Rachel Reeves may be preparing to impose additional tax burdens on landlords by increasing the stamp duty surcharge for second home buyers, according to concerns raised by property experts, including TV property guru Phil Spencer.
The Chancellor is set to deliver her Spring Statement to Parliament this Wednesday. Many remember the impact of the Autumn Budget, where she imposed a significant financial blow on landlords and second home buyers by raising their Stamp Duty Land Tax (SDLT) surcharge.
Previously, buy-to-let investors and second home buyers paid an additional 3 per cent on top of the standard SDLT rates that applied to residential property purchases. However, as of 31 October, that surcharge was increased to 5 per cent, significantly raising the costs of buying second homes or rental properties.
Although Reeves has publicly stated that she will not increase taxes during this week’s Spring Statement, her pledge seems to focus primarily on income tax and national insurance contributions. This leaves property-related taxes, such as SDLT, potentially on the table for further changes.
Some experts fear Reeves may take inspiration from Scotland’s recent move to raise its equivalent of SDLT. Scotland increased the Additional Dwelling Supplement (ADS), which is applied on top of the Land and Buildings Transaction Tax (LBTT) when purchasing a second home. This change has left many landlords and property investors anxious about whether similar measures will be introduced in England.
If this happens, it could add even more costs for buy-to-let investors and second home buyers, raising concerns about the potential impact on the private rental market and future housing affordability.
In December, Scotland increased its Additional Dwelling Supplement (ADS) from 6 per cent to 8 per cent, further raising the financial burden on second home buyers. This surcharge is applied on top of the standard Land and Buildings Transaction Tax (LBTT) rates.
For example, someone purchasing a second property in Scotland worth £300,000 now faces a hefty £28,600 in upfront property taxes, reflecting the increased ADS rate. This move has sparked concerns that similar changes might be introduced in other parts of the UK.
In England, a second home buyer purchasing a property of the same value currently pays £17,500 in Stamp Duty Land Tax (SDLT). However, this will soon increase due to changes coming into effect on 1 April. From that date, the threshold for standard SDLT will revert to pre-2022 levels, decreasing from £250,000 to £125,000. As a result, the same £300,000 purchase will attract a higher £20,000 SDLT charge.
This combination of rising property taxes and lower thresholds is expected to place added financial pressure on buy-to-let investors and second home buyers. It has also fuelled speculation about whether England might eventually follow Scotland’s lead by raising its own SDLT surcharge, further impacting property market dynamics.
Will the Government increase taxes?
The evidence seems to lean more towards spending cuts rather than tax hikes, despite concerns about possible fiscal adjustments. Rachel Reeves herself has previously stated that she doesn’t intend to “tax and spend,” though the current financial situation may complicate that stance.
In February, the Chancellor’s fiscal constraints became evident when borrowing figures overshot expectations. In January, total tax receipts reached £87.7 billion, falling short of the Office for Budget Responsibility’s (OBR) forecast of £90.6 billion. Simultaneously, government expenditure exceeded expectations, hitting £93 billion compared to the predicted £91.6 billion.
This imbalance led to public sector net borrowing of £10.7 billion, significantly higher than the OBR’s estimate of £6.5 billion. The unexpected shortfall highlights the mounting pressures on public finances and adds to the growing fiscal challenges facing the Chancellor.
Alex Kerr, an economist at Capital Economics, believes the solution may lie in cutting spending rather than raising taxes. He predicts that Reeves will be forced to reduce expenditure further. “The OBR will most likely conclude that the Chancellor’s headroom against her fiscal rules has been wiped out,” said Kerr, emphasising that spending cuts may be the only viable option.
Kerr also expects Reeves to announce additional non-defence spending cuts, adding to the welfare reductions that were disclosed earlier in the week. He suggests that the fiscal buffer has been eroded due to higher gilt yields and a weaker economy, leaving little flexibility in the budget.
To address the situation, Kerr anticipates the government will slash non-defence departmental spending by around £6.5 billion. This is on top of the £5 billion in welfare cuts already outlined, signalling that further austerity measures could be on the way.
Despite this, there remains the possibility that Reeves may resort to tax increases. However, any such measures are likely to be carefully chosen to minimise public backlash.
As financial pressures grow and the options narrow, the Chancellor will have to balance public spending reductions with politically palatable decisions to keep both the budget and voters onside.
Neil Insull, a partner at tax and business advisory firm Blick Rothenberg, has raised concerns that the Chancellor may announce additional tax increases alongside spending cuts during the upcoming Spring Statement. This possibility, according to Insull, could be driven by the Office for Budget Responsibility’s (OBR) Economic and Fiscal Forecast. He warned that lower growth projections in the OBR report might unsettle the bond market further and leave the government seeking additional tax revenues to meet its fiscal targets.
Phil Spencer, property expert and founder of Move iQ, has speculated that stamp duty could be one of the taxes under review. Given the government’s financial constraints, Spencer believes any changes to stamp duty rates are more likely to push them upwards rather than down. He noted that, in October’s Budget, the Chancellor had already increased the stamp duty surcharge for second-home buyers and landlords from 3 per cent to 5 per cent.
With Scotland’s equivalent second-home surcharge now set at 8 per cent, Spencer suggests that England and Northern Ireland could see similar adjustments, pushing their surcharge closer to Scottish levels. If that happens, it would be another setback for buy-to-let landlords, many of whom are still grappling with the impact of last year’s increase.
However, not everyone shares this outlook. Jimmy Waight, head of sales at John D Wood & Co, believes another immediate hike in the stamp duty surcharge is unlikely. He points out that this Spring Statement is not expected to be a significant fiscal event and argues that the government may be wary of further dampening the economic outlook during a period of uncertainty.
Waight also cautions against potential unintended consequences if rates are raised, especially in high-value markets like prime central London, where foreign investment plays a crucial role. For now, he believes the government’s focus will be on delivering existing reforms rather than introducing any new, disruptive policies.
While opinions are mixed, the financial pressures facing the government have certainly sparked speculation over possible fiscal changes. Whether tax hikes or spending cuts dominate the Spring Statement remains to be seen, but the outlook is far from settled.
What could it do to the buy-to-let sector?
The proposed increase to the additional stamp duty surcharge could be another significant blow to buy-to-let investors. Many landlords are already struggling to cope, with landlord purchases hitting record lows last year, according to data from Hamptons. The firm found that fewer than one in ten mortgage applications in 2024 were for buy-to-let loans, which is less than half of what it was just a few years ago.
Hamptons has also noted that the 5 per cent stamp duty surcharge introduced in October is already discouraging potential investors. This surcharge is expected to reduce buy-to-let mortgage applications further, potentially stabilising at just 7 to 8 per cent over the long term.
One knock-on effect of this decline is likely to be additional upward pressure on rental prices, especially in Southern regions where property prices are higher, entry costs are steep, and rental yields tend to be lower.
Property expert Phil Spencer warns that an additional increase to the surcharge could deter even more prospective landlords. ‘Another Stamp Duty increase could prompt more would-be landlords to conclude that the sums no longer add up and abandon their plans,’ he says.
While fewer buy-to-let investors might mean less competition for first-time buyers, Spencer cautions against potential unintended consequences. He points out that around a third of Britons don’t own their own home, leaving many dependent on the private rental market. Reducing the supply of rental properties could exacerbate the problem by driving rents even higher.
Politically, targeting second-home buyers may be seen as a safer choice than increasing costs for first-time buyers, but Spencer also questions the long-term impact. He warns that increasing the surcharge could ultimately reduce tax revenue if it causes the already sluggish buy-to-let sector to slow down even further.
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