Budget 2024: Landlord shake-up as taxes cut but reliefs scrapped

The Capital Gains Tax (CGT) rate on properties has been reduced by 4 percentage points for individuals who pay a higher rate of tax. Additionally, the tax relief scheme for holiday rentals has been eliminated.

In today's Spring Budget, Chancellor Jeremy Hunt made significant changes to property taxes. These included reducing capital gains tax and eliminating tax relief for holiday properties.

The CGT rate on residential property, which is currently 28%, will be lowered to 24%. If you sell non-permanent residences like buy-to-lets, second homes, and holiday lets, you'll have to pay CGT on property sales.

The tax rate for property sales is higher compared to other assets like stocks, where investors who pay higher taxes are charged at 20%. According to Hunt, the Treasury and OBR's analysis showed that lowering the tax rate could result in an increase in sales, leading to a boost in revenue due to higher sales volume. However, the CGT property rate for taxpayers in the basic tax bracket will remain unchanged at 18%.

In the meantime, the government plans to get rid of the furnished holiday lets rules (FHL) by April 2025. These regulations provide tax benefits to folks who rent out their homes as holiday accommodations. The reason for this is that holiday lets limit the amount of long-term rental options accessible to local residents. Currently, landlords who make use of the FHL scheme can subtract the entire expense of their mortgage interest payments from their rental earnings and maybe pay less capital gains tax when they sell. Approximately 127,000 properties in the UK are enrolled under the FHL policy.

The mixture of the two plans may be regarded as an additional strategy to compel private landlords to exit the market. Numerous investors who purchase properties to rent out have shifted their focus to the holiday letting sector to enhance their profits since mortgage interest relief was removed on residential properties. By eliminating the relief and offering a greater encouragement to sell and pay a reduced CGT charge, rental properties could become available on the market. Nonetheless, those landlords who have set up a company under limited liability will remain unaffected. The budget papers state that the combination of these two measures will generate £600mn by the year 2028-29.

The tax partner of Evelyn Partners, Christopher Springett, stated that the reduction in CGT does not agree with the previous discussion of matching CGT with income tax rates. However, he also noted that the rate of CGT on residential property is still 4% higher when compared to other commodity classes. This means that investing in property requires a higher capital growth to ensure that returns after taxes are competitive with stocks in a portfolio.

Shaun Moore, who is an expert in the field of tax and financial planning at Quilter, stated that ending the holiday let relief would not be well-received by many of the Conservative party's fundamental supporters. Quilter determined that an ordinary FHL may experience a decrease in tax relief totaling £2,835 each year under these conditions. The calculation utilized a worth of £350,000 for property acquisition, an annual mortgage rate of 4.5 percent, and an income from rental of £20,000.

According to him, there is a possibility that the quantity of properties available for vacation rentals may decrease, leading to a potential negative impact on the tourism industry in the area. Conversely, individuals who reside in areas with a large number of holiday rentals could benefit by having the opportunity to purchase homes in their own communities at more affordable prices.