What will be included in Labour’s Autumn Statement at the end of this month? From tax hikes to tax cuts, here’s what’s in store for landlords.
Since Keir Starmer promised a “painful” Budget in August, it feels as though we’ve all been holding our breaths, awaiting further tough legislation on the PRS.
Rachel Reeves has already announced her plans to cut winter fuel payments due to the “inherited” £22 billion of unfunded spending, a measure that’s taken the mainstream media by storm. But what else is rumoured to be in the budget, and what does Labour have planned for the PRS?
What taxes will Labour be focused on?
1. Capital Gains Tax (CGT)
Despite consistent questioning since the election campaign, Labour has refused to rule out increases to CGT. It’s now widely predicted that Reeves will announce an increase to the tax at the highest rate, rising from 24% to 40%.
While landlords can mitigate these planned increases in several ways, any plans for CGT will likely come into force the same day.
Chris Rudden, head of UK investment consultants at Moneyfarm, commented, “In a world where it’s widely considered that the UK population doesn’t invest enough to support their future, putting a higher tax burden on investments puts a greater obstacle to getting people started.”
2. Council tax
Another notable concern for the property market is changes to council tax, a further measure Starmer has consistently refused to rule out. The government has noted that the current banding system is outdated, which could suggest the budget will unveil new plans to reform it. This will likely result in a higher tax on higher-value homes.
The think tank Fairer Share has proposed a “proportional” council tax to replace the current banding system. The bill would become a flat percentage of the property’s value, increasing annually to reflect any change in value. However, according to the Institute for Fiscal Studies (IFS) think tank, this would see current council tax bills rise by an average of £1,230 for over four million households in England alone.
An alternative is re-evaluating the bands, which are currently based on 1991 property values. The IFS reports that this would raise bills across 119 local authorities, with average households seeing the tax bill rise by £82.
This rise in council tax will only put further pressure on affordability for tenants already facing higher rental costs. Landlords will already be forced to vet tenants more vigilantly due to the abolishment of Section 21; this change will likely exacerbate the affordability challenge for vulnerable tenants.
3. Inheritance Tax
Britain currently has one of the highest inheritance tax rates in the OECD, but Labour could consider cutting various relief measures to widen the tax's scope.
Currently, homeowners can pass on £500,000 – or £1m if they are a couple – in inheritance, so long as the property goes to their children. Labour is rumoured to be considering lowering this exemption or cutting it altogether. Alternatively, Labour may tighten the relief that allows you to distribute your wealth earlier.
The tax-free exemption on estates has been frozen at £325,000 since 2009, which has meant thousands of people have been put into this higher net as house prices have soared since then. Anything above £325,000 is charged to your beneficiaries at 40%, or the nil-rate band. Forecasts suggest that nearly 44,000 families will pay this charge by 2028-29, up from 33,000 this year. Over the next five years, 200,000 estates will pay the tax.
4. Pension tax relief
Currently, pensions are disregarded from your estate when you die, so no Inheritance Tax is due. However, there are concerns that Labour might change this and even lower the maximum amount people can contribute to their pension without losing the tax relief.
Labour has committed to maintaining the triple lock scheme for state pensions, ensuring they continue to increase in line with the highest of inflation, wages, or 2.5%. What’s concerning is the current plans will see the state pension become taxable by 2028, as it will exceed personal allowance. For many pensioners who rely solely on this and benefits as their income, they will be footed with a three-figure tax bill. Labour is yet to reveal any plans to prevent this inevitability.
5. Savings tax
Another avenue for Labour to explore is cutting the Isa and personal savings allowances.
Currently, you can pay in up to £20,000 a year, with no limit on what you can save over your lifetime. The Resolution Foundation argues this mainly benefits those with higher levels of disposable income, so the government should introduce an overall cap of £100,000.
While returns on cash Isas are not liable for tax, the interest earned from ordinary savings accounts after the personal savings allowance is taxable. This allowance is £500 for higher-rate taxpayers and £1,000 for basic. Additional-rate taxpayers receive no allowance.
6. Alcohol duty
New research suggests that an increase to alcohol duty could raise an extra £800m next year, making this a more than feasible announcement from Rachel Reeves later this month.
Unsurprisingly, the drinks industry has noted that this move could have a “catastrophic” impact on pubs. For commercial property investors in the hospitality sector, this will be an unwelcome announcement at a time when the industry needs further support to restabilise post-COVID.
The PRS under the Labour government
Whether you’re a smaller landlord with a couple of properties, own a substantial portfolio, or are a commercial property investor, these plans will impact the whole market to varying degrees. The rumoured measures that are coming into play at the same time as Labour’s Renters’ Rights Bill will be an added strain on the sector.
We will be reporting on the Autumn Statement as it happens, with expert analysis of the impact Labour’s plans will have on landlords and property investors. Be the first to hear all the changes by signing up to our investor update here.
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