Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Higher-rate taxpayers selling residential property in the UK will pay less capital gains tax, the chancellor announced in the Budget on Wednesday, arguing the measure would increase tax revenue.
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.
Homeowners in the UK generally do not pay capital gains on their main residence, so the changes will mainly affect private landlords and second homeowners.
The change came alongside two other changes that are likely to cost those groups more — abolishing tax relief for some holiday lets in 2025 and ending the multiple dwelling relief from stamp duty land transaction tax this year. The Treasury said the three measures would raise an additional £605mn in 2025-26.
Lucian Cook, head of residential research at estate agent Savills, said the measures appeared tailored to “‘raise more revenue, as much as to address the housing crisis”.
“The biggest implications are going to be for private investors and, to a lesser extent, second homeowners,” he added.
The Treasury said the capital gains changes would “encourage landlords and second homeowners to sell their properties, making more available for a variety of buyers, including those looking to get on the housing ladder”.
Against a backdrop of consistent underdelivering of new housing supply, the government is looking to use the tax system to push for existing homes to be used more efficiently.
Some analysts had argued for a change to stamp duty to encourage downsizing by homeowners who have more space than they need. The impact of the capital gains tax changes will be limited because they do not apply to main residences.
Hunt also abolished the furnished holiday lets regime, which gives tax breaks to holiday rental businesses. The chancellor said the scheme, which is more favourable than the tax paid by long-term landlords, created “distortion” by encouraging people to turn rental homes into holiday lets.
A 2022 report from the Office of Tax Simplification found that the rules benefit a “relatively small core of people running a substantial short-term letting business, and a long tail of second-home owners renting one property”.
Michael Gove, levelling up secretary, last month pushed ahead with other policy changes to crack down on holiday lets, which he blames for hoovering up housing supply in tourist areas. He said the government plans to force second-home owners to seek planning permission to create new short-term lets, and create a mandatory national register of short-term rental properties.
Hunt said the changes announced in the Budget would “make the tax system work better for local people”.
Tax relief for buyers of multiple homes in one transaction will also be scrapped. Hunt said rules that allow purchasers of multiple dwellings to pay less stamp duty were designed to encourage investment in the private rental sector. But he said there was “no strong evidence” that it does so, and that the relief was “regularly abused”.
The British Property Federation said the change could hit investors wanting to buy badly needed rental homes.
Overall, the Budget disappointed hopes of a big move to help boost the property market, help first-time buyers get on the housing ladder or increase housing supply.
Graham Prothero, chief executive of housebuilder MJ Gleeson, said: “We didn’t expect a lot, and we got a bit less.”
