🔹 Tax on rental / property income goes up
In the 2025 budget, the government raised tax rates on “property income” (i.e. rental income) by 2 percentage points across the board. Financial Times+2Reuters+2
- From April 2027, the basic rate will rise to 22%, higher rate to 42%, and additional rate to 47%. The Intermediary+2Property Reporter+2
- This applies to income from property, savings, and dividends — a broader hit for those earning from non-employment income. Reuters+1
The rationale given by the government is to “level the playing field” between different income types since property and savings income historically avoid National Insurance contributions. Reuters+1
🔹 A new “mansion tax” / high-value-home surcharge is on the way
Perhaps the biggest headline: a new annual surcharge targeting the wealthiest homeowners. Financial Times+2The Negotiator+2
- The surcharge will apply to residential properties valued at £2 million or more. Financial Times+2The Guardian+2
- Initial rates (from April 2028) are expected to start at £2,500/year for homes in the lowest band (just over £2 million), rising to £7,500/year for top-end homes (over £5 million). Financial Times+2The Scottish Sun+2
- The government estimates this will raise roughly £400 million a year by 2029–30. Financial Times+2The Scottish Sun+2
This isn’t a rework of the entire property tax system — just a surcharge on high-value homes. The Guardian+2The Guardian+2
Why these changes — and what’s behind the thinking
- The government under Rachel Reeves aims to plug a large budget shortfall — tax rises on property, savings, dividends and high-value homes are part of a wider package expected to raise around £26 billion over coming years. Financial Times+2Yahoo Finance+2
- The logic: income from rental properties and savings has often been taxed more lightly compared with employment income (because of no NI). Raising those rates is framed as “fairer” taxation. Reuters+1
- The “mansion tax” is positioned as targeting the wealthiest homeowners — aiming for a more progressive tax burden. The Negotiator+2The Guardian+2
At the same time, the move underscores a broader shift: investment-linked income — once viewed as somewhat privileged — is now clearly on the radar.
What this means for landlords, homeowners and property investors
For landlords & rental investors
- Rental income will be taxed more heavily from April 2027 — meaning net rental yields will take a hit.
- For some landlords, especially those with modest rental income, the difference may be manageable — but for higher earners, this could substantially reduce profits.
- Over time, analysts warn that reduced returns may shrink the rental market (some landlords may sell), which could reduce housing supply and push rents up. The Intermediary+2Financial Times+2
For high-value homeowners
- If you own a property worth £2 million+, expect an extra £2,500–£7,500/year surcharge — a non-trivial amount especially if you have multiple properties or second homes.
- The surcharge may also affect decisions around selling or downsizing. It could influence the high-end housing market, potentially cooling some demand or pushing owners to restructure holdings.
For the broader housing & property market
- The new taxes may dampen incentives for buy-to-let investment, which could reduce supply of rental properties in coming years.
- For potential first-time buyers, fewer buy-to-let investors might open up more properties, but reduced supply could also push up rents, affecting affordability.
- For high-end homeowners, the surcharge introduces a recurring cost, potentially reshaping how people view luxury property ownership.
What landlords and homeowners should do now — some practical takeaways
- Reassess profitability: If you own rental property, run updated cashflow scenarios factoring in the higher tax rate (22–47%).
- Plan for a tax hit in 2027: That’s when the increased property income tax kicks in. Budget accordingly, especially if you expect rental income to rise.
- If you own a property > £2m, consider long-term plans: Will you hold, sell, or restructure ownership to mitigate the surcharge?
- Monitor market supply and demand: If many landlords exit the market, expect fewer rental options and possibly higher rents — you may need to adjust rental strategies.
- Stay alert to further reforms: The changes announced might not be final, and future budgets or consultations (particularly on property valuations) could bring more tweaks.
Bottom line
The 2025 Budget marks a clear turning point in UK property taxation. The government has signalled that “unearned income” — from property, savings, dividends — will no longer enjoy the tax-advantages it once did. For landlords and high-value homeowners, that means higher costs and lower returns ahead. For tenants, changes could shrink rental supply and push up rents.
If you own property, rent out homes, or invest in real estate, it’s time to review your strategy — maybe sooner than you’d planned.