Labour’s housing policy: How the Autumn Budget could impact property

Property assets often make up a large proportion of a family’s net worth. Even for those who don’t own any buy-to-let properties, many could own a home at a value that is likely to have grown substantially over the years.

Given that so many households have a large amount of their financial lives tied up in property, it’s no surprise that changes to real estate assets can be a sensitive topic.

It’s an area that is expected to get a lot of attention in the upcoming 2024 Autumn Budget, with Labour rumoured to be considering plans that could have major implications for the property sector.

Here, we look at what some of these potential changes might be and how they could impact homeowners and property investors.

The property market sits at the intersection of a number of policy areas that Labour will be looking to address. Housing affordability has been a hot button issue for many years now, with the average house price in the UK rising from £162,887 at the start of 2010, to £265,012 in Q2 this year.¹

Labour’s housing policy will seek to tackle this problem partly through an increase in the supply of new homes, pledging to build 1.5 million in their first five years in power. Planning reform has been highlighted as an important driver of this, but there is already controversy over plans to allow developers to build on certain green belt land, which the government refers to as “grey belt.”²

The Chancellor has also said that the government will be reinstating compulsory housebuilding targets for local authorities, which were removed in 2023.

From a purely financial standpoint, homeowners and property investors will want to watch closely how these plans unfold, with any large increases in supply having the potential to impact property prices.

The council tax system has remained relatively untouched in England since it was first introduced in 1993, using property values from 1991. The council tax bands in use today are still based on those 1991 values, with estimated values for properties built after this date.

Of course, since that time, house prices around the country have changed at drastically different rates. For example, house prices in parts of London have increased by 800% since the original valuation date, while prices in Hartlepool are up just over 300%³.

Were these valuations to be reviewed, council tax costs would arguably better reflect the current financial position occupiers are in.

It’s therefore no surprise that there is speculation that an update could be an option for the government, with a review of property values allowing for a current calculation of property bands.

But there are rumours of an even bigger change being considered, with suggestions that Reeves could introduce a flat council tax set at 0.5% of property value⁴. For a home worth £500,000 that would equate to a bill of £2,500 per annum.

Regardless of the specifics, any changes to council tax are likely to result in some winners and some losers come Budget Day.

The current stamp duty land tax (SDLT) thresholds for residential property of £425,000 for first time buyers and £250,000 are temporary thresholds which were introduced in 2022. While the previous Conservative government had pledged to make these permanent, Labour has not.

As a result, these figures will reset to £300,000 and £125,000 respectively on 1 April 2025. For a first-time buyer purchasing a property worth £400,000, this would add an extra £5,000 in stamp duty to the transaction.

Reeves also has plans to increase the stamp duty surcharge for non-UK residents from 2% to 3%, though the overall impact of this policy is expected to be modest.

In recent days, Reeves is reported to have been reviewing Treasury modelling of an increase in capital gains tax (CGT) to between 33% and 39%.

At this stage it isn’t clear which rate this applies to, given the current standard rate of 10% CGT for basic-rate and 20% for higher-rate taxpayers, and the increased rates of 18% and 24% respectively which apply to buy-to-let properties and second homes.

What is clear is that an increase to CGT is a policy that is clearly under close consideration. The Institute of Fiscal Studies is calling for an even wider review of CGT⁵, including the levy of CGT on assets at death.

Currently the assets of an estate are subject to inheritance tax, but any capital gain to date of death is disregarded and the base cost updated to the current market value. For properties that have been held for many years, this can be a significant tax break.

All of that is to say, there are many potential changes on the table which could have a sizeable impact on property investors.

George Uglow, financial planner at Evelyn Partners says, “Investors should always understand their total costs so that they have a clear view of their net returns. That can be a little more difficult with property, given how many different types of costs there are. Any changes that impact a property investment should trigger a review of how that asset fits into the broader financial and lifestyle plan."

The housing market is complex and multi-faceted. There are many unknowns as to what exactly the Chancellor’s final policy decisions will be, and how the property market is likely to react to them.

On the face of it, higher levels of supply and higher costs for investors could suggest a slowdown in real estate price rises. But this doesn’t take into account any rise in demand, the impact of any changes to interest rates or any number of other economic factors which could affect prices.

But while there is little that individual investors can do to influence the broader property market, there are plenty of options when it comes to managing their own investments within it.

Uglow says, “As we approach the budget, there is likely to be concern for landlords and multiple property owners who are sitting on significant capital gains. While time is running out for a market sale, there are options some investors could consider, such as reviewing the ownership of their assets, transferring assets to family members or into trusts, but these options need to be carefully considered and evidenced.

More than anything, however, these potential changes highlight the importance of regular reviews to ensure that investors are holding assets that align with their goals and objectives.”

Time is running out to implement pre-emptive strategies before the Autumn Budget. If you have any questions about your own financial plan, or how changes to property rules might impact your future, book a consultation online or call 020 7189 2400.

¹ Nationwide, Nationwide HPI, Q2 2024

² BBC, Labour's plan to build 1.5m homes – can it be delivered?, 26 September 2024

³ Sky, What could the government be planning on council tax?, 29 August 2024

⁴ This is Money, Could Labour really reform council tax to charge 0.5% of a home's value each year?, 2 August 2024

⁵ Accountancy Age, IFS calls on Labour for ‘serious reforms’ of capital gains tax, 7 October 2024