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Landlords and owners of expensive homes are to be hit by higher taxes as Rachel Reeves’ Budget leaned on property to help boost the UK’s finances.
In an unexpected move, the chancellor unveiled an increase in property income tax from April 2027. From that point, a 2 percentage point increase will be applied to the basic, higher and additional rates, taking them to 22, 42 and 47 per cent, respectively.
It came alongside a “mansion tax” surcharge on properties worth more than £2mn, which will kick in from April 2028.
Property income tax is paid on income of more than £1,000 from letting land and buildings.
The Office for Budget Responsibility said the measures would “reduce returns to private landlords, following various measures over the past 10 years that have also reduced returns”.
This was likely to “reduce the supply of rental property over the longer run . . . [and] risks a steady long-term rise in rents if demand outstrips supply”, it added.
“Over the last few years, landlords have contended with the removal of wear and tear allowance, landlords’ energy savings allowance, dramatic hikes in CGT, the significant reduction in the annual tax-exempt amount for CGT and the removal of tax relief on finance costs (mortgage interest relief),” said Chris Norris, chief policy officer at the National Residential Landlords Association.
“On top of those tax increases, the additional property levy adds 5 per cent to the cost of purchasing properties to let.”
Landlords are also facing the recently passed renters’ rights bill, which ends “no-fault” evictions.
Reeves’ “mansion tax”, which will take the form of a recurring annual charge, is expected to raise £400mn in 2029-30.
The charges will be spread across four price bands. For properties valued in the lowest £2mn to £2.5mn band, the surcharge will total £2,500, rising to £7,500 for a property valued in the highest band of £5mn or more.
Deferrals will be allowed depending on circumstances and the government has announced a consultation on a system of appeals.
“Until the revaluations take place, buyers and sellers face years of uncertainty, especially around the £2mn threshold,” said Tom Bill, head of UK residential research at Knight Frank. “Even once completed, new valuations can be challenged, which would prolong the limbo.”
Estate agents said they expected some pressure in certain parts of the housing market as a result of the surcharge.
The mansion tax “is not a derailment moment for the market, which some feared, but it is obviously not helpful and will suppress activity in parts of the market, especially either side of the thresholds”, said Roarie Scarisbrick, partner at Property Vision.
