In this article, you’ll learn:
- How the announcements in the 2025 Autumn Budget affect you as property owner
- How the new tax changes could impact small-scale landlords and rental income
- What it all means for the housing market, and your next step.
This year’s Autumn Budget has confirmed what many in the property industry were fearing: higher taxes are on the way for landlords and owners of high-value homes. While there were no major shocks for the broader homeowner market, those with rental properties – particularly smaller landlords who own one or two buy-to-lets – will feel the pressure.
The headline for landlords is the announcement of a two percentage point increase in tax on rental income from April 2027. This will affect individuals who hold rental properties in their own name (as opposed to through a company), and it means basic-rate taxpayers will pay 22% on their rental profits, while higher-rate taxpayers will now pay 42%.
That’s a substantial shift for small landlords who are already contending with rising mortgage rates, regulatory changes, and squeezed profit margins. The move signals a clear intention from the government to generate more tax revenue from private rental income – a decision that has not gone down well with many in the sector – and could ultimately make life harder for renters as well.
What This Means for Smaller Landlords
For landlords with one or two properties, especially those who are managing them personally rather than through a limited company, this Budget introduces more pressure on profitability.
The rise in income tax on rental earnings comes on top of the loss of mortgage interest relief and increasing compliance requirements. Many smaller landlords may now begin to question whether letting is still worth the hassle, particularly in areas where rental yields are already tight.
We may also see a growing number of landlords exploring the benefits of transferring their properties into a company structure, which is currently unaffected by the 2% tax increase. However, incorporating comes with its own complexities – from capital gains implications to different tax rules and lending requirements – so it’s not a decision to make lightly.
What’s clear is that the private rented sector could shrink further as a result of this change. As landlords exit, the already short supply of rental homes may worsen, driving up rents and increasing competition among tenants. It may also reduce the number of smaller landlords and create a larger monopoly of large landlords owning more and more property – less competition is bad for the market.
What is the “Mansion Tax”?
Alongside changes to rental income tax, the government also confirmed the introduction of a new annual property charge from 2028, aimed at owners of high-value homes. This has been dubbed “The Mansion Tax”, but the government is using the less snappy title of the “High Value Council Tax Surcharge”.
This annual charge will apply to properties valued over £2 million and will be added to council tax bills. The charge starts at £2,500 a year and could rise as high as £7,500 for homes worth over £5 million. While this measure will only affect a small fraction of properties – estimated at around 0.5% across the UK – a large portion of those homes are in London and the South East, which could cause unintended ripples in the local market.
For owners of high-value property, this represents a new and ongoing cost that will need to be factored into long-term financial planning. It may also have implications for property values, particularly around the £2 million threshold, where a “cliff-edge” effect could make some homes less attractive to prospective buyers, or homeowners deliberately deflating the price of their homes to get more interest from buyers.
No New Tax on Homes Over £500k
While much of the focus has been on what’s being added, there was one bit of welcome news. Widespread rumours that the Chancellor would introduce an annual tax on homes valued over £500,000 did not come to fruition. For homeowners in that price bracket, the decision brings much-needed clarity.
The market had seen some hesitation in the months leading up to the Budget, with buyers holding off in anticipation of potential new costs. With that uncertainty removed, we may now see renewed interest in the £500k+ bracket, particularly from movers and upsizers who had been sitting on the fence.
The Knock-On Effects for the Wider Market
These changes aren’t happening in isolation. If fewer properties are being let and more are being sold off by smaller landlords, it could help to free up stock for buyers – particularly first-time buyers. But this only helps if buyers are in a financial position to act, and the affordability challenge in London and the South East remains very real.
At the top end of the market, the new £2 million+ annual property tax could dampen demand and cause a softening in prices. We may begin to see owners of prime property consider downsizing or moving wealth into other assets, particularly if the cost of holding high-value property continues to rise.
For owner-occupiers below the £2 million mark, however, the market may benefit from a period of relative stability. With the threat of new property taxes on £500k+ homes now off the table, there’s space for confidence to return.
Planning Ahead: What Should You Do Now
If you’re a property owner, particularly a landlord, now is a good time to revisit your financial plan. With the rental income tax increase set to take effect in 2027, you have a window to evaluate your options.
Review your cash flow and rental returns in light of the higher tax rate. If margins are already slim, think about whether you might need to adjust rents, or whether incorporating into a limited company structure would improve your position – bearing in mind the professional advice you’ll need before making that move.
If you own or are considering buying a home near or above the £2 million threshold, speak with an accountant or financial adviser about how the new annual surcharge might affect your long-term plans.
And if you’re simply a homeowner concerned about what the Budget means for your property’s value, there’s good reason to feel reassured. With no new annual charges for homes under £2 million and improving buyer sentiment post-Budget, 2026 could see a more stable and confident housing market emerge.
The 2025 Autumn Budget was never going to be light-touch, but for landlords and high-value property owners, it’s delivered a particularly heavy blow. The tax on rental income and new annual charges for luxury homes mark a clear shift in policy, one that small landlords in particular, will need to respond to thoughtfully.
Still, for the wider market – and especially homeowners below the high-value thresholds – the Budget may end up having a calming effect, bringing clarity and stability where uncertainty had been building.
If you’d like tailored advice or want to speak to someone about your property plans in light of these changes, the team at Grace Miller & Co is always here to help.
