What The Stamp Duty Reforms Mean for Buyers, Investors, and Renters

In a bold move set to shake the UK's property market, Chancellor Rachel Reeves announced a series of tax changes that could impact everyone from first-time homebuyers to seasoned property investors. By targeting second homes with an increased stamp duty and reworking other property tax elements, Reeves aims to address Britain’s housing crisis while financing the government’s broader economic ambitions.

The headline change from Reeves' announcement is a two-percentage-point hike in the stamp duty surcharge on second homes, moving it to 5%. This change, effective immediately, will hit investors and those buying holiday homes, particularly in London and Southeast England, where property prices are highest. According to Richard Donnell, Zoopla Ltd.'s head of research, this increase is likely to dampen demand from investors, which could lead to fewer homes available to renters, as many buy-to-let landlords face tougher financial choices.

First-time buyers, who currently benefit from stamp duty exemptions on purchases up to £425,000, also face a timeline: these exemptions are set to expire in April 2025. This deadline could spark a flurry of activity from buyers hoping to beat the deadline, followed by a possible market lull. From April onward, first-time buyers will only be able to claim relief on properties valued up to £300,000, which may make homeownership a bit less accessible for many.

The Rental Market

But it’s not just buyers who are impacted. The knock-on effects of these tax hikes are expected to reverberate throughout the rental market. With higher barriers to entry, buy-to-let investors may be reluctant to expand their portfolios, a scenario that Lucian Cook, head of residential research at Savills Plc, warns could further restrict the rental supply and keep rents high. As supply dwindles, renters are likely to bear the brunt of increased costs in an already strained market.

In addition to the changes in stamp duty, Reeves’ budget introduced other noteworthy shifts. Among these, a reform to inheritance tax on agricultural and business property will take effect in April 2026, with assets over £1 million facing a 50% tax rate. This change could alter succession planning and property transfer decisions for those in agriculture and small businesses. Interestingly, Reeves stopped short of raising the capital gains tax on second-home sales, sparing property sellers from additional costs, at least for now.

The chancellor also committed £3 billion toward affordable housing initiatives, including funding for small developers. Her plan includes reining in the “Right-to-Buy” discounts available to those purchasing council houses, with the goal of reinvesting these funds into building more homes. Reeves’ long-term ambition to add 1.5 million homes to the UK housing market over the next five years underpins these budgetary moves, aimed at making housing more accessible for aspiring homeowners.

On top of these efforts, the abolition of the non-doms tax regime - long a point of contention - further signals Reeves’ intent to level the playing field. The move is likely to affect some ultra-wealthy residents, prompting them to reconsider their investments and residency status in the UK.

The Effect

In an economy already grappling with high mortgage rates and a cost-of-living crisis, Reeves’ new policies are a double-edged sword. They bring hope for a more accessible housing market, yet introduce higher costs for certain buyers and landlords. As Britain’s housing sector braces for these changes, time will tell if Reeves' approach truly balances the need for increased homeownership with the realities facing today’s property players.