And so, the Autumn Budget 2024 has finally been delivered. The first Financial Statement to be presented by a Labour government in 14 years, it raises £40 billion in taxes and brings in a raft of changes across the spectrum.
From the perspective of the property market, the budget will affect buyers, sellers and, renters and landlords in various ways, both positively and negatively, but it is a relief to finally have clarity.
The market has been stuck in a state of limbo, with decisions on hold as buyers and sellers waited to see what the budget might bring. Now, with a defined path, we expect to see those who postponed key decisions re-entering the market, giving a much-needed boost to market momentum.
The Shift in Inheritance Tax on Pensions
One of the standout changes is the introduction of inheritance tax (IHT) on inherited pensions from 2027. For the first time, inherited pensions will fall under the IHT regime, marking a shift in how pensions are viewed by the government. Essentially, this closes a long-standing loophole that allowed people to use pension savings to build wealth and avoid inheritance tax, rather than as a dedicated retirement planning vehicle.
The new rule is intended to discourage the wealthiest 6% of savers from using pensions as a tax avoidance strategy. It will be interesting to see how this change impacts financial planning for high-net-worth individuals. Will we see a trend of people pulling funds from pension pots to invest in property or other assets as a means to shelter wealth? Only time will tell, but there is potential for this to impact the property market as investment strategies shift in response to tax changes.
Exemption of Second Homes from CGT Hikes – A Mixed Response
One area that has brought mixed responses is the decision to exempt second homes from the Capital Gains Tax (CGT) hike. On one hand, this exemption provides some reassurance for landlords and property investors, which may help stabilise the rental and investment property markets. However, this optimism is offset by an increase in Stamp Duty to 5% for second homeowners, which could deter potential investors from entering the market.
This balance between CGT relief and Stamp Duty increases suggests that while the government recognises the need to maintain stability, they are also aiming to manage market entry barriers. For existing landlords and tenants, this CGT decision brings a degree of continuity; for new investors, however, Stamp Duty increases could pose a challenge.
Scrapping Non-Dom Status and Its Impact on Prime Central London
The anticipated scrapping of non-dom status, a measure widely expected since before the Election, is a significant development. Prime Central London has long attracted ultra-high-net-worth individuals from around the globe, and this buyer demographic is a key part of the market here in the capital. The loss of non-dom status raises questions about how these high-net-worth buyers will view UK investments moving forward.
With a new framework on the horizon, details of how the replacement structure will affect ultra-high-net-worth individuals are critical. A well-calibrated policy could retain this demographic, while an unappealing framework could see a notable shift away from London investments. The Prime Central London market will be watching this very closely, as the presence (or absence) of these buyers has a substantial impact on property prices and demand.
Clarity at Last
Overall, this budget brings both clarity and complexity to the property market. Clarity comes in the form of a well-defined direction that allows buyers, sellers, and investors to plan ahead. However, the finer details – such as how the inheritance tax on pensions will be implemented and what the non-dom replacement policy will entail – will be essential in shaping long-term impacts.
In the near term, we expect market activity to pick up as those who delayed decisions due to budget uncertainty feel more comfortable to progress with their plans. As independent estate agents in both Prime Central London and South West London, Wilfords is here to guide our clients through these changes and provide insights to help you make informed property decisions.
If you have questions about how these budget changes may affect your property plans, feel free to contact us. We’re here to help you navigate the market with confidence.