Following The Chancellor, Jeremy Hunt’s Spring Budget on 6 March, it’s important to understand the impact his announcement has had for property investors.
We’ve asked Lesley Sutton, Director from our Huddersfield office, to break down the key points from the budget and to explain what they mean for property investors.
Take it away Lesley
The Spring Budget brings some significant changes for property investors. From Stamp Duty Land Tax (SDLT) to Capital Gains Tax (CGT). Below I’ve listed some key highlights to help both new and experience investors navigate these changes.
Goodbye to Multiple Dwellings Relief
Starting from June 1st, 2024, the government is abolishing Multiple Dwellings Relief (MDR) from Stamp Duty Land Tax. Broadly, this relief provides an alternative way to calculate the SDLT payable when two or more dwellings are acquired under the same or a linked transaction.
HMRC consulted on this relief is 2022, which raised concerns that it was being mis-used in the residential conveyancing market, usually for high value property transactions with a main dwelling and other subsidiary dwellings on site. As a result, the expectation was that the relief would be reformed, for instance restricted to business use assets only, however this is not the case and instead the relief is being abolished.
If you exchanged contracts before March 6th, 2024, you’ll still get the relief, even if the transaction completes later, providing that there is no variation in the contract.
If you want to read more on these changes, our Head of Indirect Tax, Matt Orange, explains in more detail here.
An end to the tax benefits from Furnished Holiday Lettings
Another big change is the end of the Furnished Holiday Lettings (FHL) tax regime, which will be abolished in April 2025. FHL’s have historically benefitted from several tax advantages, when compared to a standard residential letting business. The benefits included full tax relief for interest costs, capital allowances and access to business asset disposal relief (10% rate of capital gains tax).
These changes were not unexpected given the concerns about housing shortages for local residents and workers in specific parts of the country.
The restriction to the tax relief for interest costs is likely to provide the biggest hit for taxpayers. Initial indications are that this will not be phased in, as it was for standard residential letting businesses, not giving businesses much time to assess the financial impact or to restructure their business models. Please near in mind, that any commercial changes made may also have an impact on other areas of tax, such as inheritance tax reliefs and so need to be considered fully before implementation.
We are still waiting for the draft tax legislation to support the proposed changes to FHLs to emerge, and so watch this space for further updates!
It’s not all bad news!
The government also announced a reduction in the higher rate of capital gains tax that applies to residential property. The rate applicable to higher rate taxpayers has been reduced from 28% to 24% from 6 April 2024. This applies to disposals made by individuals, trustees, and personal representatives.
This change was intended to encourage landlords and second homeowners to sell their properties, freeing up more homes for first time buyers. Only time will tell if this objective is achieved.
Why you need specialist tax advice
The Spring Budget brought some significant changes for property investors, we are here to guide you through the changes and provide you with proactive and commercial advice to manage your tax position going forward.
From understanding new tax rules to making sure you’re not paying more than you need to, having an expert on your side can save you time and money. As the tax regime gets ever more complicated, having a specialist advisor becomes more important than ever.
Overall, regardless of the above tax changes, property investment remains an attractive proposition in terms of yields and capital returns. Having a specialist tax advisor can help you to make the most of your property investments.
