Autumn Budget 2024: Impact on Real Estate

What has been announced for the real estate sector?

The Autumn Budget introduced several key changes affecting real estate and the level of tax arising on properties in the UK. The consequences of some of the measures will take effect immediately, while others will be phased in to the regime. We have discussed their impact in the summary below.

Stamp Duty Land Tax (SDLT)

For all residential transactions effected from 31 October, the additional dwelling surcharge for SDLT will be increased by 2% to 5% and where a corporate acquires a residential dwelling of more than £500,000 and pay the higher rate of SDLT (flat rate of 15%) due to no relief, this has been increased to 17%. Taking into account, the non-resident surcharge, purchasers could now be paying SDLT of 19% on acquisition of residential property.

Given the large gap between residential and non-residential rates of SDLT, now at 14%, ensuring that the transaction has been correctly classified for SDLT purposes has become even more important, in particular whether the transaction can be seen as mixed use and/or if the ‘six or more dwellings’ rule should apply. It’s worth noting the abolishment of Multiple Dwellings Relief (MDR) announced earlier this year in the Spring Budget which disappointingly has not been reversed, and there doesn’t appear to be any plans to do so.

The Chancellor did not choose to revise the legislated threshold decreases for residential and first time buyers relief from 1 April 2025, so while the headline today is about additional residential property purchases, there are likely to be SDLT increases on the horizon for many more property purchases in the not too distant future. As is often seen with these SDLT changes, there is a likely to be a cliff edge on transactions around the effective date changes.

Planning permission

Prior to the Budget, the government had made clear their intentions to liberalise planning regime making it simpler and creating a more streamlined planning system though the National Planning Policy Framework (NPPF) consultation completed in September 2024. They have set an ambitious target to build 1.5 million new homes over the next five years. We are aware of the plans to reintroduce compulsory population-based housing targets for local planning authorities which will urge each local authority to meet its targets. This is supported by the planned employment of 300 extra planning officers across the country however, there is no indication whether this will be sufficient to ensure local authorities actually meet set targets.

Obtaining planning permission is known to be one of the biggest constraints on housebuilding therefore, we hope these measures do contribute to improving efficiencies for the development sector. Further changes are expected in the Planning and Infrastructure Bill to be introduced in Parliament early next year which will include measures to speed up the delivery of high-quality homes and infrastructure.

The corporate tax roadmap

The government has published a corporate tax roadmap alongside the Autumn Budget 2024. The roadmap aims to keep the corporate tax landscape predictable and stable and it includes the following commitments: 

• cap the corporation tax rate at 25% for the duration of this parliament and continue to maintain the small profits rate and marginal relief at current rates and thresholds (£250,000) 
• maintain key features such as full expensing, £1 million annual investment allowance, R&D relief rates, and the patent box.

We are anticipating further changes in the areas where the government has announced plans to launch consultations: 

• land remediation relief rules 
• advance clearances for R&D reliefs 
• transfer pricing rules and diverted profits tax 
• capital allowances for predevelopment costs 
• extending full expensing to assets bought for leasing or hiring.

We welcome the roadmap as it demonstrates that the government recognises the importance of tax certainty in supporting long term investment.

The most surprising announcement was the increase in the interest rate on unpaid tax liabilities. Starting from April 2025, the interest rate on late payments will be increased by 1.5%, making it the Bank of England base rate plus 4%.

For the last 10 years late payment interest has been relatively trivial, however with higher interest rates, it becomes punitive. Where companies are paying their tax based on estimated profits (which can be difficult in predicting exactly when property sales take place), they may wish to take a more prudent approach than previously, due to the significant interest costs if they have underpaid.

Inheritance Tax (IHT)

From April 2026, Business Relief and Agricultural Property Relief will also be restricted over from 100% to 50%. This could cause significant problems for family businesses and farms as well as owner managed businesses within property development, operating asset sectors such as hotels and care homes, which previously attracted 100% relief.

The first £1,000,000 of qualifying assets will still receive 100% relief, but any amount above this threshold will only receive 50% relief. This change is part of the broader adjustments to inheritance tax aimed at increasing the tax base and ensuring that larger estates contribute more. The effective tax rate on value above this threshold will be 20%, payable within six months of death or over up to 10 years on an interest bearing basis.

The IHT exemption threshold remains frozen at £325,000 until 2030. As property values and other asset prices rise, more estates are likely to exceed the frozen threshold, potentially increasing the number of estates liable for IHT.

The inheritance tax change may force more business and land owners, particularly large farmers and business owners, to consider a sale of their assets following death to fund the tax. Undertaking earlier succession planning for these businesses has become more important than ever.

The one positive for land owners from a inheritance tax perspective, it has been made clear that where land is used for the purposes of environmental management (e.g BNG credits) this activity will still qualify for Agricultural Property Relief.

Business rates

The chancellor announced changes to business rates by introducing permanently lower multipliers for retail, hospitality and leisure properties with a rateable value under £500,000 from April 2026 to 2027. In the meantime, for 2025 to 2026, retail, hospitality and leisure businesses will receive a 40% relief on their business rates up to a cash cap of £110,000 per business. Although this is clear support from the government to this sector, it only benefits smaller high-street properties as it leaves the burden of the tax falling on entities with rateable values above £500,000.

Business rates are arguably already too high, and this targeted reform does not relieve the pressures faced by all business of maintaining profitable margins regardless of property size. We are aware government are planning to review the efficacy of empty rates relief and improvement relief and there is a possibility we may see further reform that will encourage

Employer National Insurance Contributions (NICs)

The main headline of the day was the significant increase in employer NICs. The key changes were as follows: 

• increase in the rate of employer NICs by 1.2 percentage points, bringing it to 15% from April 2025 
• reduction in the secondary threshold at which employers start paying NICs from £9,100 to £5,000 
• increase in employment allowance from £5,000 to £10,500, and removal of the £100,000 eligibility threshold. This change aims to support small businesses by reducing their NIC liabilities.

These measures will mean higher costs for employers, which could impact wage growth and employment opportunities and will be acutely felt by those operating businesses such as hospitality and care home sectors.

Other matters

Annual Tax on Enveloped Dwellings (ATED): There will be an increase in the ATED annual charges of 1.7% from 1 April 2025, in line with the September 2024 Consumer Price Index (CPI).

Furnished Holiday Lettings (FHL): The FHL regime is to be abolished from April 2025. This was announced in the Spring Budget and the intention of this is to remove the current tax advantage for landlords who let short term furnished holiday properties over those who let out residential properties to longer term tenants.

Increased staff: There was also an announcement of an additional 5,000 compliance staff to be employed at HMRC, which will undoubtedly lead to increased enquiry activity. Therefore, it is more important than ever to ensure your business has robust tax risk governance and controls.

Capital Gains Tax (CGT): While CGT rates have increased. The “residential” property surcharge has not been updated so going forward these gains will be taxed at the same rate of other capital gains.

What next?

Labour government’s broader strategy to increase tax revenues and ensure the charges fall on those with ‘the broadest shoulders’ has left many in the real estate sector facing higher costs than ever before, particularly those within the operating asset classes and agricultural sectors. However, overall the budget was quiet from a specific industry perspective. Opening up the planning process, reforming business rates should still remain the key priorities for the government.

If you’d like to discuss your estate and how the Autumn Budget may affect you, or you would like anything further, please contact Caroline Fleet, or your usual Crowe contact.