Budget time always brings debate about tax and housing and what this means for decision-making on property sales volumes and values.
When it comes to tax, recent governments have focused on how to raise revenues more than focus on how the taxation of property can help drive better outcomes for the efficient functioning of the market. This would require major reforms that are politically challenging.
Instead, governments have introduced greater complexity to target taxes that hit a smaller proportion of homes but generate more revenue.
So what might the government do in this Budget and what would be the impact?
While the focus is on policies to support economic growth, they will have an eye on revenue raising to fund new investment. It’s fair to conclude that if you own more than one property you will be paying more in tax.
There are four areas to watch out for:
Stamp duty in England and Northern Ireland – stamp duty is devolved but most tax is paid in southern England. While there are many proposals put forward every year at budget time, I don’t see any major changes here with the exception of one eye-catching headline opportunity.
Stamp duty receipts have grown fast in recent years generating over £13bn a year. It’s really a tax on buying in southern England which accounts for 56% of the annual bill of which around half is paid for by people who own more than one home (those with the ‘broadest shoulders’ in political parlance).
At the other end of the spectrum half of sales pay no SDLT. For those that day stamp duty 16% of sales over £500k account for 70% of the total stamp duty bill.
The extended stamp duty relief for first-time buyers (FTB), bought in by Kwasi Kwarteng in 2022, is set to expire in March 2025. This helps the 8 in 10 FTBs looking to buy for below £425,000. There must be a good chance there is an announcement that this relief is made permanent. This would be sold as a big win for FTBs – it really benefits those looking to buy in southern England.
Council tax revaluation – there is an outside chance we could see a simple council tax revaluation. Today’s tax bands were set in 1992 and are out of date. A plain revaluation wouldn’t change much in terms of what people pay but it could unlock further reforms for the future.
Academics and economists want more widespread reforms that start to make the tax system fairer but these would represent major changes which have winners and losers that are very politically challenging.
Chancellor Rachel Reeves
CGT at marginal rate of tax? – One of the tax areas that wasn’t protected in the manifesto was capital gains tax (CGT) although it only brings in 2% of all tax receipts. Tax rates on earnings are roughly twice as high as those on capital gains. There is a school of thought that encourages people to hold onto assets, re-enforced by no capital gains when a person dies. Media speculation suggests that tax rates for capital gains could align with what a person pays on income. Thus sales of residential property could see CGT increase from 24% for higher-rate tax payers to 45%.
In the last tax year, 120,000 people sold 132,000 residential properties with an average capital gain of £50,000 on which they paid an average of £11,000 in CGT. This amounted to £1.5bn in tax on residential disposals. Moving to the marginal rate of tax would see CGT from residential disposals likely double to £3bn. Small by comparison to stamp duty but more meaningful and an extra cost for investors and second homeowners.
Investors have been hit by a succession of tax changes since 2016 and this is another in a long list of factors influencing decisions on whether to buy or sell. Second homeowners are responding to a doubling in council tax from 2025 and speculation over higher CGT rates with second home hotspots seeing homes for sale grow 4x faster than the rest of the market.
Untouchable – CGT on main residence? – one of the biggest tax breaks in the UK, and many western countries, is no tax on the capital gains made for your main residence. In the UK the Government estimates it’s worth over £36bn a year. This definitely fits in the wider reforms category and seems untouchable. It remains a big tax break that supports home ownership.
Overall it’s people with more than one property and those in southern England that will continue to pay the lion’s share of transaction and disposal-related taxes.
However, before crying out too loudly, those living in southern England benefit greatly from the way council tax operates. Any reforms to council tax would see people in southern England pay more as bills fall in lower-value markets. The tax system like everything is far from perfect.
The Renters’ Rights Bill, which was introduced in the House of Commons last month, is scheduled to have its second reading today.
The government has provided the following briefing which provides background to the bill and an overview of its main provisions:
‘The bill implements commitments in the 2024 Labour Party manifesto to reform the regulation of the private rented sector and is intended to “give greater rights and protections to people renting their homes, including by abolishing section 21 ‘no fault’ evictions and reforming grounds for possession”. Most of the bill’s provisions apply only to England.
