Stamp Duty on Second Homes to Increase

Chancellor Rachel Reeves has declared in the Budget that the stamp duty rate for individuals acquiring a second home will increase. This tax is levied on property purchases exceeding a specific value in England and Northern Ireland. Buyers of additional properties currently face an elevated rate, which will escalate from an additional 3% to 5% starting Thursday. According to the Treasury, this measure aims to provide first-time buyers and those seeking to relocate with a competitive edge against second-home purchasers and landlords, projecting an additional 130,000 transactions by these demographics over the coming five years. The Treasury also stated that the hike is expected to generate over £1.2 billion in tax revenue by the fiscal year 2029-30. Nevertheless, analysts suggest that the elevated rate might diminish landlords’ inclination to acquire further properties. Paul Johnson, who directs the Institute for Fiscal Studies think tank, commented that tenants would “pay part of the cost” of the stamp duty increase for second-home buyers and landlords “as the supply of such properties falls”. Ben Beadle, chief executive of the National Residential Landlords Association, stated: “The chancellor has failed to heed the warnings of the Institute for Fiscal Studies that higher taxes on the rental market lead only to rents going up.” He added: “What tenants needed was a Budget to boost the supply of new, high-quality rental housing. What we got is a recipe for less choice and higher rents.” Conversely, Ben Twomey, chief executive of the campaign group Generation Rent, remarked: “Renters who have been able to save a deposit to buy a home will get a boost from the increased stamp duty surcharge.” He continued: “The higher costs for investors will make it easier for first-time buyers to compete in the house sales market.” At the same time, first-time homebuyers will be negatively impacted by the government’s choice to discontinue the stamp duty relief for those purchasing their initial residence. In 2022, the Conservatives increased the stamp duty threshold for first-time buyers from £300,000 to £425,000, and for other buyers, it was doubled from £125,000 to £250,000. Nevertheless, these thresholds are scheduled to return to their previous lower amounts starting 31 March. Ben Thompson, deputy chief executive of the Mortgage Advice Bureau, expressed disapproval of this action. He stated: “People will simply choose not to move, continue to be stuck renting with all the uncertainty that that brings.” He added: “With house prices rising, many more buyers will end up with a stamp duty bill, or face paying even more.” Regarding current stamp duty rates: as of Thursday, individuals purchasing a second home will incur an additional 5% on top of the existing charges. Additionally, the Budget allocated an extra £500 million in funding to the Affordable Homes Programme, a measure the government claims will provide up to 5,000 new social and affordable residences. Chancellor Reeves further confirmed the government’s intention to decrease Right to Buy discounts, aiming to expand the availability of council housing. The Right to Buy initiative enables tenants residing in council-owned properties to purchase them at a reduced price. The chancellor also stated that local councils would retain 100% of the proceeds from housing sales, allowing these funds to be reinvested into new housing provisions.