Rachel Reeves’ Autumn Budget 2025 introduced significant changes to UK real estate taxes, which will have a significant impact on the real estate and housing development sector.
The changes will particularly impact income tax rates, property tax reliefs, and homeowners in England with properties valued over £2 million.
Whilst the highly speculated changes to Stamp Duty Land Tax did not form part of the chancellor’s announcement today, the following measures outlined in the budget do signal a tighter future environment for landlords and higher-value property owners which could have repercussions for the real estate market.
Starting April 2027, property income will be subject to separate tax rates. Basic and higher income tax rates on property, savings and dividend income to increase by 2 percentage points, which will raise £2.1bn. The basic rate will be set at 22%, the higher rate at 42%, and the additional rate at 47%.
The introduction of a separate tax rate and increasing them by 2% represents a significant shift in taxation of property, savings and dividend income.
Whilst this change is estimated to boost revenue to the government by £2.1bn, these increases in cost will result in a direct reduction in net income for buy to let investors. It's inevitable that these increased costs will be passed to tenants via higher rents where landlords seek to counteract tighter margins especially in highly leveraged portfolios. Some investors may reassess expansion plans or look to off load properties in order to reduce their tax bills.
From April 2027, reliefs and allowances will only apply to property, savings and dividend income after they have first been applied to other income sources.
With the increase in tax rates on investment income above, the restriction on setting certain reliefs and allowances for income tax purposes against income taxed at the normal income tax rates will see an increase in individual’s personal income tax position.
Following a revaluation of homes in bands F, G and H, a new 'Mansion Tax' will be introduced in April 2028, where properties in England valued above £2 million will incur an additional council tax charge on top of existing council tax.
There will be four price bands - the annual charge will start at £2,500 for properties valued between £2 million and £2.5 million, rising to £7,500 for homes worth £5 million or more. The revenue will be used to fund local government services, with a public consultation on implementation planned for early 2026.
Higher value homeowners and investors should factor these additional costs into future ownership and valuation decisions. Demand for higher-value properties may also fall as a result with a possible increase in these types of homes coming to the market in the next few years where owners or investors are looking to offload properties that would be affected by the additional charge.
Whilst there are no changes to standard Stamp Duty Land Tax thresholds or first time buyer reliefs in this budget, it marks a gradual shift toward higher taxation of property wealth and rental income as opposed to immediate transactional taxes.
Investors and high-value property owners face a challenging environment ahead but it's hoped that the mainstream residential market should remain largely unaffected in the short term but only time will tell. There are also still concerns around whether future Stamp Duty Land Tax changes are on the horizon so the property market will no doubt remain cautious meaning further uncertainty for buyers and sellers.
For more information please contact our real estate team.
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