The bill builds on the Renters (Reform) Bill which was introduced in the House of Commons by the Conservative government on 17 May 2023. The bill did not complete all its parliamentary stages before the dissolution of Parliament in May 2024.
The bill, together with its explanatory notes (which provide a clause-by-clause explanation of the bill) are available on the Parliament website.
This briefing explains the background to the bill and the bill’s main provisions.
What would the bill do?
The Renters’ Rights Bill would:
Reform tenancies
abolish assured shorthold tenancies and with them, section 21 ‘no fault’ evictions. Instead, private rented sector tenancies would be periodic assured tenancies with no end date – providing more security for tenants. Tenants would need to provide two months’ notice to end the tenancy.
reform and expand the grounds for possession to enable landlords to reclaim their properties when necessary, whilst ensuring appropriate safeguards for tenants.
Strengthen tenants’ rights
limit rent increases to no more than once per year, requiring landlords to serve a statutory (section 13) rent increase notice and give at least two months’ notice. Tenants would be able to challenge above-market rent increases through the First-tier Tribunal (Property Chamber).
prohibit the practice of ‘rental bidding’. Landlords and letting agents would be required to publish an asking rent for their property. They would then be prohibited from inviting, encouraging or accepting offers of rent above the asking price.
give tenants the right to request a pet, which landlords must consider and cannot unreasonably refuse. Landlords would be able to require insurance to cover potential damage from pets.
make it illegal for landlords to discriminate against tenants who receive benefits or who have children when letting their property.
Create a landlord redress scheme
introduce a new ombudsman service for the private rented sector, which all private landlords would be required to join. The service would provide fair, impartial and binding resolution for tenants’ complaints about their landlord. It would have powers to compel landlords to issue an apology, provide information, take remedial action, and/or pay compensation.
Create a private rented sector database
create a new private rented sector database to bring together key information for landlords, tenants and local authorities. This would enable: 1) tenants to access key information to inform their choices when entering new tenancies and throughout their tenancy; 2) landlords to understand their legal obligations and demonstrate compliance; and 3) councils to target enforcement activity where it is most needed.
Create a legal standard for property conditions
introduce a decent homes standard to the private rented sector and provide local authorities with the power to enforce it. The bill would also apply Awaab’s Law to the sector, which would set timescales within which landlords must make homes safe when they contain serious hazards and empower tenants to challenge unsafe conditions. The details will be set out in secondary legislation.
Expand enforcement powers
expand rent repayment orders, including by: 1) extending them to new offences; 2) doubling the maximum penalty; and 3) ensuring repeat offenders have to pay the maximum penalty. Rent repayment orders allow a tenant or local authority to apply to the First-tier Tribunal (Property Chamber) for an order that a landlord or their agent has committed an offence and should repay rent of up to a maximum of 12 months.
strengthen local authorities’ enforcement powers, expand financial penalties and introduce a new requirement for authorities to report on enforcement activity. The bill would also give the Secretary of State the power to appoint a lead enforcement authority, whose role would include providing guidance and information to local authorities to ensure consistent enforcement.
The Ministry of Housing, Communities and Local Government has published a guide to the Renters’ Rights Bill. See below.
To date, the bill’s impact assessment has not been published.
Why is the government legislating?
The bill is intended to address a range of issues in the private rented sector, including those associated with assured shorthold tenancies.
Assured shorthold tenancies were introduced by the Housing Act 1988 and became the default tenancy in the private rented sector in England from 28 February 1997.
The sector has grown significantly since then; 4.6 million households rented their home from a private landlord in 2022/23, representing 19% of all households in England. A diverse range of households, including families with children, live in the sector.
Assured shorthold tenancies offer no long-term security of tenure. Section 21 of the 1988 act enables private landlords to repossess their properties without having to establish fault on the part of the tenant. It is referred to as the ‘no-fault’ ground for eviction.
Housing insecurity can have a range of negative impacts on people’s physical and mental health, finances, employment prospects, and ability to form support networks in their local community.
Lack of security also means tenants can feel unable to enforce their rights in relation to repairs and to challenge unreasonable rent increases. The private rented sector has a higher proportion of properties that do not meet standards than other housing tenures.
