On October 30, Chancellor of the Exchequer Rachel Reeves announced the first major Budget by a Labour government in 14 years, promising to usher in a decade of ‘national renewal’. Markets awaited the news with bated breath, bracing for a seismic £40 billion wave of tax hikes that could not only reduce the appeal of the U.K. market but potentially create a hostile climate for investors. While the Budget did introduce tax increases, they were arguably less severe than many had feared.
Below, we explore the key Budget measures and what they mean for the luxury property sector.
Stamp Duty – All Eyes On The Rental Market
One of the biggest surprises in the 2024 Budget was an increase in Stamp Duty on additional residential properties, including second homes and buy-to-let residences. As of October 31, the threshold rose from 3% to 5%, applying to both individual and corporate buyers. This change reflects the government’s objective to free up stock for primary residences and first-time buyers, reinforced by a Stamp Duty relief for first-time buyers on properties valued up to £300,000, effective from April 2025.
Explore: Residential Stamp Duty Calculator
What does this mean for the luxury property market?
While higher upfront costs may deter some buyers, the impact is unlikely to be significant in a market as robust and resilient as Prime Central London (PCL). Purchasing power remains incredibly strong in this segment of the market, and as past data shows, buyers are historically willing to spend more to live in London. The city is a global financial hub with a lifestyle appeal that’s difficult to match, with world-renowned schools, a rich cultural landscape, and prime global connectivity.
London’s history of resilience in the face of rising tax burdens is well-documented. A look back at the last Labour government’s Stamp Duty changes shows that the market has in recent times weathered similar shifts without losing momentum.
In 2010, then-Prime Minister Gordon Brown and his Chancellor, Alistair Darling, introduced a 5% Stamp Duty on residential properties over £1 million as part of the March 2010 Budget. While the increase sparked major concerns of a buyer exodus, the market saw a 54% increase in £1 million+ home sales by May 2011, compared to 2009. A similar trend emerged in 2014, following the introduction of a higher Stamp Duty rate for properties above £937,500. By 2015, sales volumes for homes above £1 million increased by 16%, again affirming the notion that higher duties are not typically a deal-breaker for buyers in the top end of the market.
However, even in a resilient market, small shifts in investor behaviour can lead to ripples in other sub-segments, such as rentals.
What happens if buyers exit?
If higher upfront costs drive investors to scale back and reduce their buy-to-let portfolios, we may see fewer rental properties available on the market. This will further tighten the supply of available stock in a market that’s already highly constrained, driving up rental prices. This is a trend that could also spill over into neighbouring areas. As rental options become scarcer, renters may find themselves competing more fiercely for available properties, increasing letting prices in Greater London as well as PCL.
This brings us to a third group of landlords: those who choose to stay in the market, but find ways to offset the added costs.
Buyers who continue investing in buy-to-let properties are likely to simply foot the bill of the new Stamp Duty surcharge by increasing rents – especially in PCL where demand is high enough to support higher rates. While landlords can’t raise rents immediately due to existing tenancy agreements, they may over time adjust the rates upward when renewing leases or finding new tenants.
In this sense, it is rental tenants who are likely to inadvertently feel the pressure of the Stamp Duty increase.
Capital Gains Tax: A Silver Lining
In a welcomed surprise, Capital Gains Tax (CGT) on residential property remained at 18% for basic rate taxpayers and 28% for higher rate taxpayers. For homeowners, it is one less tax hurdle, and it may cushion the impact of Stamp Duty for investors who expected CGT to rise with the 2024 Budget.
Non-Dom Tax – Major Changes, Minor Investor Impact?
The 2024 Budget brought long-expected reforms to the non-dom tax system, replacing it with the residence-based foreign income and gains regime (FIG).
For many years, UK residents with foreign domiciles ("non-domiciled") were taxed only on their UK income and assets, with global assets taxed only if brought into the UK. The new system will tax residents based on their worldwide gains and income, regardless of whether they are remitted to the UK. A four-year transitional period will ease the impact of this, allowing eligible new or returning residents who have not been UK tax residents in the last ten years to benefit from a temporary exemption on foreign income and gains.
The government projects the change will boost the economy by $3.2 billion in one year alone.
As with Stamp Duty, looking at historical data gives reason for optimism, despite initial concerns of an UHNWI exodus. The UK has progressively tightened restrictions on non-doms for the past 20 years, beginning with annual fees in 2008 (£30,000 for seven-year residents, and £60,000 for 12-year residents), and a new rule in 2017 that deemed 15-year residents as domiciled for tax purposes. These new non-dom tax burdens appeared to have no causal impact on the luxury property market, and HMRC reported a steady rise in deemed domiciled individuals, with an influx of new non-doms post-Covid.
Earlier this year, Claire Reynolds, Managing Partner at United Kingdom Sotheby’s International Realty, told The Times that when the Conservative government first announced the intention to abolish the non-dom regime, the agency had four significant deals under offer, totalling £250 million. Three of the sales successfully concluded, and while one buyer initially withdrew, they quickly returned to the table and purchased the most expensive home to sell in London year-to-date.
This further illuminates a fundamental reality in the UK luxury real estate market: wealthy investors can and will pay more.
How have broader markets responded?
In the immediate aftermath of the announcement, the pound slumped to an 18-month low, reflecting investor concerns over increased borrowing and potential inflationary pressures. However, it has since rebounded to pre-Budget levels, indicating that the market has largely absorbed the news. While the bond market saw temporary turbulence, this too stabilised after investor attention turned to the U.S. election.
Market activity reported by United Kingdom Sotheby’s International Realty reveals a renewed sense of buyer confidence in the UK market following the Budget, with an uptick in super-prime transactions.
Claire Reynolds commented, “On the eve of the Budget, we exchanged contracts on a house in Holland Park with a guide price of £5.95 million, and went to sealed bids on a new build apartment close to £15 million. The bidding parties were international discretionary buyers, and the impending Budget didn’t concern them. Significantly, within two hours of the Budget announcement, we executed the highest value house sale of the year in Belgravia – a trophy townhouse, with a guide price of £33 million, again to an international purchaser.”
She added, “October was one of our highest volume sales months this year, with new enquiries also up 12% month-on-month, and we expect to have a strong final quarter."
To find out how much stamp duty you may need to pay on a residential property in England and Northern Ireland, use our free stamp duty calculator.
