On Thursday, 30th of October, Rachel Reeves finally presented the long awaited first budget from the new Labour government. This key event engendered more than its fair share of media speculation long before she stood at the dispatch box.

Depending on the political shading of the organisations reporting on the event this was going to be the start of a brave new world or a descent into fiscal hell, and all points in between.

As it turned out, it was neither, and most of the major talking points had been trailed well beforehand. For us, the key question was, what would be the impact of the budget for the Scottish PRS?

With years of hands-on experience of the Scottish buy-to-let sector, we’ll identify the key areas which could have an impact, and how you can best deal with them.

The North-South Divide

First and foremost we need to separate Scotland from the rest of the UK. By that we’re not advocating for immediate independence, rather we need to identify which measures from the budget affect which countries.

Taxation is a reserved power, meaning that Westminster sets the laws which affect the whole of the United Kingdom. Scotland has the power to raise additional taxes, but not the ability to have a completely separate tax regime.

Therefore changes to capital gains tax (CGT) will affect businesses and individuals in Scotland.

Conversely, changes to Stamp Duty Land Tax (SDLT), announced in the budget will not directly impact property purchases north of the border, as the Scottish Government has responsibility for those. It can get complicated…

Plus ça change, plus c’est la même chose

While the Chancellor’s budget contained changes which will have long-reaching effects, there was actually little in there which will directly affect the private rented sector.

There were, however, two areas which will cause some concern; ‘stamp duty’ and capital gains tax.

Stamp Duty

It’s no longer called stamp duty in Scotland, but this tax on property purchase is still going strong across the UK.

In England and Wales, the immediate increase in SDLT was possibly the headline measure that will cause concern within the PRS. In the Government’s own words:

“This measure increases the higher rates of Stamp Duty Land Tax (SDLT) on purchases of additional residential properties by individuals and purchases of residential properties by companies from 3 to 5 percentage points above the standard residential rates of SDLT.

The measure also increases the single rate of SDLT payable by companies and other non-natural persons when purchasing residential properties worth more than £500,000, from 15% to 17%.”

Note that due to differing legislation, this change doesn’t affect Scottish property investors or landlords, as they already face an Additional Dwelling Supplement (ADS) of 6% on top of the Land & Buildings Transaction Tax (LBTT) for additional properties.

So, while property investors south of the border now face an additional 2% cost on their purchases, this rate is still lower than that faced by their Scottish colleagues although the change does level the playing field somewhat.

Overseas property purchasers already face an additional 2% surcharge when buying property, this will take the effective rate for them up to 7%.

Capital Gains Tax

The longer-term changes announced to CGT in the budget are likely to cause more concern both north and south of the border.

In simple terms, CGT is a tax paid on the profit realised when disposing of an asset. There are exceptions; Private Residence Relief means that you don’t have to pay CGT on the profits of selling your main home.

However, if you own additional properties, for instance buy-to-let investments and you decide to sell one or more of them, you will be liable for CGT on the profits you make on these sales.

This is true of other assets, including investments, however that is outwith the scope of our concern here.

It will be no surprise that we have written about this many times, most recently in ‘Property And Capital Gains Tax: What You Need To Know’.

The rate of CGT payable on non-residential properties increased on the 30th of October from 10% to 18%, and the higher rate increased from 20% to 24%. How much CGT you would be liable to pay depends on your particular circumstances.

Therefore there is no immediate change to the tax rates faced by property investors dealing with residential properties or landlords looking to sell, however:

“From 6 April 2025, the lower CGT rate will rise from 10% to 18%, and the higher rate will rise from 20% to 24% on non-primary residences. This change directly impacts those selling second homes or investment properties, increasing the tax implications of capital gains on these transactions.” (Setfords Solicitors)

In their budget document, the Government makes the point that CGT is paid by less than 1% of the UK population, which while likely true, is of small comfort to those who do have to pay it.

NOTE: To be clear, we are experts in buy-to-let property investments, we aren’t accountants and if you have concerns about CGT, please speak to the experts in that field!

Advice from the property pros

Much was expected from this budget, and in truth there are some major changes in there. However the impact of the budget for the Scottish PRS is likely marginal and many of these changes do not directly affect the rented sector.

For landlords and property investors south of the border, changes to the legal landscape contained in the Renters Reform Bill 2024are likely to have a larger and more lasting impact.

In Scotland, the effect of the October budget is fairly muted. The increase in SDLT for additional properties may make Scottish property more attractive than previously to investors in England as the tax rates are now comparable.

There are no immediate changes to CGT which affect the PRS, however from the 6th of April 2025, they will see an increase that will increase the taxation on profit from sales.

The impact of these coming changes to CGT are hard to gauge. While it’s easy to point to the announced increases, and panic, CGT only becomes a serious consideration at the point of sale.

For many investors, that moment may well be far in the future, and while we wouldn’t suggest this as a cast-iron strategy, by the time you come to sell your property, things may well have changed.

That said, it’s worth remembering that the previous Chancellor dramatically reduced the proportion of profit that was exempt from CGT, so this is a game which governments of all shades are playing. 

The Scottish Government will present their budget covering the 2025-2026 fiscal year on the 4th of December 2024. We wait to see if any measures in there will directly affect the PRS in Scotland.

In summary…

It is a fact of life for all of us that the tax regime will likely change several times during our lives. This is true as much for property investors as it is for those who have no involvement in the sector.

Consequently, when contemplating the possible benefits of property investment, you can only base your calculations on the circumstances as they apply at that moment in time, since crystal balls are notoriously unreliable indicators of the future.

While an increase in CGT is unwelcome, we would encourage you to sit down and carefully assess all aspects of a buy-to-let investment before making any commitment, as there are many factors at play.

If you’d like to explore your options, we are always happy to make time to chat through all the pros and cons and to help you make the right decision for you.

Thank you for reading, and remember, despite click-bait headlines and selective outrage, property investment is a long-term undertaking. You may well have eaten your chips out of those headlines already!

Written by Ross MacDonald, Director of Sales & Cofounder of Portolio

Get in touch on 07388 361 564 or email to [email protected]