The 2024 Autumn Budget, delivered by Chancellor Rachel Reeves, introduced several changes to real estate taxation. These changes are part of a broader strategy to increase government revenue and fund substantial infrastructure investments.
Many of the measures included in the Budget have been widely pre-announced. So, for example, there has been a substantial increase in employer's national insurance contributions (though there is some amelioration for small business employers).
Some changes are less severe than anticipated. The rise in the higher Capital Gains Tax (CGT) rate from 20% to 24% could certainly have been worse, as could the rise in CGT on carried interest (a similar 4% rise from 28% to 32%). The difference between the rates of tax on earned income and capital gains remains significant and this difference could be a focus of further reform in the future.
The key property tax changes are set out below.
Stamp Duty Land Tax (SDLT) increases
Two surprise SDLT increases took effect from 31 October 2024. These changes are aimed at generating additional revenue from the real estate sector, particularly from higher-value residential transactions and second home purchases.
Contracts (other than options or pre-emption rights) which have been exchanged prior to this date can potentially continue to benefit from the lower rates. However, purchasers should ensure that such contracts are not varied, assigned or sub-sold.
SDLT surcharge for second homes and corporate purchases
The SDLT surcharge for the purchase of second homes and properties by corporate entities has been increased from 3% to 5% - taking the maximum SDLT rate to 17% for any slice of consideration over £1.5 million for these purchasers. This change will impact companies and individual investors purchasing additional residential properties, making such investments more costly; and (to maintain returns) these additional costs are likely to be passed on through higher rents.
Flat rate for high-value corporate purchases
The flat rate of SDLT charged on the purchase of residential properties by corporate bodies and other non-natural persons, where the property value exceeds £500,000 (if no relief is available), has been increased from 15% to 17%. This measure targets high-value residential property transactions, ensuring that larger house purchases by corporates contribute more significantly to the tax revenue.
Build-to-Rent investors will be disappointed to note that multiple dwellings relief from SDLT has not been reinstated despite extensive lobbying from industry.
Capital Gains Tax (CGT) adjustments
The Budget also introduced much-anticipated changes to Capital Gains Tax (CGT) rates, which will affect real estate investors and property sellers. These rates are lower than first feared by many.
Property investors will be relieved that there has not been a more wide-ranging structural reform to the CGT regime. A number of reforms, which have not been implemented, were proposed by the Institute for Fiscal Studies prior to the Budget including: a widening of the CGT tax base; a change to an accruals basis of taxing UK gains on UK assets where an individual becomes non-UK resident prior to disposal (an 'exit' charge); and taxing (even on a deferred basis) the CGT-free uplift to market value on death.
Capital gains (even at 28%) continue to be far more lightly taxed than earned income, and closing that gap is a tempting target for future Budget statements.
Rate increases:
The lower rate of CGT, applicable to individuals with taxable income and gains below £37,700, has been increased from 10% to 18%.
The higher rate of CGT, applicable to those with taxable income and gains above this threshold, has been increased from 20% to 24%. These changes align the CGT rates on general assets with those on residential property gains, which remain unchanged.
Date of disposal rules:
Alongside this rate change, transitional rules have been introduced which alter the date of disposal for CGT purposes in certain circumstances.
Usually, the date of disposal of an asset is the date on which the contract is exchanged (for unconditional contracts) or the date on which the last condition is satisfied (for conditional contracts).
Under the new rules, if an asset is transferred on or after 30 October 2024 under an unconditional contract made before that date, the disposal is treated as taking place at the time the asset is transferred, not at the time the contract is made, unless the contract is an excluded contract.
A contract is considered "excluded" if obtaining a tax advantage (via the time of disposal rule) was not a purpose of entering into the contract. It is notable that this provision does not use the usual phrasing of 'main purpose'. This new wording may make it challenging to claim that unconditional contracts exchanged in the run up to Budget Day are subject to the older pre-Budget rates, likely bringing more transactions into the new higher-rate regime.
This change aims to prevent tax avoidance by accelerating the date of disposal for tax purposes and the manner in which it has been drafted marks a significant departure from previous transitional provisions.
Business Asset Disposal Relief (BADR)
Changes to Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs' Relief, may also impact real estate transactions involving business assets.
Despite the increase in the main rate of CGT, with the rate for BADR not increasing until April, there remains a good opportunity for some owners of companies to secure CGT treatment on exit that is equivalent to what they would have been able to achieve under the pre-Budget regime. Shareholders selling shares worth up to £1 million who qualify for BADR and have not yet used any of their lifetime limit may be able to take advantage of the continued saving offered by BADR.
Rate increases:
The rate of CGT for disposals qualifying for BADR will increase from 10% to 14% in April 2025 and to 18% in April 2026. This phased increase aims to gradually align the tax treatment of business asset disposals with other capital gains.
Lifetime limit:
The lifetime limit for BADR remains unchanged at £1 million. This means that qualifying business owners can still benefit from reduced CGT rates on gains up to this limit.
Business Rates reform
The Budget also includes significant reforms to business rates, aimed at providing relief to certain sectors and transforming the business rating system.
The initial steps announced to reform the business rates system were:
• An intention to introduce permanently lower multipliers for retail, hospitality and leisure (RHL) properties with a rateable value (RV) under £500,000 from April 2026-27.
• An intention to fund this via a higher multiplier on properties with RV of £500,000 and above, which includes the majority of large distribution warehouses including those used by online giants.
• Support for RHL properties in the interim period leading up to the new permanent multiplier by providing 40% relief to RHL businesses on their business rates in 2025-26, up to a cash cap of £110,000 per business.
Future reforms:
A discussion paper has also been issued to invite dialogue about future reforms to the business rating system. The Government aims to transform the system to make it more equitable and efficient, with input from industry stakeholders.
Carried interest changes
'Carried interest' is a long-term performance-related reward for investment managers, structured as a share of profits generated by the investment fund managed by those managers. Except where it is treated as being "income based", carried interest returns are currently taxed as capital, but at the higher rate of 28%. The rates of CGT which apply to carried interest will increase from 28% to 32% with effect from 6 April 2025. This rate is still far lower than income tax rates on equivalent receipts from employment – rates at up to 45%, and nearer 50% when National Insurance contributions (NICs) are added in.
It is this difference in rates that has attracted political attention – particularly where little risk is assumed by managers (e.g. amounts invested by managers are modest or the venture is not risky). More subtly, there are already a number of regimes within the existing carried interest tax code which do treat carried interest as income and tax it accordingly: for example, the disguised investment managers fees regime; the income-based carried interest rules (for short term holdings) and carried interest satisfied out of income returns.
From April 2026, the taxation of carried interest will be brought within the scope of the income tax legislation though at a special lower effective income tax rate of 32.625% (plus NICs) for additional rate taxpayers having "qualifying" carried interest – a consultation on the same will be announced in due course. See our separate article regarding changes to carried interest taxation for further details.
Reserved investor fund
The Government will proceed with the introduction of the RIF, a new type of UK-based investment fund for real estate.
What next?
The 2024 Autumn Budget changes to real estate taxation reflect the Government's focus on raising revenue through targeted tax increases. These changes will have a substantial impact on some property investors (mainly individual sellers).
As always, it is advisable for individuals and businesses affected by these changes to seek professional tax advice to navigate the new landscape and optimise their tax positions.
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