Ritika Janiya
In the latest Budget announcement, the UK’s Chancellor Rachel Reeves shared some big changes set to impact home buyers, landlords, and investors. From tomorrow, buying a second home or rental property will be more costly, as Stamp Duty on these kinds of properties will go up from 3% to 5%. This increase is just one of several new tax adjustments Reeves introduced, all aimed at boosting the public finances by filling a £22 billion gap. Let’s break down what this all means and how these changes may affect people across the country.
Stamp Duty Jumps for Landlords and Second Home Buyers
Stamp Duty is a tax anyone buying property in the UK pays. But if you’re buying an investment property, like a buy-to-let, or a second home, you pay an additional tax on top of the standard rates. Until today, this extra tax was 3%, but now it’s jumping to 5%. So, starting tomorrow, landlords and people buying second homes will have to pay more tax when they make their purchases.
For example, if a landlord buys a £300,000 property, they’d pay £15,000 in Stamp Duty instead of £9,000, due to this increase. Rachel Reeves says this change will help bring in more funds for the government, helping to fix financial issues in the country.
Capital Gains Tax Gets a Raise Too
The Budget announcement didn’t just stop at Stamp Duty. Reeves also raised Capital Gains Tax (CGT) on most assets, though residential property rates remain the same. For non-property assets, the lower rate of CGT is going up from 10% to 18%, and the higher rate from 20% to 24%.
For landlords and investors, this might seem like a big hit, but it’s not all bad news. The CGT rates on residential property sales—typically more relevant for landlords—will remain steady at 18% for basic rate taxpayers and 28% for higher rate taxpayers. This means landlords selling rental properties won’t see a new increase on the CGT front, which comes as a small relief in an otherwise pricey tax update.
Changes in National Insurance for Employers
Another notable change is that employers’ National Insurance contributions (NICs) are set to rise. NICs are taxes paid by employers and employees that go towards state benefits and the NHS. Currently, employers pay a NIC rate of 13.8% for each worker, but this will now increase to 15%.
Additionally, Reeves has lowered the income threshold where these contributions kick in, from £9,100 down to £5,000. This means companies, including real estate agencies, will need to pay NICs on more of their employees’ earnings. This change is expected to impact small business owners and agencies, especially those in the real estate sector, who may now face higher payroll expenses.
Inheritance Tax Freeze Extended
Inheritance Tax (IHT) rules were also part of the Budget announcements, with Reeves deciding to extend the current freeze on the IHT threshold until 2030. Currently, estates valued up to £325,000 are not taxed when passed on to beneficiaries. Any amount over this threshold, however, is subject to IHT.
By freezing the IHT threshold, the government is trying to generate more revenue over time. While the threshold remains the same, as property values and assets increase, more estates may cross the limit, resulting in more people paying IHT. This extension could lead to families paying more in taxes when inheriting property and other assets over the coming years.
Non-Dom Status Ends – Big News for Wealthy Residents
Perhaps one of the most significant changes announced was the abolishment of the “non-dom” status. In the past, wealthy foreign nationals who lived in the UK but claimed a “non-domiciled” status didn’t have to pay UK taxes on their foreign income. This special tax treatment has been widely debated, as some see it as an unfair advantage for the wealthy.
Rachel Reeves announced that the non-dom rule would be replaced with a new system where everyone living in the UK must pay UK taxes on their global income. This change might discourage some wealthy individuals from making London or other prime UK areas their home, as they could lose the tax advantages they previously enjoyed.
Reeves emphasized the importance of fairness, saying that the tax system should ensure that everyone living in the UK contributes to it equally. “The Budget is closing loopholes in the tax system,” she said. Ending the non-dom status is a move to promote fairness while also boosting the country’s tax revenue.
Why Are These Changes Happening?
Rachel Reeves explained that these changes are needed to address a £22 billion shortfall in the public finances. Over the years, financial gaps have widened due to factors like inflation, higher spending on public services, and global economic challenges. By increasing taxes on wealthier individuals, landlords, and business owners, Reeves aims to help stabilize the economy.
Reeves hopes these tax adjustments will provide the funds necessary to support public services, including health care, education, and infrastructure. However, some critics argue that these new taxes could discourage investment and make it harder for first-time buyers and renters.
