After months of anticipation, Chancellor Rachel Reeves will unveil her autumn Budget on Wednesday, 30 October. With potential implications for landlords, it’s important to consider what might be in store.
But First, a Caveat
As is the case with any major fiscal event, leaks and speculation are inevitable, and Labour’s first Budget in 14 years is no exception. Some of the coverage has been speculative and, in certain cases, alarmist. However, Labour has pledged not to raise income tax, VAT, or employee NI contributions, while warning that the Budget could be “painful,” suggesting no room for lavish giveaways. Ultimately, nothing is certain until the Chancellor presents her Budget to Parliament on 30 October. Therefore, it may be wise to hold off on any significant decisions until the full details are revealed. (We’ll come back to this later.)
Capital Gains Tax (CGT)
Landlords who sell a rental property pay tax on the profit made from the sale, known as capital gains. Currently, the rates are 18% for basic rate taxpayers and 24% for higher-rate taxpayers. There has been widespread speculation that these rates might increase, potentially aligning with income tax rates. However, recent reports, including an article in The Times, suggest that changes to CGT for second homes and buy-to-let properties may not be forthcoming, with hopes that Rachel Reeves will maintain the current rates. This is especially pertinent as the introduction of the Renters’ Rights Bill looms.
Inheritance Tax (IHT)
Inheritance tax is currently set at 40% for estates above £325,000, although some exemptions apply. There’s speculation that this threshold could be lowered, which would bring more estates into the IHT net. Additionally, there are whispers of IHT being applied to pension pots, which are currently exempt from the tax.
Energy Efficiency
The Government continues its drive towards making homes more energy efficient. Labour has resurrected the Tory-proposed plan (later scrapped) requiring rental properties to have an Energy Performance Certificate rating of C by 2030. We might see Budget measures encouraging landlords to get ahead of these changes, potentially through grants or funding to aid compliance.
Pensions
At present, individuals can withdraw 25% of their pension tax-free, up to £268,275, when they turn 55. Speculation suggests that the Chancellor may reduce the size of this tax-free lump sum. Additionally, there could be less generous tax relief for higher earners on pension contributions.
Key Takeaways and Advice
No matter what’s included in next week’s Budget, it’s important to stay calm. Typically, changes don’t come into effect until the next tax year, so nothing would change until April 2025 at the earliest. Be cautious about reacting to speculative advice. We’ve seen articles suggesting landlords rush to sell their properties in 30 days to avoid possible CGT hikes, often via quick-sell companies or auctions. Such decisions could result in selling at a lower price than on the open market. Why take such a gamble when CGT changes may not even happen? Also, consider what you would do with the proceeds of a rushed sale. Investment in stocks, for example, could be risky, with prices fluctuating (remember April’s global stock market wobble?) and also subject to CGT.
The Bigger Picture
On a brighter note, some positive economic trends offer hope. Inflation has dropped below the Bank of England’s 2% target to a three-year low of 1.7%, making an interest rate cut in November highly likely. Meanwhile, house price growth has hit a two-year high (source: Nationwide), and private rents increased by 8.6% last year (source: ONS), highlighting continued strong rental demand.
Seek Professional Advice
Given the complexity of the tax system, it’s always best to speak to a financial adviser before making significant decisions. They can help tailor strategies to your individual retirement and succession plans. Additionally, it’s a good idea to review the structure of your rental portfolio to ensure it’s tax-efficient. We’ll be closely monitoring the Budget, so get in touch with us after the announcement to find out how any changes might affect you.