(Bloomberg) — A series of tax increases proposed by Chancellor Rachel Reeves is set to deal a blow to the top end of the UK’s property market, with some analysts warning that the measures could cause a slew of agreed deals to collapse.
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The first budget presented by a Labour government in 14 years on Wednesday proposed a surprise two percentage point hike to stamp duty for landlords and second-home owners. The extra levy, coming into effect Thursday, will further damp demand from investors and landlords who have been selling up in droves, according to Peter Stimson, head of product at MPowered Mortgages.
“Buy-to-let landlords and second home owners were expecting another tax squeeze from the chancellor,” Stimson said. “But what they got was a whack with a hammer,” he added, warning of the danger that thousands of planned purchases could now be abandoned.
The measure — the latest in a succession of tax increases designed to deter investors in favor of first-time home buyers — was consistent with the wider tone of a budget that seeks to place the burden of higher public spending on businesses and investors while protecting working people.
Other changes include a return to higher stamp duty bills from April, meaning home buyers will pay 2% on the portion of the property valued between £125,001 ($162,540) and £250,000. First-time buyers will only be able to claim relief on homes with a maximum value of £300,000.
Rental Market
These will have an impact on the rental market as well, according to Lucian Cook, head of residential research at broker Savills Plc.
“The risk is that it further constrains the supply of private rented accommodation, keeping upward pressure on rents,” Cook said. “New buy-to-let investors will be very thin on the ground, and even existing larger, wealthier, landlords, will think very carefully about whether they continue investing.”
Shares of homebuilders including Barratt Redrow Plc, Vistry Group Plc, Taylor Wimpey Plc and Persimmon Plc gave up most of the early gains they saw immediately after Reeves’ speech, mirroring gyrations in the gilts market.
Reeves, the first female chancellor to deliver a budget, also increased the rate of capital gains tax, a move that was widely trailed, but exempted gains on second-home purchases.
“Any relief buy-to-let landlords and second homeowners may have felt from seeing their exposure to capital gains tax unchanged will have been very short-lived given an increase in the stamp duty land-tax surcharge,” Cook said.
The changes to stamp duty may create a rush of buyers seeking to beat the deadline, followed by a lull, according to a Bloomberg Intelligence report.
Fiscal Plan
Reeves’ budget broadly revealed tens of billions of pounds worth of tax hikes and spending cuts in her fiscal plan. She wants to use the funds to cover a £22 billion shortfall she said she inherited from the previous Conservative administration, while also spending more on the National Health Service and ensuring no government department faces real-terms cuts to their funding.
In a blow to the ultra-rich, Reeves confirmed plans to abolish the non-doms tax regime, instead introducing a new plan based on residency. Speculation about the proposal had already spooked many non-doms, prompting some of them to finalize or even carry out plans to leave Britain. She also increased the tax on carried interest for private equity managers starting April 2025.
The increase in stamp duty is likely to hit London and the south east the hardest, according to Zoopla Ltd.’s head of research Richard Donnell. The top end of the capital’s housing market is also likely to be the most vulnerable to higher taxes on non-domiciled workers and private equity executives.
In her budget speech, Reeves said she will reform inheritance tax on agricultural and business property so that assets over £1 million will be subject to an effective tax rate of 50% starting April 2026. Still, the chancellor pledged to keep the £325,000 threshold in which inheritance tax is payable until at least 2030, and did not raise the headline rate from the current 40% despite fears of a hike.
Affordable Housing
At the same time, Reeves committed £3 billion to boost the supply of homes and support small developers, while vowing to boost the availability of affordable housing. The chancellor also committed to reducing so-called “Right-to-Buy” discounts for Britons who purchase their council house with the aim of reinvesting the extra money into housing delivery, as well as ensuring above inflation social housing remits for the next five years to encourage development.
Still, landlords were spared another blow after years of surging costs, as a highly speculated increase to the capital gains tax charged for higher-rate taxpayers selling a second home was not included in the budget. Former Chancellor Jeremy Hunt reduced the higher rate to 24% from 28% earlier this year in a bid to encourage existing holiday home owners to sell, freeing up more stock for local buyers.
Measures already announced by Labour to help first-time buyers — such as mortgage guarantees for prospective owners unable to save for a large deposit — may have little effect, with rate cuts more likely to offer greater relief, according to BI. What’s more, analysts have warned that government plans to ban no-fault evictions and tighten green requirements in the lettings market could make matters worse for cash-strapped tenants as landlords are forced to raise costs or sell up.
