Chancellor Rachel Reeves has delivered a tax blow to landlords with a 2% increase in stamp duty to 5% on second homes and investment properties – which takes effect tomorrow.

It’s feared this extra cost will reduce demand from second home buyers and investors, although there was relief that she kept the Capital Gains Tax rates on residential property at 18% and 24%, rather than raising it as feared by many in the sector.

Reeves told MPS during her Budget speech: “This will support over 130,000 additional transactions from people buying their first home or moving home over the next five years.” 

However, she did not elaborate on how this would actually work.

Angharad Truman, ARLA Propertymark president, says it’s disappointing to see that the UK government didn’t address the shortage of rental homes and instead announced yet another blow for landlords by increasing stamp duty on second homes.

Crucial role

She adds: “The private rented sector plays a crucial role in housing the nation with over 4.6 million homes in England alone, therefore it is imperative that the UK Government does not continue to push landlords out of the market.”

Richard Donnell (pictured), head of research and insight at Zoopla, fears the extra 2% cost will reduce demand from second home buyers and investors.

“Second home buyers are already responding to last year’s Budget which allowed councils to charge double council tax for second homes,” he explains. “This is resulting in a higher level of selling by second homeowners. In areas with above average second homes, we have seen four times more homes come to the market.”

Donnell says it’s positive to see that capital gains tax has not increased for landlords as it’s already 24% for higher rate taxpayer. “The private rented sector has seen static supply since tax changes introduced in 2016 and there is a steady net selling by landlords in response to tax policy but also greater regulation of housing and higher mortgage rates,” he adds. “We need to keep as many landlords as possible in the market to provide choice for renters facing limited choice and to prevent rents rising faster than earnings, which hits those on low incomes the hardest.”

The NRLA had said a rise in residential CGT, which has not materialised, would be disastrous for landlords planning to sell in the future as it would devastate any prospect of realising long-term gains. It had called on the Chancellor to implement pro-growth taxation measures to encourage investment.

Agents and wealth managers reported that the selling market has seen surges from nervous landlords and second homeowners worried about CGT rises looking to shed assets from their property portfolios.

Nathan Emerson, CEO of Propertymark, says: “The UK Government has taken its first steps in delivering a rangeof measures that look to provide more affordable and safe homes for the nation,in which we desperately need with a growing population.

“However, what we now need to look out for are the crucial plansthat underpin all of these proposals as without the correct infrastructure,these targets will not be delivered in a sustainable and socially responsibleway."

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