What Does The 2024 Budget Mean For The Property Sector? Our Review

The Positives:

Of course, the most positive part of the budget was the announcement of a £5bn investment in the housing sector, with the goal of delivering 1.5 million new homes. Some key points to consider are:

Funding For Planning

One of the more encouraging parts of the budget was the pledge to provide an additional £46m of funding for the planning system, and a pledge to deliver further reforms. Whilst this investment is something the sector has needed for a long time, the proposed funding and changes fall short of what many in the industry have been asking for.

Jacob West, an Associate at Pure, had this to say:

“While hiring 300+ additional planning officers is positive, there are concerns that this doesn’t do enough to address the root cause of the issues in the planning system. Although there has been talk of further, sorely needed reforms, it is unclear what these reforms will look like and what impact they will have.

I’d also say that although more planning officers is positive, training 300 new officers, most of whom will be inexperienced graduates, to the point where they can have an impact will take time and resource – as will working through the existing backlog of applications.”

Affordable Homes

Another welcome announcement was a further £500m to the Affordable Homes Program. This will result in “up to 5,000” more affordable homes, taking the total funding for affordable housing to £3bn.

Although this may not move the needle very much when looking at the overall 1.5m home target, support for an additional 20,000 – 30,000 units of affordable housing (based on the previous £3bn) is a positive move for the sector.

SMEs and BTR

Likewise, an additional £3bn of support for Small and Medium Enterprises and Build To Rent by expanding existing guarantee schemes is a strong positive for the sector, as it will give SME developers greater support. It is hoped that this will also prevent larger housebuilders from tying up land in order to wait for values to increase, by encouraging development in the short-term.

Further Education

Whilst not directly tied to the property industry, a £300m investment in Further Education, plus an additional £40m to transition the Apprenticeship Levy into a new ‘Growth and Skills Levy’ could be of great benefit to high-skill industries (including property and development), who will hopefully benefit from an increase in the supply of skilled workers in the coming years.

Infrastructure

Likewise, whilst the extensive funding allocated to various infrastructure projects will not be seen by the vast majority of those in the industry, improved infrastructure across the country should in theory support a greater number of homes and a greater number of areas becoming viable for new residential projects. This will of course take time to be felt.

Areas To Keep An Eye On:

Stamp Duty

Possibly the most direct blow to the property sector, impacting both investors and developers, came in the form of an increase in Stamp Duty Land Tax, from 3% to 5%. Whilst relief will continue for first-time buyers, this will likely still put a dent in demand in the immediate short term.

On the longer-term impacts, our managing director, Tom Lee, had this to say:

“One aspect which has already taken effect, as of today, is the increase in SDLT for second homes/investment properties. With talk of people pulling out of uncompleted purchases due to the increase, it will be interesting to see if this sees a longer-term drop in purchases from developers and investors, or simply a re-calculation of the market price to incorporate the increased cost.”

National Insurance

Whilst the chancellor said during her speech that an increase in National Insurance contributions to 15% will not impact most smaller business, many larger SME developers will face increased financial pressures. It should also be noted that even if not affecting a smaller company directly, this change will place additional pressure on companies further down the supply chain, as well as strategic partners and larger firms of professionals, indirectly increasing development costs.

Capital Gains Tax

Although not ideal for investors and developers operating as individuals and holding/purchasing property in their own name, an increase in capital Gains Tax to 24% at the highest band is far below what many in the industry feared. For those developers and investors who have not yet made the switch to operating as limited companies/SPVs, this change will act as a further incentive to move properties into a more tax-efficient ownership structure.

Non-Dom Status

Whilst the end to ‘non-dom’ tax status and its replacement with a residence-based tax regime will likely prove popular with the public, it is less than ideal for many working in the property sector, particularly with higher-value, prime properties.

Our Director, Harry Hodell, commented:

“This change will have an impact on the prime property market, particularly London, as it will may make the UK a less attractive prospect for wealthy international buyers. This, coupled with an increase in SDLT, could further hurt demand for prime London properties. It should also not come as a surprise as has been a discussion point with the prior government so assumption is that plans are already being put in place”

It is worth noting that individuals in their first four years of UK tax residence will be able, as a general rule, to pay no tax on their foreign income and gains (known as the “FIG Regime”). This is regardless of whether they bring such income and gains to the UK.

In Summary:

When asked for his overall thoughts on this year’s budget, Our MD, Tom Lee said:

“Continued emphasis being placed on construction and planning reform is positive, as is funding for new infrastructure. Although SDLT and NI contributions are likely to increase financial strains on SME developers and investors, the increases we’ve seen are thankfully lower than many feared.”

We are interested to see how the budget will impact the sector over the coming months. While it may not have gone as far as hoped in some areas, it does still expand support for the sector. While taxes did increase, these changes were not as radical as many of us feared. There are a lot of positives to take away for the property industry, and we look forward to seeing how professionals across the sector respond.