Additionally, private landlords in England are not required to belong to a redress scheme. Tenants are often left to negotiate with their landlords and enforce their rights through the courts. The court system can be costly and time consuming for both tenants and landlords.
Landlords have also reported problems with the current system of private renting. For example, they have had problems recovering properties when faced with anti-social behaviour or rent arrears. They use section 21 to avoid lengthy processes and the uncertainty associated with evicting tenants through a section 8 notice (which is used when a tenant has breached the terms of a tenancy). Landlords also report difficulties in accessing information and support to navigate the laws and regulations in the sector.
Although local authorities have extensive powers to address poor property conditions and management standards in the private rented sector, there’s evidence of low and inconsistent levels of enforcement between authorities. A lack of robust data and information on the sector is recognised as a key barrier to effective enforcement action.
When would the bill come into force?
Following Royal Assent, most of the act’s provisions would come into force on a date(s) to be specified by the Secretary of State in regulations.
The government “wants to see tenants benefit from these reforms as quickly as possible”. It therefore intends to introduce the new tenancy system for the private rented sector in one stage. Upon the commencement date, the new tenancy system would apply to all private tenancies – existing assured tenancies would become periodic, and any new tenancies would be governed by the new rules.
The BBC has reported that the government hopes to have the new tenancy system in place by summer 2025. The government says it “will work closely with all parts of the sector to ensure a smooth transition to the new system, and will provide sufficient notice ahead of implementation”.
Reaction to the bill
The bill, in particular the abolition of section 21 ‘no fault’ evictions, has been broadly welcomed by organisations representing tenants, the housing sector and local government.
Responding to the introduction of the bill, the chief executive of the housing charity Shelter, Polly Neate, referred to it as “a watershed moment”. Generation Rent, a campaigning organisation that represents renters, said the bill was “an important step forward for our rights which should be celebrated”. Chief executive of the homelessness charity Crisis, Matt Downie, said it would “provide tenants with long-overdue security and protection against homelessness”.
Tenant organisations have urged the government to pass the bill as soon as possible to prevent landlords from rushing to evict tenants before the new legislation is in force. They have also called for stronger protections for tenants, in particular to prevent unaffordable rent increases. The Renters Reform Coalition (RRC) of charities and campaign groups wants in-tenancy rent increases to be limited to the lower of inflation or wage growth. It also considers all grounds for possession should be discretionary, so that courts can take a range of factors into account when considering a possession claim.
Landlord bodies initially opposed the abolition of section 21. Both the National Residential Landlords Association (NRLA) and the Large Agents Representation Group have emphasised the tenancy reforms represent “the biggest change to the sector for over 30 years” and the sector must be given sufficient time to prepare for the changes. Landlords have also called for court reforms to improve the speed and efficiency with which possession claims are processed.
The provisions to establish an ombudsman service for the private rented sector and to require all private landlords to join have been broadly welcomed by all stakeholders, as has the establishment of a private rented sector database.
Enforcement measures are viewed as important by all stakeholders. London Councils and others are calling for adequate funding so local authorities can carry out effective enforcement.
Landlords considering quitting the sector will be buoyed by Zoopla’s statement today that current mortgage rates – the lowest for 15 months – are supporting a rebound in sales activity across the UK.
Sales agreed and buyer demand are both up by more than a quarter over the last four weeks compared to the same period a year ago as households that have held off making moving decisions over the last two years return to the market. The number of sales agreed is 25% higher than a year ago.
Sales are up by over 10% across all areas and are up to 30% higher across the East Midlands and North-East.
The number of homes for sale continues to grow as greater confidence amongst sellers sees more homes listed for sale – this includes homeowners looking to move as mortgage rates fall but also investors and second home owners selling in response to recent and possible tax changes.
A third (32%) of homes for sale on the site are currently ‘chain free’ as investors and second home owners look to sell homes amidst recent tax changes and speculation around further tax changes in the upcoming October Budget. The most common ‘chain free’ homes are 2 bed houses with 41% currently listed as chain free on Zoopla. Previously rented homes account for 13% of homes for sale on Zoopla.
