Budget Breakdown: What’s Next for the Property Market
Budget Breakdown: Key Changes Affecting the Property Market and Beyond
As the latest budget rolls out, there are a number of changes on the horizon that will impact both individuals and businesses. Here’s a look at some of the most relevant points, especially for those involved in the property market:
Key Changes Potential Impacting Earnings, Taxes, and Spending
1. Minimum Wage Increase
A reported Minimum wage will rise from £11.44 to £12.21, lifting the average wage from £22,410 to £23,810. While this benefits workers, it’s also likely to drive up the cost of goods and services, as increased wages for employees ripple through the economy.
2. National Insurance Hike
An increase in National Insurance means higher costs for employers—around £2822 per employee. For larger organisations, like the company I work for which employs around 14,000 people, this could mean an additional around £10 million in staffing costs. The focus on productivity will be more important than ever for those who are employed.
3. Stamp Duty on Second Homes
Buying a second property will now come with a higher stamp duty rate. For example, on a £200,000 property, the stamp duty jumps from £2,250 to £3,750, which will likely deter some from investing in second homes or rental properties.
4. Capital Gains Tax Increase
Those selling shares or businesses will face a higher capital gains tax—up from 20% to 24%. This affects investors looking to profit from sales and could impact decisions in the property market, especially for those selling investment properties.
5. Inheritance Tax Adjustments
From 2027, inherited pensions over £325,000 will face new taxes, and agricultural land or businesses worth over £1 million will be taxed at 20%. While these changes don’t take effect immediately, they will impact estate planning in the years to come.
6. Fuel Duty Freeze
Good news for drivers—fuel duty will remain unchanged, providing a bit of relief as other costs continue to rise.
7. Changes to Alcohol and Tobacco Taxes
Taxes on beer will be slightly reduced, but hand-rolled tobacco will see a 10% increase, and certain vape products will also become more expensive. This “health tax” is aimed at curbing consumption, though it may drive some consumers to alternative options.
8. Non-Dom Tax Regime Changes
Foreign nationals previously benefiting from reduced taxes on overseas income will now be taxed more in line with UK residents, which may prompt some to relocate elsewhere.
9. Private School Fees
VAT will now apply to private school fees, effectively raising education costs in the private sector.
10. Income Tax Adjustments
Income tax thresholds will increase with inflation, aligning better with living costs. However, employees moving into higher brackets due to raises may see their tax burden rise.
11. Air Passenger Duty
The “travel tax” will affect all passengers, with private jet passengers facing the highest increases to account for environmental impact.
12. Windfall Tax on Oil and Gas Companies
Higher taxes on oil and gas profits are designed to fund public services, though they may also push up fuel and energy prices.
Key Property Market Impacts
With higher wage costs and taxes on second homes, we may see shifts in property market behavior. Here’s how these changes could play out:
• Higher Wage Costs for Employers: Businesses may become more selective in hiring and prioritise productivity. In estate agency, this could mean a stronger emphasis on efficiency within teams, potentially impacting customer service standards and internal roles and will probably push firms towards more AI systems limiting team opportunity and employment.
• Increase in Stamp Duty on Second Homes: This additional cost may cool demand in the buy-to-let market or among those purchasing holiday properties. Investors may reconsider second homes or rental properties due to reduced profitability.
• Higher Capital Gains and Inheritance Taxes: With these taxes increasing, property investors may feel the squeeze. Higher costs associated with selling and inheritance could prompt some to hold onto assets longer or reconsider investments altogether.
• New Funding for Affordable Housing: Increased funding for affordable housing, insulation, and energy-efficient homes aims to make housing more accessible and sustainable, potentially drawing in first-time buyers and helping to stabilise the lower end of the market if the employment market remains the same.
Conclusion: What’s Ahead for the Property Market?
As rising costs impact both employers and investors, we may see a cooling effect on the property market. Higher expenses in wages, National Insurance, and stamp duty are likely to make it more challenging for individuals and businesses to invest in new properties, especially in the buy-to-let sector. Increased taxes on capital gains and inheritance may also lead some investors to rethink property portfolios as a sustainable option for long-term growth. These pressures are compounded by a national debt currently at £2.6 trillion, equating to approximately £38,000 per person in the UK.
On a brighter note, increased government funding for affordable housing could help stabilize the entry-level market and open new doors for first-time buyers. Overall, the property market will need to adjust to these shifts, balancing rising costs with a strong demand for accessible housing. An interest rate reduction anticipated before the Christmas season would be a welcome relief, offsetting some of the highest employer tax hikes since 1993.
This environment presents a unique opportunity for experienced agents, especially those who have navigated past market changes, to provide clients with sound advice tailored to these evolving conditions.
If you need guidance in navigating the shifting financial landscape, our seasoned experts are here to help.