- Property expert, Phil Spencer, says there is a chance Reeves could up the tax
Rachel Reeves could lump further tax misery on landlords this week by once again raising the stamp duty surcharge on second home buyers, experts – including TV property royalty Phil Spencer – fear.
On Wednesday, the Chancellor will present her Spring Statement to Parliament.
During the £40billion tax grab in the Autumn Budget, she delivered a sucker punch to second home buyers and landlords by increasing their SDLT rates.
Second home buyers and buy-to-let investors already faced a 3 per cent surcharge above what those purchasing a property to live in paid.
However, from 31 October, that increased to 5 per cent, adding thousands of pounds to the cost of buy-to-let and second home purchases.
Although the Chancellor insists she won’t be putting up taxes next week, that may relate more to income tax and national insurance.
Reeves could also be tempted to follow Scotland’s lead, which recently increased its version of the SDLT surcharge – the additional dwelling supplement (ADS) – which is charged on top of Land and Buildings Transaction Tax (LBTT) when someone purchases a second property.
Phil Spencer says increasing the surcharge further may not generate much additional tax revenue if it slams the brakes on the already slow buy-to-let sector
In December, ADS in Scotland was increased from an extra 6 per cent on top of standard LBTT rates to 8 per cent.
This means, for example, someone buying a £300,000 second property in Scotland now pays £28,600 in upfront property taxes.
The equivalent £300,000 second home in England will attract £17,500 SDLT charge, rising to £20,000 from 1 April – that’s because stamp duty reverts for all buyers to pre-2022 levels, where the threshold falls from £250,000 to £125,000.
Will the Government increase taxes?
The evidence points more towards spending cuts and less towards tax hikes. Reeves herself has said she ‘won’t tax and spend.’
However, the significant overshoot in borrowing in February highlighted the Chancellor’s tight fiscal situation.
Total tax receipts in January came in at £87.7billion, below the OBR’s forecast of £90.6billion. That was combined with higher-than-expected government expenditure of £93billion, compared to the OBR’s forecast of £91.6billion.
That means public sector net borrowing was £10.7billion, well above the OBR’s forecast of £6.5billion.
Alex Kerr, economist at Capital Economics, thinks Reeves will turn to spending cuts to cope with this.
‘The OBR will most likely conclude that the Chancellor’s headroom against her fiscal rules has been wiped out,’ said Kerr.
‘So we expect her to announce further non-defence spending cuts, on top of the welfare cuts already unveiled earlier this week.
‘Higher gilt yields and the weaker economy have probably wiped out the Chancellor’s headroom and in order to restore that buffer, on top of the £5billion of welfare cuts already announced, we think she will cut non-defence departmental spending by around £6.5billion.’
But it may also mean that Rachel Reeves feels she has no choice but to sign off on further tax rises, albeit ones she thinks won’t cause too much of a stir.
Neil Insull, a partner at tax and business advisory firm, Blick Rothenberg, said: ‘The OBR’s Economic and Fiscal Forecast, which will be published at the Spring Statement, may well force the Chancellor to announce further tax rises in addition to expected spending cuts.
He added: ‘Lower growth projections in the OBR report will cause further jitters in the already nervous bond market and it will be no surprise if the Chancellor looks to raise tax revenues to meet her ‘fiscal rules’.’
Phil Spencer, property expert and founder of the property advice website Move iQ suggests that stamp duty could be one such tax under consideration.
‘Given the Government’s current financial challenges, if the Chancellor does opt to change the Stamp Duty rules, she’s only likely to move the tax rates one way – and that’s up,’ said Spencer.
‘In fact there’s more chance of the Chancellor raising Stamp Duty even further. In her October Budget, she increased the additional Stamp Duty paid by those buying a second property – either as a holiday home or as a place to rent out – from 3 to 5 per cent.
‘Scotland’s equivalent of this second home ‘surcharge’ is 8 per cent, so it’s possible that the Stamp Duty surcharge – which affects England and Northern Ireland – could be moved closer to the Scottish level.
‘That would be a bitter blow for buy-to-let landlords, who are still reeling from October’s increase.’
However, Jimmy Waight, head of sales at John D Wood & Co thinks another stamp duty surcharge is unlikely to come so soon.
‘It’s unlikely the government will raise the stamp duty surcharge on additional properties, despite Scotland’s increase to 8 per cent,’ said Waight.
‘This isn’t poised to be a major fiscal event, and given the economic uncertainty since the Autumn Statement, there will be caution about introducing policies that could further dampen the outlook.
‘Any shift in rates could have unintended consequences, particularly in prime central London, where foreign investment plays such a key role.
‘For now, the government’s priority appears to be delivering on existing reforms rather than adding new policies into the mix.’
SDLT: From 31 October last year, the surcharge went up to 5 per cent, adding thousands of pounds to the cost of buy-to-let and second home purchases
What could it do to the buy-to-let sector?
The additional surcharge increase would be a bitter pill for buy-to-let investors to swallow.
Landlord purchases are already at a record low last year, according to Hamptons.
It found that fewer than one in 10 mortgage applications made in 2024 were for a buy-to-let loan, less than half of what it was just a few years ago.
Hamptons says that the 5 per cent stamp duty increase announced in October is already acting as a further disincentive, reducing this figure to between 7 and 8 per cent in the longer-term.
This is likely to put further upward pressure on rents, particularly in Southern areas where the barriers to entry tend to be higher and yields lower.
‘Another Stamp Duty increase could prompt more would-be landlords to conclude that the sums no longer add up and abandon their plans,’ adds Phil Spencer.
‘While this could give first-time buyers more choice – as they’d be less likely to be competing for properties with seasoned buy-to-let buyers – there is the risk of unintended consequences.
‘A third of Britons don’t own their own home, and for many of them, renting privately is the only option. With rents already rising, reducing the supply of properties for rent could drive rents up even higher.
‘Tightening the screws on the buyers of second homes is more politically palatable than hitting first-time buyers, but increasing the surcharge further may not generate much additional tax revenue if it slams the brakes on the already slow buy-to-let sector.’