Autumn Budget and the UK’s Private Rental Sector
Labour’s election manifesto contained several proposals for policies that may signal an era of increased regulation for the lettings industry, including those outlined in the recently reviewed Renter’s Rights Bill.
Today, Labour released their official Autumn Budget statement. It has come with some positive and some challenging changes which landlords need to be aware of moving forward.
Here, we detail the key takeaways of the Autumn Budget and how they are likely to impact landlords and the wider private rental sector.
Key Takeaways from the Autumn Budget
Increased Capital Gains Tax Rates
Capital Gains Tax has a huge influence on investment decisions and has resulted in increased caution within the lettings market in anticipation of the Autumn Budget. Today’s decision to spare an increase on residential properties will no doubt be a sigh of relief for many landlords. Rates on residential property will remain at 18% and 24%, meaning that those restructuring their property portfolio’s in light of other tax changes will not face increased costs of selling.
Landlords looking to invest in buy-to-lets may now want to consider other taxes, such as Stamp Duty, and continue to structuring the sale of their assets to make use of your annual exempt amount for each year or offset any losses against rental gains.
Setting up limited companies can help landlords remain more tax efficient and soften the blow of having additional properties.
Increased Stamp Duty on Second Homes
Labour has raised Stamp Duty Land Tax on second homes to 5% – from 3% – from October 31st, leaving little time for landlords to plan accordingly and causing those looking to widen their property portfolio to re-evaluate their position.
Other Considerations
New EPC Regulations
As promised in their election manifesto, the Labour government have pressed ahead with changes to EPC regulations meaning that all rental properties will need to meet a minimum EPC C rating by 2030.
This means that landlords with older properties within their portfolios will face costly upgrades to meet energy efficiency targets. However, this in itself presents some key opportunities in the long term, including the potential for higher property values and increased competitiveness as tenants increasingly seek more energy efficient properties. Tenants are more likely to stay in energy efficient properties for longer due to the increased quality of life and reduced monthly bills they offer – meaning reduced risk of void periods.
We expect to see an increase in landlords seeking new builds as they expand their portfolios for their increased energy efficient qualities as a cost-effective way of ensuring compliance with any upcoming energy efficiency standard changes.
House Building Targets
Labour’s election manifesto detailed more directed house building targets, focussing on regions of the UK with the highest needs for more homes – particularly in the Midlands and the North.
From a landlord’s perspective, any form of regeneration into these areas – which are already experiencing the highest growth in rental prices – will only act to support continued growth in the future.
What Does This Mean for Landlords?
Ultimately, these Autumn Budget changes have a knock-on effect on landlords, the rental market and rental yields.
Whilst there had previously been an increase in landlords selling properties to avoid increase CGT, there will be a considerable drop in landlords doing so as the market gains more clarity on taxes and people re-evaluate their strategies.
The UK rental market is robust and has experienced sustained growth across the UK in recent years. Rightmove’s latest Rental Trends Tracker revealed that average advertised rents have hit a 19th consecutive quarterly record of £1,344 pcm nationally (excluding central London), which equates to a 2.3% increase from Q2.
With tenant demand also being relatively high compared to previous years and changes to stamp duty likely to impact the amount of homebuyers entering the market in the short term, the long term outlook for the rental sector remains optimistic. According to Zoopla’s September Rental Market Report, competition for rented homes is still running at twice pre-pandemic levels as affordability issues within the homebuyer market persists, with the property portal also expecting this to continue throughout the next 12 months.
SevenLiving CEO, Charlotte Thursfield says:
“As Stamp Duty Land Tax on second homes increases to 5% tomorrow but Capital Gains Tax on second homes remaining unchanged, landlords will be reevaluating their future property portfolio and exercising more caution moving forward. However, the long-term strength of the rental sector and the opportunities presented in the budget puts the private rental sector in good stead to weather the storm.
“Over the last 12 months, both demand and rental growth has remained on an upward trajectory. Average rents hit its 19 consecutive quarterly record of £1,344 pcm nationally – excluding central London – and we expect sustained demand for rental properties to support this growth long into 2025.
“There is now a greater need for landlords to remain informed moving forward, particularly with the Renters Rights Bill making its way through parliament under the Labour government.
“We would urge landlords to seek professional advice so they can navigate these changes and determine the best course of action for maintaining maximised returns on their property portfolios in light of these budget implications.”
“We would urge landlords to seek tax advice so they can navigate these changes and get in touch with our experienced lettings agents to determine the best course of action for maintaining maximised returns on their property portfolios in light of these budget implications.
“Our team of lettings experts are landlords themselves and are on hand to offer insight and advice to those navigating a very different rental landscape.”