The Chancellor of the Exchequer has announced that her budget will be on 26 November 2025. While it is still some way off, there is already much speculation as to what might be included, with Rachel Reeves reportedly having a far larger multimillion-pound black hole to fill than was the case with her maiden budget a year ago.
Having ruled out raising income tax, employee national insurance and VAT, the Chancellor has not left herself with many options.
Mark Harris, chief executive of SPF Private Clients, says: “With trillions of pounds of wealth tied up in the housing market, it is perhaps unsurprising that the Chancellor has it in her sights. However, she needs to tread carefully because even rumours can have a big impact on confidence. This delay until the Budget, and all the speculation and uncertainty that will likely circulate until then, will inevitably mean that buyers and sellers put decisions on hold. Not only will this stifle activity in the housing market, it could have a detrimental knock-on effect on the wider economy too.”
Below, we run through the main changes to property taxes which are being considered.
Imposing capital gains tax on sale of high-value main homes
Currently Capital Gains Tax (CGT) is charged on the increase in value of an asset when you sell it and as far as property is concerned, it is only charged on additional or second homes with main homes exempt from the tax. By imposing CGT on pricier homes, any gains on the sale of those homes would be subject to 24% tax for higher-rate taxpayers and 18% for lower-rate taxpayers. Critics argue that charging CGT on higher-value homes would slow down the top end of the housing market, so in reality it may not raise as much money as the government forecasts.
Replacing stamp duty and council tax with an annual property tax
Stamp Duty Land Tax, which is paid on the purchase of a property worth more than £125,000, is said to reduce mobility as it deters people from moving up or down the housing ladder. The Treasury is reportedly planning to replace stamp duty and council tax with a single new property tax set as an annual percentage of the value of your home, levied on homeowners with properties worth more than £500,000.
The annual rate would be set by government but a report for Onward, a centre-right think tank, suggests it should be a 0.54 per cent tax levied on homes worth between £500,000 and 1m when bought, and a higher rate for any home valued at more than £1m. Those purchasing homes costing less than £500,000 would not pay anything.
One of the problems with council tax as it stands is that it is based on what the value of your home was in 1991, when the tax was introduced. There is much opposition to what is perceived to be the unfairness of the current council tax system whereby for example, two people with homes of the same value may end up paying differing amounts if they live in different council areas.
National insurance levy for landlords
Currently, most landlords do not pay National Insurance but the Resolution Foundation has previously suggested that all landlords pay the tax at a basic rate of 20 per cent and an additional rate of 8 per cent for property earnings above £50,270 a year. This would not apply to properties held within a company structure.
Buy-to-Let specialist Howard Levy, director at SPF Private Clients, warns that the danger of increasing taxes for landlords, who have already faced a number of changes in recent years and still have the Renters’ Rights Bill to come, is that they will increase rents, or leave the sector entirely: “While we understand that Rachel Reeves needs to raise money and is looking at all ways of doing this rather than increase taxes, any further cost imposed on landlords will inevitably be reflected in rents,” he says. “Landlords need to ensure that their business remains profitable, so any National Insurance payment would need to be factored into the rents they are charging – so would in effect end up being paid by tenants.
“The issue with targeting the private rented sector is that landlords’ net yields have already been stretched over the past few years due to taxation changes, higher costs, licencing changes and higher interest rates. Depending on how high the level of NI the Chancellor looks to introduce, we could see many smaller landlords leaving the market. The upshot of this would then be less stock available to rent which in turn would also increase rents, assuming demand remains the same.”
With so much speculation and very little detail, it would be unwise to use this as a basis for making decisions about whether to buy or sell a property. You should only act now to beat the budget deadline if you were going to move anyway.
