The stamp duty payable on the purchase of second homes will rise by two percentage points, after chancellor Rachel Reeves announced the measure in her Autumn Budget. Those buying second homes already pay a surcharge of 3%, but this is set to rise to 5% from tomorrow.
The government says the measure will support first-time buyers and those purchasing a main residence, giving them “a comparative advantage over those purchasing additional property”.
It expects the number of property transactions among these groups to rise by 130,000 over the next five years as a result of the change.
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However, critics say the policy sounds another death knell for buy-to-let landlords, who have already been hit in recent years by scaled back tax reliefs and higher stamp duty rates.
The knock-on effect could also be negative for renters, with landlords expected to pass the costs on to tenants in the form of higher rents.
“This is another nail in the coffin of buy-to-let,” says Craig Fish, director at Lodestone Mortgages & Protection. “Transactions in process are now at real risk as investors may well pull out and this will have a negative impact on any property chains where a buy-to-let is involved.”
Although the new rules will kick in from tomorrow, 31 October, those who exchanged contracts prior to this date will not be affected by the rate increase.
Stamp duty hike was unexpected
The move was unexpected in a Budget that otherwise contained relatively few ‘rabbits out of hats’. Many landlords were expecting capital gains tax to go up, but not stamp duty.
A large number of former rental properties were listed for sale in the lead-up to the Budget as owners tried to cash in capital gains before the fiscal event. However, ultimately, it wasn’t this particular tax they needed to worry about.
Although Reeves hiked the main capital gains tax rates, she left the residential property rates untouched.
This change comes at a time when many prospective buyers are already staring down the barrel of a higher stamp duty bill.
Stamp duty thresholds were temporarily lowered in 2022, but this relief is set to come to an end in April 2025. At this point, the tax-free threshold will revert from £250,000 to £125,000 (and from £425,000 to £300,000 for first-time buyers).
It is worth pointing out that the stamp duty surcharge means those buying a second home do not get any portion of the property tax-free, even under current rules. The minimum they pay is 3%, rising to 5% from tomorrow (31 October).
Stamp duty hike could hurt tenants as well as landlords
Critics have argued that the change in policy will cause further damage in an already broken rental market. Rents are already at a record high and there is a distinct lack of housing supply.
Official data from the Office for National Statistics (ONS) also shows that the average rent in England is currently £1,336 per month, up 8.5% compared to a year ago. This rises to £2,145 in London.
“Housing shortages are not due to landlords buying all the property, but the lack of development over the long term,” says Justin Moy, managing director at EHF Mortgages. “But those landlords are the life of social housing needs, so why make it worse?”
The government has committed to building 1.5 million new homes over the course of this parliament. In theory, an increase in supply should help boost affordability for those looking to buy. But the private rental sector will remain an important cornerstone of the UK housing market – and it appears to be at breaking point with swathes of landlords selling up.
Figures released by Rightmove in September showed that almost a fifth of homes that are currently up for sale used to be rented out. This is up from 8% in 2010 and well above the five-year average of 14%.
New stamp duty rates on second homes
From 31 October, the following stamp duty rates will apply for second homes, buy-to-let residential properties and companies purchasing residential property:
Swipe to scroll horizontally
Property value
SDLT rate on second properties
Up to £250,000
5%
The next £675,000 (the portion from £250,001 to £925,000)
10%
The next £575,000 (the portion from £925,001 to £1.5 million)
15%
The remaining amount (the portion above £1.5 million)
17%
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Katie has a background in investment writing and is interested in everything to do with personal finance, politics, and investing. She enjoys translating complex topics into easy-to-understand stories to help people make the most of their money.
Katie believes investing shouldn’t be complicated, and that demystifying it can help normal people improve their lives.
Before joining the MoneyWeek team, Katie worked as an investment writer at Invesco, a global asset management firm. She joined the company as a graduate in 2019. While there, she wrote about the global economy, bond markets, alternative investments and UK equities.
Katie loves writing and studied English at the University of Cambridge. Outside of work, she enjoys going to the theatre, reading novels, travelling and trying new restaurants with friends.
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