Why the 2024 Budget Makes Property Investment the Most Prudent Option to Generate Wealth

What does the Budget mean for UK Property Investment?

The headlines don’t make for good reading, but what does it actually mean to investors? Lets take a look

What happened?

The 2024 budget has introduced several tax reforms, causing a significant shift in the investment landscape in the UK.

For many investors, the budget has left one investment strategy standing out as particularly advantageous for generating long-term wealth: property investment. Though the stamp duty has increased by 2%, the relative changes in taxes on other investments — particularly shares — makes property investment more appealing. Here, we’ll explore why property remains a reliable choice, especially when considering the impact of these reforms over the next decade.

1. Comparing Tax Implications: Stamp Duty vs. Capital Gains Tax

While stamp duty on property transactions has increased by 2%, investments in shares have been affected more substantially. The 2024 budget introduced an increase in share and commercial property capital gain tax rates, up by 8% for lower-rate taxpayers and by 4% for higher-rate taxpayers. This shift has a profound effect on net returns for shareholders, especially over extended periods. 

Although a 2% increase in stamp duty might seem significant at first, it’s a one-time payment rather than an ongoing tax on gains. On the other hand, in order to generate returns on shares you are likely to be buying and selling on a regular basis. This mean capital gains taxes compound over time, directly reducing the returns on share investments every year. For long-term investors, particularly those looking at a 10-year horizon, the difference in tax structures alone tilts the scales towards property as a more profitable option.

2. Long-Term Return on Investment: Property vs. Shares

The key to maximizing returns lies in the growth potential and reliability of the investment. Historically, the UK property market has shown consistent appreciation, with property prices steadily rising over the years. Over a 10-year period, property investments are likely to yield returns that significantly outweigh those of shares, even after factoring in the 2% increase in stamp duty.

Let’s break this down with a simplified example:

• Suppose an investor buys a property at £300,000. With a 2% stamp duty increase, this translates to an additional £6,000 upfront.
• Meanwhile, a shareholder with the same £300,000 invested could face annual capital gains tax losses due to the budget changes. With an 8% increase in tax for lower-rate taxpayers and 4% for higher-rate taxpayers, the compounding tax reduction will diminish returns year over year.

The impact on shares becomes evident when we consider compounding: an 8% or 4% annual tax cut compounds over a decade, significantly reducing net gains. In contrast, property investors pay the stamp duty once, leaving them free to benefit from capital appreciation and rental yields.

Furthermore one of the most powerful aspects of property investment is the ability to use leverage, allowing investors to control a high-value asset with a relatively modest amount of equity. A property investor can typically use a mortgage to finance a significant portion of the property purchase, often requiring only a 25-35% down payment. This leverage enables investors to benefit from the property’s full appreciation potential rather than just their initial cash outlay.

Over a decade, this leveraged growth can yield returns that are difficult to match through non-leveraged assets such as shares, where capital gains are taxed annually and cannot be leveraged in the same way.

3. The Security of Tangible Assets 

One reason property continues to be an appealing investment is its tangibility. Unlike shares, which can fluctuate in value dramatically due to economic shifts, property values tend to appreciate more predictably over time. Property provides an asset that is not only resistant to inflation but also generates income through rental yield. For investors looking to generate wealth sustainably over a decade or more, real estate offers a stable alternative to the volatility of stock markets.

The basic economics of supply and demand in the UK property market strongly support continued property price growth. The UK has long faced a housing shortage due to insufficient levels of new housebuilding. Demand remains high due to population growth, urbanization, and shifting household structures, all of which intensify competition for a limited housing stock.

Simultaneously, building new homes is constrained by factors such as zoning laws, rising construction costs, and supply chain disruptions, which limit the pace of new developments. This persistent imbalance between high demand and limited supply supports long-term price growth, reinforcing the property market as a sound investment choice. Unlike stocks, which can be susceptible to short-term fluctuations based on company performance or market conditions, property prices in the UK are likely to experience steady appreciation due to these entrenched supply-demand dynamics.

The recent budget tax hikes add another layer of attractiveness to property as a less volatile, long-term investment. While the stamp duty rise may require a higher initial outlay, property values in the UK tend to appreciate, offsetting these costs in a relatively short period. In fact, according to recent studies, the average annual growth rate of property in the UK sits between 4-5%, meaning that even with a slight increase in initial costs, the capital gains over even one year alone could be enough to justify the investment.

4. Rental Income: A Steady Stream of Cash Flow

Property investment offers a dual benefit: not only does the asset itself appreciate, but it also generates steady rental income. Unlike shares, which are take a long time to track inflation, and incur multiple capital gains taxes, rental income often grows faster than inflation, providing an attractive and rising cash flow stream. In the UK, rental growth has consistently outpaced inflation due to strong tenant demand and the undersupply of rental properties, particularly in urban areas

As rental rates increase more than inflation, property investors see their real income — adjusted for inflation — improve year on year, strengthening their overall returns. This rental income acts as a hedge against inflation, offering a steady income stream that is less affected by market volatility. For investors aiming to generate wealth, this feature of property investment adds a layer of financial resilience that shares typically lack, as dividends or returns on stocks do not automatically adjust for inflation.

yields typically range between 3% and 6% annually, providing investors with a steady cash flow in addition to the property’s long-term appreciation. Given the budget changes, this advantage becomes even more significant, as the returns from rental income remain unaffected by any tax hike. Furthermore, rental income is less volatile than dividends, which may fluctuate based on company performance and broader market conditions.

For a 10-year investment horizon, this rental income can compound into substantial returns, contributing to an overall return that far exceeds that of share investments, particularly given the new budget implications

5. Long-Term Planning and Capital Gains Benefits

While property does incur capital gains tax when sold, there are allowances and tax reliefs that property investors can use to reduce this impact. Additionally, investors can benefit from compounding returns without annual tax reductions on unrealized gains. Those with a long-term investment horizon may also consider strategies such as refinancing, holding properties through downturns, and utilizing debt to enhance capital gains while optimizing tax planning. These options allow property investors to maximize returns effectively and maintain control over when and how they realize gains.

The increased tax on gains reduces net returns on share investments, while property investors can benefit from compounding returns without the same continuous tax erosion.

6. Conclusion: Why Property is the Clear Winner Post-Budget

Investments should always be taken with the appropriate timescale in mind, and special consideration should be given to mid to long term plans, which are the most lucrative relative to risk. Whether it is planning for retirement, lifestyle, children, school or university fees, or passing wealth onto future generations special consideration and care always needs to be taken.

The 2024 budget’s increased stamp duty has raised the upfront cost of investing in property, but this is a one-time expense. In comparison, the incremental rise in taxes on share investments introduces a recurring cost that, when compounded over a decade, significantly reduces net returns. Over a 10-year horizon, the reliability of property appreciation, steady rental income, and limited exposure to ongoing tax hikes give property investments a clear advantage in generating wealth.

In a post-budget landscape, property investment has emerged as the prudent choice for long-term investors aiming to build sustainable wealth. The combination of a tangible, appreciating asset with rental income and relatively static tax implications positions property as a resilient, high-potential option in an increasingly volatile investment environment.

The advice in this article is generic in nature and shouldn’t be applied directly to individual situations without external advice. If you would like to talk to a qualified professional about what the best options may be for your particular needs and goals please feel free to enquire through our online form, or by calling through on the following number.