Foundations for growth: real estate insights from the Autumn Budget

It is particularly fitting, that as Cripps focuses on empowering female business leaders, Rachel Reeves has presented the first Budget delivered by a female Chancellor.

After weeks of anticipation, the budget revealed few surprises. The Government’s emphasis on infrastructure investment projects is evident, with cross-sector spending including commitments for health, education, housing and transport. The underlying theme of “rebuilding Britain,” brings several important changes for the real estate sector, particularly around planning, affordable housing, tax reforms and energy efficiency.  As is often the case, some changes take effect immediately, while others will be phased in over time.

Even the title of the budget “Fixing the foundations to deliver change,”  has property connotations so what are some of the implications for the real estate sector?

Capital Gains Tax (CGT)

CGT along with inheritance tax have been the subject of much debate since the election. Initial fears of CGT being aligned with income tax have, however, proved unfounded.

With effect from 30 October, the main rates of CGT that apply to assets other than residential property and carried interest will increase from 10% and 20% to 18% and 24% respectively. The rates of CGT that apply to residential property disposals (18% and 24%) will remain unchanged as will principal private residence relief.

While not as severe as initially feared, these changes may prompt investors and high-net-worth individuals to reassess their portfolios. Real estate investors, particularly those holding multiple properties, may reconsider future plans and seek diversified asset options to mitigate the impact of CGT increases.

Stamp Duty Land Tax (SDLT)

The Government has introduced significant changes which have included a number of new changes to the current SDLT regime, which will affect residential property transactions, particularly for investors and landlords:

• Higher Rate on Additional Dwellings (HRAD): The SDLT surcharge on second homes has increased from 3% to 5%, an immediate change that will directly impact landlords and investors.
• High-Value Residential Purchases by Companies: The SDLT rate for companies and other non-natural persons acquiring high-value residential properties (over £500,000) has risen from 15% to 17% so effectively, this will be the flat rate which can apply to companies buying dwellings for over £500,000.
• Similarly, the applicable rate of SDLT in respect of Collective enfranchisement transactions where at least one of the participating tenants is a non-natural person and the average price per qualifying flat is more than £500,000 will increase from 15% to 17%.

Transitional provisions will apply to contracts exchanged before 31 October 2024, and for transactions already substantially performed but not yet completed and where there is no variation of the contract or assignment of rights under the contract on or after 31 October 2024. Further, for the transitional provision to apply the transaction must both (a) not be effected in consequence of the exercise of an option, pre-emption right or similar, and (b) the original buyer only acquires (i.e. that on or after 31 October 2024 there is no assignment, sub-sale or similar).

The new changes will apply until 1 April 2025, at which point the changes to the SDLT nil-rate residential threshold introduced by the Temporary Relief Act 2023, will revert from £250,000 back down to £125,000 for all transactions with an effective date on or after 1 April 2025.

The current SDLT  2% surcharge for non-UK resident buyers, remains unchanged by the budget.  The 2% surcharge can apply in addition to the 5% surcharge for “higher rates” transactions and on top of the 17% flat rate.

The surprise increase in SDLT on second homes from 3% to 5% will of course hit landlords. As mentioned above, companies buying residential property for more than 500k also saw their SDLT rate rise from 15% to 17% as an immediate change.  There was no change to the decision to abolish multiple dwellings relief which will disappoint the BTR sector.

Straying away from SDLT territory, there was however some good news as the Government has confirmed that it will press ahead with the Reserved Investor Fund (RIF) which is positive news for investors. These new funds will be quicker and more cost effective to set up and are designed to be an attractive alternative to some offshore vehicles. More detailed legislation regarding RIFs is expected to be released before April 2025.

Energy and ESG

There is no doubt that this was a momentous Budget, but questions remain: was it truly a green Budget, and will it position the UK as a “clean energy superpower”?

The Government has made a notable commitment to enhance building efficiency and reduce operational costs, which is essential for achieving Net Carbon Zero and bolstering energy security. An initial £3.4 billion investment will be allocated over the next three years towards heat decarbonisation and improving household energy efficiency through the Warm Homes Plan.

The Government also recognised that the transition to electric vehicles (EVs) is crucial to decarbonising transport and have pledged to support growth and productivity across the UK, phasing out new cars that rely solely on internal combustion engines by 2030 and requiring that from 2035 all new cars and vans sold in the UK will be zero emission. This will require investment to facilitate EV chargepoint rollout and tax incentives to purchase electric cars.

Over the coming weeks, we will be analysing the green credentials of this Budget and we will provide further insights in our November edition of “Property Perspectives” (our real estate monthly news publication) which next month has a green sustainability theme. Sign up here.

Planning

To deliver on the commitment to get Britain building, the Government is adding £500 million to the Affordable Homes Programme in 2025-26, increasing the annual budget to £3.1 billion, the biggest annual budget for affordable housing in over a decade. Alongside other measures in the Budget, this will kickstart the biggest increase in social and affordable housebuilding in a generation, putting the Government on the path to building 1.5 million homes over this Parliament.

£47 million included in the Budget will be given to local authorities to deliver homes delayed by nutrient neutrality requirements, which Angela Rayner says will “not only unlock much needed new housing but clean up our rivers in the process”. This appears to be an extension of funding that was set out in the 2023 Spring Budget, when the previous Government committed to provide direct grant funding to local planning authorities to deliver high quality, locally-led nutrient mitigation schemes.

Some strategic mitigation schemes are already in place in parts of the country, either following direct developer funding or through local authority schemes to reduce nutrient pollution across catchments and create headroom to absorb the impacts of new development. It seems the Government hope they can unlock more homes faster by providing funding for further strategic mitigation measures which would increase the availability of mitigation credits. This would allow affected developers the chance to make a ‘strategic mitigation contribution’ to be secured by a s106 agreement at the point of grant of planning – a much simpler solution and particularly helpful for SME developers. Notwithstanding the obvious benefit of further funding, this approach does, however, leave the local planning authorities with some considerable responsibility for the delivery of new schemes once the cash is in.

Join us on 12 November for Unveiling the Future of Urban Planning, a webinar focused on the transformative changes in urban development. James Clewlow and Beth Gascoyne will explore the resurgence of strategic planning, NPPF consultation updates—including shifts in Housing Land Supply and Green Belt/Grey Belt land use—alongside the role of Brownfield Passports in regeneration together with our guest panellists. –Sign up here: Webinar Registration – Zoom.

Sector specialisms

Retail and leisure 

The temporary 40 % rates relief for retail, hospitality, and leisure sectors (subject to a cash cap of £110,000 per business) aims to breathe new life into high streets – a positive step welcomed by many.  However, the sector still faces challenges, and a more comprehensive, long-term reform of business rates is essential to foster sustainable growth and resilience. Read the full insights from our retail and leisure team for further analysis on how the Autumn Budget will affect the retail and leisure sector.

Private wealth

The overall impact of the Budget from the private wealth perspective was less radical than some had speculated.  However private individuals and their wealth do seem to have been a focus, with notable tax increases and tightening of long-established reliefs signal a shift that may affect wealth management strategies moving forward. Read more from the team. 

Summary

There is no doubt that whilst the changes were not unexpected the projected £40 billion tax increase makes it a wide-ranging and momentous Budget. Time will only tell as to whether the money will be spent wisely.

For expert advice on how these changes may impact your specific property interests, our specialised teams are here to help. Please do get in touch.