The Best Property Strategy Post-Budget 2024

The Autumn 2024 budget presents a series of strategic shifts for UK property investors and developers. Following changes to Capital Gains Tax (CGT), Stamp Duty Land Tax (SDLT), and inheritance tax (IHT), property investors and developers are poised to benefit most by focusing on commercial and mixed-use properties.

Positive reception from financial markets, seen in a slight increase in the FTSE 250 and a dip in gilt yields, reflects confidence in the government’s fiscal strategies. For property investors, this market optimism, combined with the Bank of England’s anticipated rate reduction, suggests potential stability and growth in the property market.

While we still need to go through all the small print, we can confirm what is changing in the tax system:

Tax changes coming into force on 31^st October 2024: 

• Stamp Duty Land Tax (SDLT): Residential buy-to-let investments now incur a 5% SDLT surcharge for rental properties or purchases by individuals and companies, up from 3%. By contrast, commercial property acquisitions remain relatively unaffected with substantially lower SDLT rates. For example, a £500,000 residential property incurs £37,500 in SDLT, whereas a similar commercial property costs just £14,500 in SDLT.

• Capital Gains Tax Rates: increase in commercial property disposal to 18% for gains within your basic rate band and 24% for gains beyond this, aligning the main rates with the CGT rates applied to Residential Property CGT.

Tax changes coming into force from April 2025: 

• Business Asset Disposal Relief (BADR): For property trading businesses that qualify for BADR this will remain available on the first £1m of gains from the sale of a business, but the rate of charge will increase to 14% from 6 April 2025 and to 18% from 6 April 2026

• Business Property Relief (BPR) and Agricultural Property Relief (APR) changes mean that only the first £1m of assets in these classes within your estate will be Inheritance Tax free.  Relief at 50% will then be applied to any excess value.  This highlights the need for planning how your business property would survive the death of a business partner

Strategic Shifts for Property Investors?

With purchasing residential buy-to-let becoming more costly, commercial property presents a more profitable, tax-efficient alternative.

1. Lower SDLT and Business Rates Relief: Commercial properties benefit from lower SDLT rates and new business rates relief for retail, hospitality, and leisure tenants. These sectors, being supported by government, promise higher occupancy and stable rental income.
2. Mixed-Use Property Investments: Mixed-use properties like retail units with residential apartments above benefit from lower SDLT rates, offering substantial savings and the flexibility of residential rentals. Additionally, business rate relief on the commercial component makes these properties even more attractive to tenants.
3. Multi-Unit Properties and Conversions: Multi-unit dwellings, such as buildings with six or more flats, qualify for commercial stamp duty rates, providing tax efficiency for larger residential developments.

Leverage Permitted Development Rights (PDR)

Investors can utilise PDR to convert commercial properties into residential units with fewer planning constraints. Office-to-residential conversions, for example, can avoid higher SDLT rates and take advantage of reduced VAT rates on renovations.

1. Cost Efficiency: With SDLT capped at commercial rates initially, converting commercial spaces into high-demand residential units creates a profitable exit strategy with comparatively low upfront tax exposure.
2. VAT Reduction on Refurbishments: Refurbishment projects can qualify for VAT reductions from 20% to 5%, or even zero in some cases. This is particularly advantageous for developers converting commercial units to residential use.

Anticipated Planning Reforms and Development Potential

Labour’s emphasis on planning reform, though not yet detailed, signals potential for easier and faster property development, creating opportunities for more swifter project adaptation.

Are you a landowner, developer, construction professional, or supporting service provider looking to maximise your profit from land? Join us for a comprehensive seminar that will equip you with the knowledge and strategies to navigate the challenges and opportunities presented by upcoming planning and tax changes.

Register your interest here.

The Autumn 2024 Budget introduces valuable opportunities for property investors to establish diversified and tax-efficient portfolios, with those currently focused on residential buy-to-let enhancing both profitability and tax efficiency by transitioning to commercial and mixed-use assets. There is also an optimal environment for investing in or redeveloping commercial properties, particularly for investors seeking diversification and long-term stability in a shifting economic landscape.