Here’s a quick round up of the impact of the first Budget since the new Government came into power on house buyers, property owners and the much feared inheritance tax!
So, October 30th 2024 saw the new Labour Chancellor Rachel Reeves deliver her first budget. A budget of firsts – the first for this new Labour Government, and the first budget to be delivered by a Female Chancellor! As a predominantly female team, this is a proud day for professional women, and we echo the Chancellor’s introductory words about women realising their dreams and smashing through those glass ceilings – but that’s a subject for a different blog….
A change in Government always makes budgets so much more anticipated – and arguably for the right reasons. Nobody likes change, and with people already struggling to meet their cost of living, people waited with baited breath to see what tax changes we would face.
The new Government were elected on promises to boost economic stability and growth. However, promising not to increase taxes on working people, means that the Government has to find ways to increase Treasury income somehow.
Capital Gains Tax and Inheritance Tax are headline grabbers, but in reality, they have a disproportionate fear factor when you consider that in terms of tax generation, they generate just £23billion in tax revenue compared to the £303billion that income tax brings in. But, they’re headline grabbers as they affect hard working people who have worked hard to feather their nests both for themselves, and eventually, their families.
All too often, as Solicitors working with clients to plan their estates, we hear phrases such as Inheritance Tax being the “final insult” considering that most people have paid their taxes along the way to purchase the assets that they own and that are assessed for these taxes. Nonetheless, whether you agree with these taxes or not, they are what they are, and we all therefore awaited this first budget with baited breath.
Looking at how the budget affects the services we offer at Northern Law Solicitors, the budget can be summarised as follows:
STAMP DUTY LAND TAX
Stamp Duty Land Tax (SDLT) has been an evolving area of taxation for a number of years now. We’ve seen incentives come and go – no Conveyancer will ever forget the Covid SDLT reliefs and the deadline before the reliefs ended. My husband forgot what I looked like for that last month and my hairdresser became my best friend in an effort to cover my grey hairs! But SDLT is always going to be an area for any Chancellor to look at. SDLT can drive a housing market, and it can stifle it. But the tax itself is a big player – last year netting a huge £14.9billion in revenue.
In 2016 a higher rate of SDLT came into force – meaning that anybody buying an additional residential property would be taxed a higher rate than those buying them for residential purposes – 3% above the residential rates. Doesn’t sound a lot, but on a house priced at £150,000 this can be surcharge of £4,500.00.
This now increases from a 3% surcharge to 5% with immediate effect. Using the example of the property at £150,000.00 SDLT will now be £7,500.00. This will not be welcome news for people buying buy to let properties or holiday homes, but there is some comforting news on the other side of the prong – see Capital Gains Tax below.
First time buyer relief has been steadily zero for the first £425,000.00 (maximum purchase price of £625,000.00), but this was due to drop back to zero for the first £300,000.00 (maximum purchase price of £500,000.00) from 1st April 2025. This has now been confirmed and this relief will now end on 31st March 2025. This means that a First Time Buyer buying at £425,000.00 will now pay SDLT of £6,250.00 (compared to zero) if they don’t complete by 31st March 2025.
The nil rate band for clients who have owned a house before, for example home movers, was £250,000.00 (rather than £125,000.00), but no extension to this was announced, and therefore, this will end on 31st March 2025. This means that properties that don’t complete before the end of March 2025 will pay stamp duty on anything above £125,000.00. Buying at £150,000.00 from 1st April 2025 means your stamp duty will now be £500.00. Buying at £250,000.00 and your SDLT will be £2,500.00 as opposed to zero.
Those grey hairs may be back by the 31st March 2025.
CAPITAL GAINS TAX
Of course, Capital Gains Tax (CGT) is a somewhat discretionary tax. Investors largely decide whether or not to incur these taxes – after all, they can usually decide whether or not to dispose of the assets that will incur the tax, or whether to keep them and hope for some friendlier CGT treatment in the future. Both of which can impact the property market.
The welcome news for property investors is that CGT rates on residential properties has not changed. It remains at 18% or 24% (depending on the applicable tax band) as it was. There have been increases to other CGT rates but this is beyond the topic of this blog.
INHERITANCE TAX
Prior to this budget (in simple terms), Inheritance Tax (IHT) has sat steadily at 40% of anything above £325,000.00. Homeowners have had an additional residential nil rate band of £175,000.00, meaning that a person with a house valued in excess of £175,000.00 has had an IHT allowance of £500,000.00. Married couples have been able to roll this together, and therefore, with a house worth £350,000.00 or more (or the proceeds of the sale of the former house if downsizing has taken place of more than £350,000.00) they have had a fairly healthy IHT allowance of £1million.
The great news for our clients is that the Chancellor has confirmed that the rates will be staying as they are until 2030. An increase would have been welcomed, but I don’t think anybody expected that, and at least our clients can now consider their estates with some welcomed certainty.
SUMMARY
All in all, the expected changes haven’t hit as hard as they could have done, with the only real affects being the changes to stamp duty for additional property owners (quite a hefty increase) and the first time buyers, although they’ll still continue to enjoy a tax free allowance of £300,000.00.
Please note that this blog is a general summary of the budget and nothing contained within is tax or legal advice.
If you feel that any of the above affect you, or you would like to discuss your estate planning or property buying requirements, please don’t hesitate to contact us on 01706 398398 or via our email address: shaw@northernlaw.co.uk
