New Labour Chancellor Rachel Reeve dropped her government’s first budget on 30th October, but was it a trick or a treat for landlords?
The latest budget introduced significant measures impacting landlords, so let’s take a look at the things that will affect you and then we’ll get stuck into the details.
Stamp duty surcharge increase. The budget raised the stamp duty surcharge on additional properties from 3% to 5%.
No changes to Capital Gains Tax. Although there were no updates to Capital Gains Tax rates, the government did not rule out potential reforms in the future.
Energy efficiency incentives. Yes, energy efficiency is still on the agenda and to support the government’s environmental objectives, the budget introduced grants and tax reliefs for landlords to improve the energy efficiency of their properties.
Build-to-Rent incentives. The government announced new support for build-to-rent developments, intending to address the rental supply shortage.
These changes suggest the government’s focus on both regulating the rental market and encouraging sustainable housing improvements. But, given that there are already existing supply issues, with landlords exiting the marking, driving up rental costs for tenants,could these measures reduce the appeal of property investments and potentially lead to higher rental costs?
Let’s take a deeper look…
Stamp duty increase
No one can say that the government doesn’t move quickly when it wants to because the new stamp duty increase takes effect TODAY. So that’s definitely a Halloween trick for landlords everywhere.
The idea behind the increase is to curb demand in the buy-to-let market by increasing upfront costs for landlords looking to purchase new rental properties.This hike means landlords purchasing additional properties will see higher upfront costs, which could lead to reduced expansion of rental portfolios. Critics argue that this measure might exacerbate the rental supply shortage, potentially increasing rental prices as fewer landlords invest in new properties .
While the idea seems to be to encourage homeownership (which perhaps it will do in the long term!) it does nothing for the current supply issues. Over the last few years, tenants have seen their rents skyrocket, due to increased mortgages that landlords need to cover and the competition over properties. This means that saving for ever higher deposits is harder than ever, so a tax change that discourages landlords will only see supply slump further and drive costs up. Unfortunately, the Chancellor did not indicate if there would be any changes to support the rental industry and ease the burden on both landlords and tenants.
While the Chancellor pledged: “This will support over 130,000 additional transactions from people buying their first home, or moving home, over the next five years,” she sadly didn’t elaborate on how.
No changes to Capital Gains Tax
Higher rate taxpayers already pay 24% CGT, so it’s positive that there are no further changes. The lack of change may offer temporary relief to landlords concerned about the tax implications of selling properties, but it does suggest that further adjustments could still be on the horizon…
Richard Donnell, Head of Research and Insight at Zoopla, said:
“The private rented sector has seen static supply since tax changes introduced in 2016 and there is a steady net selling by landlords in response to tax policy, but also greater regulation of housing and higher mortgage rates. We need to keep as many landlords as possible in the market to provide choice for renters facing limited choice and to prevent rents rising faster than earnings, which hits those on low incomes the hardest.”
Energy efficiency
Rather like the coming and going of Section 21, we’ve been talking about changes to EPC ratings for YEARS. The upcoming requirement will demand that all rental properties meet at least an EPC rating of C by 2030.
This is good news for tenants, who should see this impact their energy bills as properties become more energy efficient. But for landlords with properties under that rating, it does mean investment. For some, this could be fairly minor changes, but you could own an older property that requires significant work to get it up to snuff.
Thankfully, the Labour government seem to realise that landlord’s pockets aren’t bottomless pits and financial assistance will be available for upgrades like:
Insulation
Double glazing
Green heating technologies
These are pretty costly upgrades, so hopefully that’s a relief for some who were wondering how they’d manage to comply with future standards.
Build-to-Rent incentives
So we’ve already touched on how changes to stamp duty tax will put off landlords who want to expand their portfolio and we all understand the impact that will have on the rental market.
However, the Chancellor also announced £3bn of support for build-to-rent developments, which will address the ongoing supply issue. By encouraging developers to invest in long-term, purpose-built rental properties, the government hopes to increase housing availability and stabilise the rental market.
This does mean that more of the support is weighted towards companies than individual landlords who have invested in property for their future, but at least this does acknowledge the supply problem and is a step towards a solution.
While no one is likely to be surprised by the fact there’s not a lot in the new budget to benefit landlords, it’s perhaps more of a mixed bag than expected. It’s clear from the announcements made that the government wants to focus on regulating the rental market and encouraging sustainable housing improvements. But many on the rental frontlines will argue that these measures could reduce the appeal of property investments and potentially lead to higher rental costs if supply tightens.
We’d love to hear your thoughts - are there more negatives than positives in your opinion? Let us know in the comments below!
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