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The 2024 UK Autumn Budget was released at the end of October and property owners and landlords face new policies that will affect their rental income in one way or another. Understanding these changes will help you shape your financial strategies and property operations so you can continue to increase rental revenues despite the changes it brings.
Staying compliant with these policies will protect your property’s performance and will allow you to stay competitive in London’s rental market. It’s not just about avoiding penalties and fines. These new policies can be used to keep your rental properties thriving even through the evolving demands of the market.
In this article, you’ll discover the 4 important policy changes that will impact rental property operations. You’ll learn how it affects you and what you can do to adapt to these changes.
Rising Costs: National Insurance Adjustments
Starting April 6, 2025, the National Insurance Contributions will change. The employer’s NIC rate will rise to 15% (+1.2%) and the level by which they’ll begin paying NICs will now be £5,000 (from £9,100).
This means staffing and operational budgets will be affected. As the cost of operations increases, employers will be forced to compensate for losses by increasing prices.
Impact on Landlords
This will affect property owners and landlords who hire staff to manage rental properties. These include housekeeping staff, property managers, maintenance teams, etc. The added expense will surely make property operations rise – especially for those who manage multiple rental properties.
With payrolls and service charges rising, landlords may find themselves cutting into their rental revenues to pay the increase. They could also choose to pass on the costs to tenants when they renew their lease agreements. For short-term rentals, it’ll be easier to adjust booking fees.
Landlords also have the option to reduce staff hours, as long as it doesn’t compromise the guest or tenant experience.
How to Adapt
There are still a couple of months before the higher contributions take effect. You can prepare for these increased costs by exploring cost-saving measures. For instance, you can consolidate management duties to reduce the need for manpower. Or you can partner with a property management company offering bundling services.
Some companies offer multiple functions and would take care of marketing, housekeeping, guest relations, compliance, maintenance and other tasks on your behalf. They usually have efficient processes that can help reduce your overhead costs.
You can also find other ways to reduce property management operations like lowering your electric bills or something similar.
Rental Market Supply: Stamp Duty Changes
Effective October 31, 2024, stamp duty charges for additional homes will increase from 3% to 5%. Property owners who plan to buy a 2nd property for rental purposes will be subjected to higher stamp duty rates. So if the property costs £500,000, you’ll be paying £10,000 more on stamp duties.
This is expected to affect the rental property market. After all, most additional homes are used to help the owner earn extra income through rental revenues. With the additional charges, there might be a decrease in the number of new rental properties entering the market.
Impact on Landlords
If the supply of rental properties declines, current landlords will benefit from the higher demand. In London where the need for rental properties is high, it could result in a low supply and more intense competition among existing rental units. This could potentially drive rental fees higher in high-demand areas.
Of course, landlords should be cautious about rental price increases. The local government is very strict about renter’s rights and they’ve set regulations to keep housing affordable for them. But if the property’s condition can justify the rental price, then it might be okay to raise prices moderately.
How to Adapt
Landlords can capitalise on this change to increase their rental revenues. However, they should also consider occupancy rates as well. Look at your current numbers and consider any lease agreements that may be renewed soon. Analyse current data in the rental market so you’re aware of the going rates. Review your knowledge of rental price caps so you can stay compliant.
You might also want to target business travellers, too. Consider corporate rentals as a letting strategy because business professionals may be more willing to pay premium prices for accommodations.
Flexible letting is another option you can consider. It allows you to maximise the earning potential of your rental unit by combining the peak earning potential of shortlets with the income stability of longlets. This can prove to be effective in helping your portfolio grow.
Green Incentives: Tax Break for Sustainable Upgrades
The UK government’s Autumn budget reinforced their commitment to the environment by maintaining tax incentives to encourage the transition to electric vehicles. They also extended the 100% First Year Allowances meant for electric cars and EV charge points by another year.
For rental properties, you can take advantage of this by setting up EV charging points as part of your sustainable upgrade. Not only will this lead to tax breaks, but it can also attract eco-friendly travellers to book a stay.
Impact on Landlords
The extension of tax incentives strengthens the government’s drive to support eco-friendly initiatives. You don’t have to limit yourself to the EV charging points. You can also add solar panels or use energy-efficient light fixtures in your rental properties.
You can also upgrade your boilers and heating systems to make them more energy efficient. This will not only be good for the environment but also increase your appeal to eco-conscious guests and tenants. Of course, it’ll also reduce your energy bill and long-term operational costs.
How to Adapt
Look at your properties and identify potential areas for sustainable upgrades. It could be small adjustments like changing all your lightbulbs into energy-efficient ones or putting in larger installations like EV charging points or boiler upgrades. Some green upgrades qualify for tax breaks and this can help you save costs.
Once the upgrades are done, use it as a marketing tool to increase the property’s appeal to eco-conscious travellers. You can create a modern and environmentally friendly image.
Higher Taxes: Capital Gains and Income Tax Changes
Starting October 30, 2024, capital gains tax will go from 10% to 18% (lower rate) and 20% to 24% (higher rate).
The Business Asset Disposal Relief and Investor’s Relief will rise to 14% on April 6, 2025 and then 18% on April 2026. The capital gains tax on carried interest will also increase on April 6, 2025, from 10% and 28% to 32%. It will increase further to 36% in April 2026.
Impact on Landlords
These adjustments may lead to higher taxes for any profit gained from property sales and rental income. This can impact the bottom line of property owners and landlords. You’ll have to factor in higher tax obligations when calculating ROIs.
In case the rental income is used as a primary revenue stream, the tax increases can lower take-home profits. This will slow the property owner’s ability to reinvest in upgrades to improve the property. It can also affect the property operations budget, which in turn could compromise the property’s condition and guest satisfaction.
How to Adapt
Mitigating the impact of these tax increases may require the professional opinion of tax experts. You’ll have to explore strategies to lower your tax obligations through deductions, exemptions and even restructuring options. Sometimes, changing the business structure of your property management operations could help.
You can also shift your focus from shortlets to more stable rental income strategies like mid-term and long-term letting. Diversifying property investments (e.g. mixing residential and commercial rentals) can also help you spread the impact of these tax changes.
Keep Rental Properties Compliant and Competitive
The 2024 Autumn Budget of the UK government showed several shifts in employment costs, tax policies and financial incentives. Property owners and landlords should pay attention to specific areas affecting their property operations.
Although some of the changes will negatively affect a landlord’s bottom line, there are also opportunities to improve properties to increase both value and appeal. It’s just a matter of understanding what the changes will bring so you can take counter steps to position your rental properties to benefit. Being proactive is essential to manage these adjustments and maximise profitability.
During these times, it helps to work with property experts to get guidance and be completely compliant with the new policies. Partnering with a property management company brings benefits that include strategic marketing, tenant and guest communications, property maintenance and housekeeping, etc. They can help you stay updated and compliant with all the policies regulating the rental property market.
If you’d like to ensure your property investments align with the new regulations, work with City Relay. Reach out so we can discuss how we can support you through these changes to ensure your property’s profitability remains strong.
