The UK government’s latest attempt to slow down the buy-to-let market by increasing stamp duty on additional properties has had little impact, with investors continuing to push ahead with purchases. Recent data shows that despite the higher tax burden, landlords remain confident in the market’s long-term profitability.
Investors undeterred by stamp duty increase
Figures for the final quarter of 2024 reveal a 16% rise in residential stamp duty receipts compared to the previous quarter, with a 27% annual increase. Notably, 57,100 property transactions incurred the additional homes surcharge, contributing £700 million in tax—a staggering 53% jump from the previous quarter and 50% higher than the same period in 2023.
Despite the October 2024 Budget’s sudden hike in the surcharge from 3% to 5%, property investors have pressed on with purchases, undeterred by the increased costs. According to Julie Davis, head of LCF Residential, “People buying second homes or investment properties were already subject to a higher rate of stamp duty prior to the Budget, and adding an additional 2% onto this doesn’t appear to have made any difference to the market so far.”
LCF Residential, a major conveyancing firm based in Yorkshire, confirmed that all the buy-to-let and second home transactions it handled during the Budget period proceeded as planned. “Out of the dozens of transactions we were working on, each one has still gone ahead as planned,” Davis stated, reinforcing that landlords remain committed to expanding their portfolios.
Property market remains resilient despite tax burden
While some commentators argue that property investment is becoming less attractive due to rising taxes, others believe that bricks and mortar remain one of the most reliable assets. Property investors not only contend with stamp duty but also face capital gains tax when selling, as well as income tax on rental earnings. The reduction of mortgage interest tax relief since 2017 and the freezing of income tax thresholds have further squeezed profits. Nevertheless, the data suggests that investors are willing to absorb these costs, confident that rental income and long-term capital appreciation will outweigh the tax implications.
Sarah Coles, head of personal finance at Hargreaves Lansdown, acknowledged the mounting tax burden but pointed out that demand for rental properties remains strong. “Tax bills on property investments are rising, but the fact remains that demand for rental accommodation continues to grow, making buy-to-let an attractive option for those who can navigate the costs,” she said.
Rental demand driving landlord confidence
The resilience of the buy-to-let sector can largely be attributed to the UK’s growing rental market. With first-time buyers struggling to meet high deposit requirements and mortgage costs, rental demand remains at record levels. As a result, many landlords are seeing strong yields and minimal void periods, making property investment an appealing prospect despite tax hikes.
Furthermore, the upcoming changes to stamp duty in April 2025, which will lower the nil-rate band for homebuyers from £250,000 to £125,000, are likely to create further uncertainty in the owner-occupier market. “The Treasury’s aim with these changes was to give first-time buyers and those looking to move home an advantage over second home buyers and landlords. However, it remains to be seen whether these changes are enough to significantly alter that market,” Davis noted.
As affordability pressures continue to limit homeownership for many, rental demand is expected to remain strong throughout 2025. With investors undeterred by tax increases and yields holding firm, buy-to-let remains an attractive asset class for landlords seeking long-term returns. While the government’s policies may create additional hurdles, they appear unlikely to deter serious investors who recognise the enduring value of property in the UK market.