What Does the Autumn Statement Mean for Landlords? 

As the skies darken and the cold winter months begin to take hold, the outlook for landlords looks set to get ever bleaker. On the 17^th of November, the government announced its Autumn Statement, with the new Chancellor of the Exchequer – Jeremy Hunt – opting to take a decidedly different path to his predecessor’s low-tax, high-growth message.  

The Autumn budget comes with a raft of changes that will affect landlords, including: 

• Reductions in the Capital Gains Tax thresholds. 
• Limitations on the recent Stamp Duty changes. 
• A freeze on income and personal tax thresholds. 

It is worth providing some backdrop to these changes, which could well be viewed as entirely negative announcements for the landlord community.  

The UK is in a Recession 

Analysis by the Office for Budget Responsibility (OBR) suggests that the UK has already entered a recession and the economic environment is only set to worsen. Gross Domestic Product (GDP) is set to shrink by 1.4% in 2023, as inflation remains at a persistently high 7.4% over the year. In tandem with this, unemployment is forecast to rise from its historically low levels to 4.9% by 2024. It makes for grim reading indeed.  

Undoubtedly, a faltering economy will bring economic hardship to us all. But it especially hurts those at the bottom of society, with the least to spare. As such, the budget focuses on extending support to those on benefits, disability allowance, and receiving state pensions. However, such measures come at a cost and the rest of society is expected to shoulder the burden through higher taxation. Despite decades of increased taxation and hostile legislation, landlords are no exception to this.  

Capital Gains Tax to Increase 

Perhaps the most impactful change for landlords will be the amendments made to Capital Gains Tax (CGT). Jeremy Hunt has announced plans to cut the tax-free allowance for capital gains, more than halving it in the coming year alone. The current threshold of £12,300, will fall to £6,000 in April 2023 and just £3,000 from April 2024. A blow to investors and landlords alike, with the average landlord set to pay an additional £2,600 on the sale of their properties according to Hamptons. 

In the UK, the profit made from the sale of second homes is eligible for Capital Gains Tax. Landlords who own properties under their own name are required to pay taxes on the profits they make from selling their non-primary residences. For example, in the case of a landlord who has seen the value of their property appreciate by £20,000, prior to this announcement, Capital Gains Tax would have been levied on £7,700 of this figure – equivalent to £1,386 for a basic rate taxpayer. As of April 2024, £17,000 of the original £20,000 will be eligible for tax – equivalent to £3,060 for a basic rate taxpayer. 

Property Investors Disproportionally Affected by Capital Gains Tax Changes 

It is worth noting that the scales are already set against landlords when it comes to Capital Gains Tax. Residential property sales attract an 8% premium compared to other eligible assets, which means landlords pay a higher rate of tax on their profits than other investors. For example: 

• Basic rate taxpayers are taxed at a rate of 18% on second homes, compared to 10% for other eligible assets. 
• Higher rate taxpayers are taxed at a rate of 28% on second homes, compared to 20% for other eligible assets. 

Tim Walford Fitzgerald, tax partner at HW Fisher says:

The one shining light for landlords is that Jeremy Hunt opted not to increase the rate of Capital Gains Tax, as was rumoured ahead of the budget. 

Stamp Duty Changes Will Impact Landlords but This May Change 

One of the headline changes in the previous ‘Mini-Budget’ was the substantial increase in Stamp Duty thresholds. Kwasi Kwarteng, Hunt’s predecessor in Number 11 Downing Street, announced the amendments with the hope that it would support the housing market and increase the number of transactions. Although some commentators worried that the changes were fueling an already overheated property market.   

Kwarteng’s amendments focused on increasing the threshold at which Stamp Duty is levied. His September statement included the following changes: 

• The threshold at which house buyers begin paying Stamp Duty has been increased from £125,000 to £250,000.  
• The threshold at which first-time buyers start paying Stamp Duty has been increased from £300,000 to £425,000. 

Unfortunately, two months is a long time in politics and Jeremy Hunt has opted to re-look at Kwarteng’s flagship policy. Whilst the Autumn Budget refrains from changing the rate at which Stamp Duty is applied – keeping Kwarteng’s new thresholds – it has put a time limit on the policy. The new thresholds will end on March 31^st, 2025. Hunt argues that by doing this, it will:

Personal Tax Changes Will Impact Landlords  

The Autumn Budget includes a range of wider hitting tax increases. Perhaps most notably, the threshold for the top rate of 45% tax has been reduced from £150,000 to £125,140. This means that those earning £150,000 or more will pay an additional £1,200 in income tax each year. As opposed to two months ago when it was muted that the top rate of income tax would be reduced to 40% 

Arguably, the less visible but more financially detrimental announcement comes in the form of a freeze on Income Tax and Inheritance Tax thresholds. The thresholds on both will be frozen until at least 2028. During a time of high inflation, this will force an increasing number of taxpayers and homeowners into higher tax brackets. In many ways, the freezing of these brackets is a form of stealth tax. It is less visible from the outset but will result in hundreds of thousands of middle-income households being squeezed by higher rates of marginal tax for the next 6 years.  

Dividend Allowance Changes Will Impact Landlords Using Limited Company Structures 

The government has also opted to halve the dividend allowance over the next 12 months. The current allowance of £2,000 will fall to £1,000 next year and then halve again to just £500 in April 2024. This means that by 2025, anyone receiving dividends over £500 will pay tax on them at the following rates: 

• 8.75% for basic rate taxpayers. 
• 33.75% for higher-rate taxpayers 
• 39.35% for additional rate taxpayers 

This change will especially impact landlords who have chosen to hold their properties in a limited company structure. Typically, most landlords who have incorporated will opt to pay themselves dividends from the company rather than wages.  

Increases are Funding Support for Those Who Need it Most 

It is without a doubt that the announced changes are financially detrimental to landlords and investors alike. As times become harder and the property market begins to falter, landlords are expected to finance increased government expenditures. As such, it is worth understanding where some of the increased taxes are being spent: 

• The minimum wage is set to rise by 9.7% from £9.50 to £10.42. 
• State pensions and means-tested disability allowances will rise by 10.1% in the coming year. 
• Universal Credit payments will increase in line with inflation, rising 10.1% next year. 
• Households will receive up to £1,350 in cost-of-living payments, including: 
  • £900 for those on means-tested benefits. 
  • £300 for those receiving state pensions. 
  • £150 for those in receipt of disability allowance. 
• Household energy prices will be capped at the slightly higher rate of £3,000 a year. 
• Social housing rents increased will be capped at 7%. 

The above measures will increase government expenditure by more than £69 billion over the next two years. It is hoped that the short-term boosts in spending will help to boost the economy and support the most vulnerable in society. However, the policies also risk disincentivizing investment and exacerbating our nation’s already sclerotic productivity rates.