Autumn Budget – A summary for property landlords

The Autumn Budget took place on 30 October 2024. This was Rachel Reeves’ first budget as Chancellor and it intended to restore stability to our economy and to begin a decade of national renewal. Investment will be funded by revised debt rules to facilitate additional borrowing and a hefty £40 billion of tax rises. No changes were announced to income tax, so the taxation of rental profits will not change in 2025/26. The following measures will be of relevance to property landlords:

Capital Gains Tax

Whilst no changes were announced to the capital gains tax (CGT) rates on residential property gains, there will be increases to the rate of CGT applicable on other gains, such as disposals of commercial property or shares. For disposals made on or after 30 October 2024, the rate of CGT on gains falling in the basic rate band increases to 18% (from 10%) and the rate on gains above the basic rate band increases to 24% (from 20%). CGT rates on property gains are 18% and 24% for basic rate and higher rate bands, respectively. You must report and pay any Capital Gains Tax on a UK property sale within 60 days.

Furnished Holiday Lettings (FHLs)

The Chancellor confirmed that the FHLs regime will be abolished from April 2025, meaning an end to the beneficial tax treatment. Thereafter, profits from FHLs will be taxed in the same way as any other property rental business.

On 7 November, HMRC published the document ‘Clarification on abolition of the furnished holiday lettings tax regime’, which responds to common issues that have been raised by stakeholders.

The document outlines the tax consequences of the abolition as follows:

VAT – Holiday accommodation, whether previously qualifying as an FHL or not is still standard rated for VAT.

Relief for mortgage interest – individual landlords can still obtain relief for finance and mortgage interest costs, but only at the basic rate of Income Tax of 20%.

Capital allowances – after April 2025, no new capital allowances claims can be made in respect of fixtures or furniture. Replacement of Domestic Items Relief will then be available on replacement items.

Capital gains tax – business asset disposal relief (BADR) and other reliefs will no longer be available although transitional provisions will apply.

Losses – Any FHL losses carried forward beyond April 2025 will be treated as losses of the ongoing UK or Overseas property business going forward.

The document also addresses what has been raised as an unusual situation for FHL businesses commencing in the 2024/25 tax year. Where an FHL business commences in tax year 2024/25, the relevant period for the purposes of the occupancy conditions begins on the first day in the tax year on which letting commences and may extend past April 2025. However, FHL status only applies to the tax year 2024/25.

A transitional measure applies to business asset disposal relief eligibility for FHL businesses that cease prior to 6 April 2025. The document confirms that the date of cessation is not the date that further bookings stop being taken, it is the date from which there are no longer any bookings or lettings nor any intention to resume such activity in future.

Stamp Duty Land Tax

It has been confirmed that the 0% thresholds for Stamp Duty Land Tax (SDLT) will be reduced from 1 April 2025 as follows:

Main threshold: £125,000 (down from £250,000)

First-time buyers’ threshold: £300,000 (down from £425,000)

The Budget increased the Higher Rates for Additional Dwellings (HRAD) from 3% to 5%, effective 31 October 2024. So, for example, if the normal SDLT rate on a property purchase is 5%, someone buying a second home or buy-to-let investment would now pay 10% in total (the normal 5% rate plus the 5% HRAD surcharge). In addition, the single SDLT rate charged on purchases of dwellings over £500,000 by corporate bodies and non-natural persons (e.g. trusts) will rise from 15% to 17%.

The clear intent is to lessen the appeal for investors and businesses to acquire residential properties, compared to owner-occupiers and first-time buyers.

SDLT applies to properties in England and Northern Ireland. Property purchasers in Scotland and Wales do not pay SDLT – Land and Buildings Transaction Tax (LBTT) applies in Scotland, and Land Transaction Tax (LTT) applies in Wales. No amendments to these transaction taxes have yet been announced.

If you have any questions, then please feel free to get in touch with Tom Young on 023 8046 1254 or email Tom Young.