Budget analysis - the impact on rural and property businesses
Budget analysis - the impact on rural and property businesses
Businesses based on land and property ownership were among the losers in the Chancellor’s Budget this week (November 26) with a rise in the tax on income earned from property among the biggest blows for landowners.
A small concession on the controversial changes to inheritance tax rules, announced in the 2024 Budget, means the £1m tax-free allowance on the value of estates passed on after a death can now be shared between spouses.
The concession was introduced by Chancellor Rachel Reeves on Wednesday following lobbying by rural groups including the CLA. It was welcomed by some farmers and family business owners - but it will not be enough to silence the critics who fear the 2025 Budget does little to support rural growth.
New taxes on higher value properties - £2,500 a year for properties valued at over £2m rising to £7,500 for properties valued over £5m - place a burden on the custodians of some of the country’s most prized heritage houses already facing pressures. They too may be considering selling up before the new rates come into effect in 2028, potentially skewing the property market and devaluing larger homes.
And those new ‘surcharge’ taxes, which will be paid on top of council tax, could also have a dampening effect on the sale of homes valued well below the £2m threshold, as house-buyers hold back on plans to trade up to larger properties, affecting the wider market.
The increase in tax on income earned from renting out properties amounts to two percentage points. When the change comes into force, in April 2027, the basic, higher and additional tax rates on earnings from property will increase to 22%, 42% and 47% respectively.
Many property owners, including country estates which provide a significant proportion of rural residential rentals, were warning even before the Budget that owning and letting homes was becoming less viable.
Changes already in place or coming into effect, including tougher rules on EPC ratings and changes to tenants’ rights, were making some consider the sale of homes. The tax rises in the Budget could turn those plans into reality, reducing the number of homes available for rent.
Speaking to KOR Communications’ Estate Matters podcast earlier this year, Sir William Worsley of Hovingham Estate in Yorkshire said that providing rural property to rent was important but increasingly costly for modest returns
“I reckon the return on capital of our rural property portfolio is about 0.7% which is not a great investment,” he said. He warned, well before the Budget, that estates could be reviewing their property holdings and considering selling up. The Chancellor’s statement may have made that more likely.
It was clear, even before the Chancellor stood up in the House of Commons, what the focus of her Budget would be – and even clearer after the unprecedented release of the Office for Budget Responsibility’s statement, more than an hour before she started speaking!
She hopes to have spread the burden of turning around the British economy fairly, supporting the poorest and imposing higher taxes on those she believes are best able to pay. Whether the consequences of her decisions for the land and property sector prove beneficial or damaging to the UK economy as a whole remain to be seen.
Image - HM Treasury