The UK Spring Budget 2025 has introduced several changes that will impact property landlords and investors, including those operating Houses in Multiple Occupation (HMOs). Understanding these changes is crucial for property owners looking to navigate the evolving financial landscape effectively.
Key Budget Changes Affecting Landlords and Investors
Capital Gains Tax (CGT) Reduction
One of the most notable updates is the reduction in the higher rate of Capital Gains Tax (CGT) on residential property sales from 28% to 24%, effective from April 2025. This change aims to stimulate property transactions, making it more financially attractive for landlords and investors to sell their properties. However, the lower CGT rate for basic rate taxpayers will remain at 18%.
Stamp Duty Land Tax (SDLT) Changes
Effective June 1, 2025, the government will abolish Multiple Dwellings Relief (MDR). This relief previously allowed investors purchasing multiple properties in a single transaction to calculate SDLT based on the average price per dwelling, often resulting in lower tax liability. With its removal, landlords expanding their portfolios may face higher acquisition costs.
Empty Property Relief Adjustments
From April 2025, the period a property must be occupied to reset Empty Property Relief will extend from six weeks to thirteen weeks. This means landlords will need to ensure longer occupancy periods to qualify for a new period of empty relief, discouraging short-term occupation strategies.
Local Housing Allowance (LHA) Increase
A positive development for landlords is the increase in LHA rates, which will rise to the 30th percentile of local market rents starting in April 2025. This will benefit approximately 1.6 million low-income households, potentially increasing demand for rental properties, including HMOs.
Implications for HMO Landlords
While the budget does not directly target HMOs, these changes will influence the market in several ways:
- Higher Selling Incentives: The CGT reduction may encourage landlords to sell underperforming properties or restructure their portfolios.
- Increased Acquisition Costs: The removal of MDR could make it more expensive for investors to expand their HMO portfolios.
- Greater Rental Demand: The LHA increase may boost occupancy rates in the HMO sector, particularly in areas with high housing benefit claimants.
- Stricter Relief Criteria: Landlords using short-term occupancy to claim Empty Property Relief will need to adjust their strategies.
What Should Landlords Do?
Property owners should reassess their portfolios and consider:
- Whether to sell underperforming properties before the CGT reduction takes effect.
- The impact of SDLT changes on future purchases.
- How the LHA increase could influence rental demand and pricing strategies.
- Ensuring compliance with the new Empty Property Relief rules.
Final Thoughts
The Spring Budget 2025 introduces a mix of benefits and challenges for property landlords and investors. HMO landlords, in particular, should stay informed and consider seeking professional advice to optimise their investment strategies in light of these changes.
