Budget puts the squeeze on additional property purchases

Solicitors working in the prime residential sector always know to keep their diaries free for the evening of Budget Day, and October 2024 proved no exception.  Once again buyers were targeted, this time with a rise from 3% to 5% on the surcharge rate for second home and corporate buyers.  The change took effect from the end of 30th October, meaning a busy night for lawyers taking last minute instructions from clients keen to exchange contracts before the clocks struck midnight. 

The surcharge is in addition to the normal Stamp Duty Land Tax (SDLT) rates that apply to residential property purchases in England. SDLT rates are tiered based on the property price, with higher percentages applied to the portion of the purchase price that falls within each band, and the 

second home SDLT surcharge then forming an additional tax burden on top of the base rates.  It applies to anyone purchasing an additional residential property that isn’t a replacement for their main residence, such as a second home or a buy-to-let investment. Buyers of these properties now have to pay an extra 5% in SDLT on top of the standard rates for the entire price of the property.

Based on past experiences with rate increases and market commentary, the introduction of this surcharge is expected to lead to a temporary cooling effect at the lower end of the prime property market. The market will need time to adjust to the new surcharge over the next 6-12 months, and some buyers may decide not to go ahead with purchases that now feel less than essential.  The Government's decision to impose these additional costs on second homeowners and corporate buyers reflects an ongoing strategy to raise revenue from the residential property sector, with implications for slowing down the wider housing market and changing investment trends over the longer term.

In addition, the increase in Capital Gains Tax (CGT) to 32% on carried interest may have an impact on the perceived purchasing power of those working in private equity. These buyers have historically been a small but significant contributor to the prime property market. Changes to agricultural and business property reliefs from inheritance tax coming in next year could also influence decisions around the purchase of country properties with land, reducing the tax planning benefits previously associated with such properties.