The first Labour Budget in 14 years was never going to please everyone. This was a tax raising Budget, with the Chancellor’s plans expected to bring in an extra £40bn. Employers will be shouldering much of the financial responsibility, with funding public services core to Labours plans.
The announcement on additional borrowing had already unsettled investors in the run up to the budget, driving government borrowing costs to a five-month high. But leaks and briefings on some key policies pre-Budget appear to have had the desired effect meaning we’re still below post mini-budget levels.
For housing there was little evidence of some of the much-speculated changes we heard rumour of in the run up. Some will see this as a missed opportunity. But this is far from the worst-case scenario many had feared. And clarification on government plans, or at least an end to pre-budget speculation, should bring more prospective buyers back to the market.
After all, the housing market looks to be in decent shape. Mortgage approval figures in September were at their highest for more than two years, with lower rates bringing more prospective buyers back to the market. Prices are edging up in response and activity across the market is recovering, too.
So what was in the budget for housing?
UK economy on the path to recovery
The latest figures from the Office for Budget Responsibility (OBR) suggest the UK economy will grow by 1.1% this year and by 2.0% in 2025 in real terms. Inflation (CPI) is expected to sit marginally above the 2% target each year until 2029.
Stamp Duty Land Tax (SDLT)
Changes to stamp duty rules mean those purchasing properties in addition to their main residence (buy-to-let and second homes) will now pay a 5% rather than 3% surcharge. Adding £10,000 to the stamp duty bill for a £500,000 home.
The single rate of SDLT charged on the purchase of dwellings costing £500,000 or more by corporate bodies will also rise from 15% to 17%.
Increases in rates were not necessarily viewed as a significant revenue raiser (an extra £400 million by 2029/30) but would rather level the playing field between first time buyers and investors. But extra stamp duty for additional properties was not accompanied by an increase in incentives for first time buyers, with nothing in the budget on the first time buyer zero rate thresholds, which are due to drop back from £425,000 to £300,000 in April 2025. Instead, the government has committed to consult the industry on extending the mortgage guarantee scheme, effectively a 5% deposit scheme for first time buyers. News on that is promised in Phase 2 of the Spending Review next Spring.
Capital Gains Tax (CGT)
Tax on gains for residential property were left at their current level of 18% for lower rate and 24% for higher rate tax payers. Disposal of other assets, including shares, was normalised with residential property at 24%. With suggestions that ‘normalisation’ could have been imposed with income tax rates, this should add some comfort to those in the sector.
Affordable housing
The government reaffirmed its commitment to deliver more affordable homes. A £500million top up was promised for the Affordable Homes Programme and a consultation for an ongoing five-year rent settlement at CPI+1 (guaranteeing the rent cap on the amount providers can charge) was announced. Those wanting clarity on future grant investment will need to wait until the Spending Review in Q2 next year.
Right to Buy
Discounts for those purchasing through Right to Buy scheme will be reduced and councils in England will be able to keep all the receipts from sales to deliver new homes. This will need further investment to stem the loss of social housing through the scheme, with the latest annual figures showing 3,046 homes started using Right to Buy receipts versus 6,275 sold.
Inheritance tax (IHT)
The Chancellor announced current inheritance tax thresholds will be frozen until 2030, two years ahead of plans pre-budget. This means individuals can continue to leave £325,000 free of tax, rising to £500,000 if leaving your home to your children. Couples can inherit each other’s allowance, meaning if you tick all the boxes £1million can be left free of IHT.
But new rules will bring previously exempt assets into play, meaning pensions, which had been IHT exempt, will fall within the totals from April 2027. Owners of agricultural and business property, again previously able to benefit from exemptions, will from April 2026 need to consider their liabilities over certain thresholds, although allowances will mean an effective rate of 20% rather than 40%.
Housing supply
We’ve already heard from the government on its plans for delivering more homes, so perhaps a lack of detail within the budget was to be expected. The government committed £5bn to their housing building programme in 2025/26 and repeated its commitment to provide 300 new planners (effectively less than one per authority), but the new planning framework (NPPF) due at the end of the year is expected to fill in some further gaps here.
Non-doms
As expected, the government announced it will end current non-domiciled tax rules from April 2025 and introduce a new residence-based system. For those looking to bring assets into the UK, the government will extend the temporary repatriation facility from two to three years. This isn’t new, and follows similar plans announced under the Conservatives. The budget confirmed that only gains made after April 2017 will be considered as part of the new proposals, but the door is still open for government to bring worldwide assets within the scope of UK inheritance tax.
What we missed
With the government having already announced plans to reinstate ambitious housing targets post-election we had hoped the budget would include some news on stimulus for demand. Yet incentives for home purchase, changes to stamp duty land tax (aside from the increase for additional properties) and the reintroduction of Multiple Dwellings Relief were conspicuous in their absence this time around.
More positive news on the UK economy and further interest rate cuts expected before the end of the year will likely support house price growth. But while we acknowledge increasing demand when supply remains low could challenge affordability further, the government needs to reassure developers and investors that there will be a market for a higher number of new homes they’ve committed to deliver.
