Budget 2024 - big changes to property-related taxes

The good news

For several years higher capital gains tax (CGT) rates have applied to taxable gains made from the sale or transfer of residential property, e.g. where private residence relief doesn’t apply to the whole of a gain made from selling your home. From April 2024, the higher rate of CGT will reduce to 24% from the current 28%. As most disposals of residential property are exempt from CGT because of main residence relief, this rate reduction will benefit investment property portfolios, individuals with second homes and non-residents who hold UK property.

If you’re in the process of selling or transferring residential property for which the gain will be taxable, consider whether delaying until the rate change could save tax. Remember to take into account that the annual CGT exemption will be reduced to £3,000 on 6 April 2024.

Bad news for some landlords

Currently, if you own a residential property which qualifies as a furnished holiday let (FHL), it is treated as a trade for some tax purposes which gives you several tax advantages:

• unrestricted tax deductions against rental income for interest and finance costs
• capital allowances, i.e. tax-deductible depreciation, for furniture and fixtures used in the property
• CGT business asset disposal relief which reduces the CGT rate on a property sale to just 10%; and
• CGT rollover relief and CGT gift relief which defer any CGT liability on disposal.

The Chancellor has abolished the FHL tax breaks with effect from April 2025.

Any owners of FHLs have just one year to ponder whether to stop letting, taking advantage of the CGT reliefs while they are available, put their letting business into a company or change to long-term letting to shore up future profits. The demise of the FHL results in a larger tax bill both on the income front (due to fewer deductible expenses) and when the property is sold.

The effect of the FHL being withdrawn is that mortgage/loan interest will be restricted to a 20% tax credit. Capital allowances won’t generally be available for the cost of equipment in properties.

Stamp duty land tax (SDLT)

Multiple dwellings relief (MDR) currently enables purchasers of more than one residential property in England and Northern Ireland to pay SDLT based on the average price per dwelling, representing a substantial saving. As a result of perceived avoidance, MDR will be abolished for contracts completing after 31 May 2024, although any contracts exchanged before 7 March 2024 have no completion deadline (so long as they aren’t varied subsequently).

There is a very narrow window to take advantage of MDR for any pending bulk purchases of residential properties.If you miss the boat, consider whether it is worth arguing that a particular property has any element of commercial use which attracts a lower SDLT rate.