Many English councils are expected to double council tax for second homes in 2025. Coastal and rural postal areas popular with second home owners, such as Truro (47%), Torquay (44%), Exeter (41%), Lincoln (41%) and Bournemouth (40%), have all seen available supply increase by over 40%, as a result of these incoming tax changes. However, annual house price growth is still negative in these areas with rising supply keeping house prices in check.
Affordability continues to be a constraint on house price growth, especially in southern England. London prices have registered the biggest turnaround over the last year moving from annual price falls of 1.7% a year ago to modest price gains of 0.5% today.
Whilst house prices are lower than a year ago in the South West, South East and Eastern regions of England, in the rest of Great Britain, house price growth is higher than a year ago with prices up to 2.5% higher. Home values in Northern Ireland are 5.5% higher, having under-performed the rest of the market in recent years.
The portal says greater choice for home buyers is expected to keep house price growth in check in the months ahead. Most new listings are home-owners looking to sell and buy another home. However, not all homes are ‘brand’ new to the market. A fifth of homes currently for sale were previously on the market at some stage in the last two years.
While market conditions are improving, setting the right price is important to attract buyers. The same applies to the fifth of homes for sale that have been on the market for more than six months, still unsold. This explains why a similar proportion have had their asking price cut by up to 5% to attract buyers who remain price sensitive in the face of greater choice.
Over a third of sales (37%) are being agreed at more than 5% below the initial asking price, highlighting further how buyers continue to be competitive with offers. This proportion has improved from a year ago but remains at a level that suggests low single digit house price growth ahead.
“Lower mortgage rates are delivering a much needed confidence boost to homeowners, many of whom have sat on the sidelines over the last two years. Market activity is up across the board and expectations of lower borrowing costs will continue to bring buyers and sellers into the market” says Zoopla executive director Richard Donnell.
“Speculation over possible tax changes in the Budget and the impact of previous tax changes are continuing to add to the growth in the number of homes for sale. We remain in a buyers market and greater choice of homes for sale will keep house price inflation in check into 2025.“
Bank of England governor Andrew Bailey says his monetary policy committee could be a “bit more aggressive” in cutting interest rates later this year.
In an interview in The Guardian Bailey says that the UK economy has proved more resilient than he feared two years ago, or even a year ago.
He is quoted as saying: “I think the economy has come through the shocks of the last five years better than many of us feared. So there’s a base there to develop. The government is right to focus on how to encourage capital investment. There is a clear need for it in terms of infrastructure.
“We’ve got at least three very big structural issues out there. One is the ageing population, which obviously we’re not alone in that one. Two is the demands for increase in defence spending. And the third one is dealing with climate change.”
Inflation as measured by the Consumer Prices Index currently stands at 2.2% – just above its official 2% target – but Bailey told the newspaper that he was encouraged by the fact that cost of living pressures had not been as persistent as the Bank thought they might be.
He said if the news on inflation continued to be good there was a chance of the Bank becoming more “a bit more activist” in its approach to cutting interest rates at its upcoming meetings in November and December.
One issue which may affect timings of future rate cuts was the growing tension and conflict in the Middle East. The possibility of a major lift in oil prices – not seen so far in the period since he Hamas attack on Israel last October – remained a threat to financial stability, warned Bailey.
He also hit back at claims by the former prime minister Liz Truss that the Bank of England was part of a so-called “deep state” that had set out to thwart her plans. Truss’s problems were of her own making, the governor said.
Bailey’s suggestion of a more aggressive approach towards rate cuts appears to have been welcomed by the markets, with Swap rates falling.
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: “A number of lenders are already in the process of repricing – Coventry’s two and five-year fixes which top the best buy tables at 3.89 and 3.69 per cent respectively are being pulled tonight, while HSBC is repricing downwards today and NatWest and Barclays are repricing tomorrow.
“Santander is also repricing tomorrow and is likely to top the ‘best buys’ with its new deals – a two-year purchase option at 3.84 per cent for those borrowing 60 per cent loan-to-value and a five-year fix at 3.68 per cent, also at 60 per cent LTV.
“This ongoing rate war among lenders is great news for borrowers as there are some really compelling deals being launched, which will go some way to helping affordability.”
