Changes to the taxation of residential property

The Spring Budget 2024 introduced a number of changes to the taxation of residential property, with some winners and some losers from the announcements.

Details of the changes

Capital Gains Tax (CGT) on residential property

The higher rate of capital gains tax for residential property will reduce from 28% to 24% for disposals completing from 6 April 2024.  Where a gain on residential property falls within the available basic rate band the rate will continue to be 18%.  We may now see property sales being put on hold until 6 April however, it should be remembered that the annual exemption (the tax free amount of gains that can be made in a tax year) is also reducing from £6,000 to £3,000 on the same day.

Stamp Duty Land Tax (SDLT)

For Stamp Duty Land Tax (SDLT) the legislation will change to remove a relief known as Multiple Dwellings Relief for property purchases completing on or after 1 June 2024.  Transitional rules will also apply where a contract is exchanged on or before 6 March 2024, regardless of when completion takes place.  This tax relief was designed to reduce the amount of SDLT paid where a plot contained more than one “dwelling”.  In recent years claims for this relief have increased, and there may have been concern that the relief was too generous or that it was available to a larger number of properties than first envisaged.  This change does not affect purchases of six dwellings or more, which will continue to attract the non-residential rates of SDLT.

Furnished Holiday Lettings (FHLs)

Finally, as rumoured in the build up to the Spring Budget speech, the tax regime for Furnished Holiday Lettings (“FHLs”) is to be abolished from April 2025.  The main tax advantages that FHLs currently attract are as follows, and all are expected to cease:

  • The ability to deduct mortgage interest as an expense in calculating annual profit,
  • Potential to claim capital allowances on certain items, such as large furnishings,
  • Profits are considered to be ‘relevant earnings’ for pension contribution limits,
  • Capital Gains Tax relief may be available upon the sale of an FHL business, such as rollover relief and business asset disposal relief, subject to conditions, and
  • In extremely limited cases, the property business may qualify for relief from Inheritance Tax

The draft legislation has yet to be released and is expected to include anti-forestalling measures to prevent conditional contracts being entered into now in order to claim the capital gains tax advantages.  Whilst FHLs have attracted tax advantages for many years, the definition of an FHL has become tighter in recent years and a number of advantages were previously removed.  Normal residential lettings do not attract the tax advantages that FHLs do, and some landlords will have switched to FHLs in recent years, in response to the restriction on mortgage interest being claimed as an expense.  FHL landlords will have to consider over the coming year what the changes will mean for their letting business. Corporate landlords may also need to consider if the changes impact on shareholders, such as if they will meet the definitions for capital tax reliefs.

This article was written by Michael Morter in reaction to the Spring Statement 2024. Any updates will be added to this article accordingly. Should you have any questions regarding details within this article please use the form below to contact our experts.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.

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