in the top rate threshold for the additional rate of tax, there will be a significant reduction in post-tax returns for many taxpayers. 

The short vs long-term impact

Over the next three years, expect to see an increased demand for properties at the lower end of the market.

At the same time, look out for a quick spike in sales as individuals and families try to beat the new implementation date for the halved CGT annual exemption, set to come into effect in April 2023.

Beyond this time frame, and once all announced changes have come into effect, we should expect to see, in theory, a decline in the number of disposals – people tend to hold off from selling their assets during unfavourable conditions.