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Higher rate taxpayers selling residential property in the UK will pay less capital gains tax, arguing that the measure will increase tax revenues, the Chancellor of the Exchequer announced in the Budget on Wednesday.
Jeremy Hunt said the tax paid on capital gains from such transactions would fall from 28 per cent to 24 per cent for higher-rate taxpayers from April after government studies showed the change would raise revenue by encouraging more people to sell. .
UK homeowners do not generally pay capital gains on their main residence, so the changes will mainly affect private landlords and second home owners.
The change came alongside two other changes that are likely to cost these groups more – scrapping the tax break for some holiday lettings in 2025 and ending the multi-dwelling exemption from stamp duty tax on land transactions this year. The Treasury said the three measures would raise an additional £605 million in 2025-26.
Lucien Cook, head of residential research at property firm Savills, said the measures appeared tailored “to raise more revenue, as much as they are aimed at tackling the housing crisis”.
“The biggest implications of this will be for private investors and, to a lesser extent, second home owners,” he added.
The Treasury said the changes to capital gains “will encourage landlords and second home owners to sell their properties, making more available to a diverse range of buyers, including those looking to get on the housing ladder.”
Against the backdrop of a continuing shortfall in the supply of new housing, the government is looking to use the tax system to pressure existing homes to be used more efficiently.
Some analysts have argued for stamp duty changes to encourage downsizing by homeowners who have more space than they need. The impact of the changes to capital gains tax will be limited because it does not apply to principal residences.
Hunt also abolished the Furnished Holiday Allowance Scheme, which gave tax breaks to holiday letting companies. The Chancellor said the scheme, which is more favorable than the tax paid by long-term landlords, created a “distortion” by encouraging people to convert rented homes into holiday rentals.
A 2022 report by the Office of Tax Simplification found that the rules benefit “a relatively small group of people who operate large short-term rental businesses, and a long-term group of second homeowners who rent a single property.”
Last month, Michael Gove, the settlement secretary, pushed forward with further policy changes to crack down on holiday lettings, which he blames for oversupplying housing in tourist areas. He said the government plans to force second home owners to obtain planning permission to create new short-term rentals, and create a mandatory national register of short-term rental properties.
Hunt said the changes announced in the budget “will make the tax system work better for local people.”
The tax exemption for buyers of multiple homes in one transaction will also be eliminated. Hunt said the rules allowing buyers of multiple homes to pay lower stamp duty were aimed at encouraging investment in the private rental sector. But he said there was “no solid evidence” that it did, and that relief was “regularly abused”.
The British Property Federation said the change could affect investors wanting to buy much-needed rental homes.
Overall, the budget disappointed hopes of taking a big step to help boost the property market, help first-time buyers get onto the housing ladder or increase housing supply.
“We didn't expect much and got a little less,” said Graham Prothero, chief executive of housebuilder MG Gleeson.
