Autumn Budget 2024: How does the Budget affect commercial real estate in England?

Last week, the chancellor announced a Budget aiming to restore stability in the economy and drive growth. Headline tax rises include increasing capital gains tax (CGT) rates, although residential property was spared, and significant investment in housing, planning reform, infrastructure and green energy were also announced.

What are the principal Budget announcements affecting the real estate sector?

Tax measures

Stamp duty land tax

Increases in stamp duty land tax (SDLT) for non-primary residences were announced. Higher rates for the additional dwellings surcharge, which applies to second homes, buy-to-lets and companies purchasing residential property, was raised from 3% to 5% with effect from 31 October 2024 (although most contracts exchanged in advance should not be affected by the increase). The measure is said by the government to provide first time buyers and movers with a "comparative advantage" by freeing up housing stock.

The single rate of SDLT payable by companies purchasing dwellings over £500,000 was also increased, from 15% to 17% (again, from 31 October 2024).

These measures are likely to affect those looking to invest in residential rental property. This could have wider consequences for the market, which has also had to deal with high mortgage costs and is braced for the forthcoming extensive reforms proposed in the Renters' Rights Bill.

Capital gains tax

Despite the increases to the main rates of CGT,  rates for residential property remain unchanged. Adding further to the tax burden was perhaps considered a step too far for the sector if coupled with the SDLT increases discussed above.

For further details on changes to CGT and its reliefs, see our Insight discussing the UK business tax measures announced.

Inheritance tax

Owners of farming land will be particularly impacted by changes to inheritance tax rules. Agricultural property relief and business property relief will be effectively reduced from April 2026. Agricultural property relief will be extended to environmental land management.

Annual Tax on Enveloped Dwellings

The annual charges for Annual Tax on Enveloped Dwellings will be increased by 1.7% for 2025-26. There will also be changes to the alternative finance rules.

Furnished holiday lets

The government confirmed that the Furnished Holiday Lettings tax regime will be abolished from April 2025, which will bring to an end the tax advantages for those who let out their properties on a short-term basis. The regime had been criticised for its impact on local housing availability, particularly in holiday hotspots.

Reserved Investor Fund

The government confirmed it will introduce the Reserved Investor Fund (Contractual Scheme), which is likely to be of particular interest to commercial real estate funds (due to the likely VAT treatment of fund management fees).

This measure was originally announced by the previous government in the 2024 Spring Budget and secondary legislation is expected to be brought forward before the end of the tax year 2024-25.

Business rates

A number of measures were announced with particular focus on supporting the high street. From April 2026, the government intends to introduce permanently lower multipliers for retail, hospitality and leisure (RHL) properties with rateable values under £500,000, while a higher multiplier will be applied to properties above this threshold to fund the support for RHL.

RHL properties will continue to benefit from relief for a further year but at a lower level of 40% on bills up to £110,000 for 2025-26. The focus of the relief is smaller businesses. The £110,000 cut-off applies per business rather than per property, leaving larger businesses with multiple properties facing what has been criticised as a disproportionate and unfair burden. The small business multiplier will also be frozen in 2025-26.

The government has pledged to reform the business rates in England over the course of the current parliament to deliver a fairer system. The measures announced in the Budget were only a starting point and there is disappointment in the industry that support did not go further.  

A discussion paper was also published on Budget Day, setting out priority areas of reform (which considers tackling avoidance and evasion, timing of revaluations and progressing the Digital Business Rates project) and inviting input from the industry, but a full consultation has not been published.

Planning reform

Reform of the planning system to "get Britain building" and to support housing delivery has been a prominent priority of the new government. The chancellor confirmed that a response to the National Planning Policy Framework consultation is to be published by the end of the year and the Planning and Infrastructure Bill to be introduced to parliament early next year.

Significant investment was also announced, including £46 million funding for local planning authorities for recruitment, upskilling and to accelerate applications for larges sites currently stuck in the system.

The government has also allocated £47 million to support housing development stalled by nutrient neutrality issues in affected catchment areas through the Local Nutrient Mitigation Fund Round 2. It is expected that reforms to the rules will be implemented through the Planning and Infrastructure Bill, which will take on the tricky task of balancing the need for housebuilding with nature protection.

An additional £5 million was also announced to improve Nationally Significant Infrastructure Projects regime, as well as significant investment in infrastructure and green energy projects.

Housing

To boost the supply of social and affordable housing, the government has committed an additional £500 million to the current Affordable Homes Programme to build up to 5,000 additional affordable homes, right to buy discounts are to be reduced and councils will be able to retain all receipts to reinvest in housing stock. The government has also launched a consultation on a new long-term social housing rent settlement of CPI+1% for five years, which aims to provide greater certainty to encourage landlord investment in social housing.

Extra support of £3 billion for small and medium-sized enterprises and the Build to Rent sector is to be granted through housing guarantee schemes, which are intended to boost investment.

The government has also allocated £1 billion to accelerate the remediation of unsafe housing, including the removal of unsafe cladding in 2025-26.

See also our Insight which discusses the Budget's planning announcements particularly affecting housebuilding.

Osborne Clarke comment

Budget spending measures largely reflect the government's high-profile commitments to deliver housing and planning reform, which will be welcome steps forward for developers, particularly the housebuilders. However, it remains to be seen how far this will go in accelerating processes, unblocking existing applications stuck in the system and how long this will all take to materialise.

Despite there being no increase to CGT for residential property, the private rental sector was nevertheless impacted by SDLT increases. This will not be attractive for prospective landlords looking to invest, due to the potential impact on investment returns, and these measures could ultimately affect rents and housing availability.

Amid continuing calls for reform to the business rates system, Labour pledged in its manifesto to replace it with a new, fairer system. Despite this, the immediate tweaks to the current regime announced in the chancellor's first Budget have been criticised as failing to provide the support to RHL properties that they need. The discussion paper signals that further reform is coming, but it may come too late for some struggling high street businesses.