Brace for impact: How to navigate the 2025 property tax shake-up

The new Labour government is expected to announce significant tax increases in the upcoming October budget. This follows Chancellor Rachel Reeves' revelation of £22 billion in unfunded spending.

To address the fiscal deficit, one possible solution to plug this “black hole” is to raise taxes, including Stamp Duty Land Tax (“SDLT”) and Capital Gains Tax (“CGT”). However, there is growing concern that this could lead to a potential market slowdown as buyers and sellers may be deterred by a higher tax regime.

Overview of the 2025 Property Tax Changes

From 31^st March 2025, the following changes are scheduled to come into effect:

• The nil rate SDLT threshold for residential property, which is currently £250,000, will return to the previous level of £125,000.
• The nil rate threshold for first-time buyers, which is currently £425,000, will return to the previous level of £300,000.
• The maximum purchase price for which First-Time Buyers Relief can be claimed, which is currently £625,000, will be decreased to £500,000.
• CGT rates are widely expected to increase (though this hasn’t been announced).

Impact on property buyers and owners

Reducing the nil rate band back to £125,000 will cost every buyer of residential property above £250,000 an additional £2,500 in SDLT. Given it is well documented that many are struggling to make ends meet already, we assume this will tip some over the edge, preventing them buying, and slowing the sales market. If CGT rates rise dramatically, we also anticipate sellers (those who don’t benefit from CGT relief – for example landlords) will increase their asking prices to cover at least part of their increased CGT bill. These SDLT changes would affect first-time buyers (who might be struggling the most to buy) the worst, if first time buyer relief also reverts to its previous levels. If first time buyers can’t get into the market, this can ripple upwards through property chains, causing entire chains to collapse.

These SDLT policies (and their end date) were, of course, put in place by a Conservative government. There is nothing to stop the Labour government from amending them, SDLT in particular has been aggressively increased in recent years (remember that, in early 1997, it peaked at 1% - it currently peaks at 17%, and labour have already warned of an additional 1% for non-residents) and Labour might consider SDLT cannot bear any further bad news right now without damaging the market.

If CGT rates do rise, we wonder if it will create a further incentive to buy residential property through companies, too. The popularity of this has already increased dramatically, since individuals lost the ability to offset their full mortgage interest expenses (companies still can). If the company rate of tax on disposals of real estate remains at 19 – 25%, and CGT (perhaps) increases to 40%, even more people may prefer to hold real estate within a company.

How to prepare for the changes
 

First-Time Buyers:

• Review Budget plans: Reassess your financial plans and budget to accommodate the potential increase in tax liabilities and associated costs. Consider increasing your deposit or exploring other financial options to mitigate the impact.
• Monitor property prices: Stay informed about market trends and property prices to better understand how the changes might affect your purchasing power.
• Seek financial advice: Consult with a financial advisor to explore strategies for managing the increased tax burden and to ensure you are financially prepared for the new thresholds.
• Buy now: If you are in a position to complete your property purchase before the new financial year, you should aim to do so to avoid increased tax liability, as the upcoming changes to SDLT and CGT are likely to result in higher costs.

Buy-to-Let Landlords:

• Evaluate investment strategies: Reassess your investment strategies and consider whether to adjust your property portfolio to adapt to higher transaction costs.
• Explore tax efficiency: Consult with a tax advisor to explore ways to optimise tax efficiency and manage the potential increase in SDLT and CGT.
• Prepare for market shifts: Anticipate potential changes in rental demand and property values, and plan accordingly to safeguard your investment returns.

Commercial Property Investors:

• Assess cost implications: Analyse how increased SDLT and CGT changes might affect your investment calculations and acquisition strategies.
• Diversify investments: Consider diversifying your portfolio to mitigate risks associated with higher costs and a potential slowdown in the market.
• Stay informed: Keep an eye on policy developments and market trends to adjust your investment approach as needed.

Conclusion
 

As the October Budget threatens to implement unwelcome tax increases, and SDLT increases are already scheduled, it is crucial for property buyers and owners to proactively prepare for the impending changes. The expected adjustments to SDLT and CGT could reshape the property landscape, affecting various stakeholders across the market, from first-time buyers to cross-border investors.

By staying ahead of these changes and adjusting investment strategies accordingly, you can better position yourself to manage the impacts of the new tax regime. However, it remains to be seen the exact changes which Labour will implement.

further information

For personalised advice and more information on how these changes might affect you directly, please reach out to our specialist team at Kingsley Napley LLP.

For more information on any of the issues mentioned in this blog, please contact Matt Spencer.

about the authors

Matt is a partner within the Corporate, Commercial and Finance team, specialising in tax law, advising on and efficiently structuring a wide range of corporate and real estate transactions including M&A, land transfers, developments and leases. He is also expert in employment tax issues and the structuring of employee incentive schemes as well as VAT issues in the public and private sector. He has experience advising clients across a range of sectors from tech to house builders or landlords, and consultancy companies to public bodies.

Úna is a first seat trainee, currently sitting in the Real Estate and Construction team. She works on a broad range of matters, including residential and commercial acquisitions and disposals; property development; investment, asset management and refinancing; landlord and tenant work, and construction matters. Úna has previously spent two years working in the team, and has gained invaluable experience and knowledge relating to a wide range of property matters.