The much-speculated annual property tax on homes valued over £500,000 has not been introduced, providing reassurance to the housing market and likely encouraging renewed buyer activity after months of uncertainty.
However, a new ‘mansion tax’ has been confirmed for homes worth over £2 million, which is expected to affect roughly 0.5% of UK properties, with around 85% of those located in London and the South East.
Stamp duty remains unchanged, which is positive news for buyers in lower-value housing markets, although the existing price bands were set over a decade ago, meaning the average buyer continues to pay more in real terms than in the past.
Additionally, landlords will face higher rates of income tax on rental income, increasing financial pressure on the private rented sector.
Chancellor’s Budget Overview
Chancellor Rachel Reeves unveiled her Autumn Budget today, introducing several tax changes as part of efforts to address a reported £20 billion shortfall in government finances.
While the Budget features a range of tax increases, property taxes were largely left intact, affecting a smaller portion of the market than many had anticipated.
This announcement follows months of speculation, with rumours ranging from new levies on rental income to potential expansions of Capital Gains Tax.
No New Tax on Homes Over £500,000
One of the most significant updates is that there will be no annual tax applied to properties valued above £500,000.
This decision removes uncertainty for the owners of approximately 210,000 homes currently on the market above this value. With the threat of an additional annual tax lifted, buyer confidence is expected to strengthen as 2026 approaches, particularly in London and the South East.
Stamp Duty Remains Unchanged
The current stamp duty system continues to apply. Buyers in England and Northern Ireland pay stamp duty on properties above £125,000, while first-time buyers retain a threshold of £300,000 on homes up to £500,000.
Stamp duty is a one-off payment made upon completion, meaning sellers do not need to adjust asking prices to cover a new annual charge. This also avoids potential distortions in demand around the £500,000 mark.
Continuity in stamp duty rules is likely to provide stability in the housing market, giving buyers and sellers a clearer picture of costs.
Introduction of the ‘Mansion Tax’
From 2028, a high-value council tax surcharge – commonly referred to as a ‘mansion tax’ – will be applied to homes worth over £2 million in England.
The surcharge will start at £2,500 per year for properties valued above £2 million and rise to £7,500 for homes exceeding £5 million.
While this represents a notable cost, it is less than many had feared and is still only a fraction of the total value of these properties.
Impact on the Housing Market
The mansion tax will affect a very small proportion of homes, mostly concentrated in London and the South East.
Some owners of high-value properties may reconsider their plans to hold or sell, potentially influencing market activity in the short term. However, the vast majority of homeowners will remain unaffected.
The annual nature of the tax may also encourage a gradual adjustment rather than an immediate shock to the market.
Rising Property Income Tax for Landlords
From April 2027, landlords will see an increase in income tax on rental income. The basic, higher, and additional rates will each rise by 2%, moving to 22%, 42%, and 47% respectively.
This measure follows last year’s increase in stamp duty for additional property purchases from 3% to 5%, adding further costs for landlords.
Implications for Landlords
Landlords have faced rising costs in recent years, including changes to mortgage interest relief and increasing compliance obligations.
The higher property income tax is expected to reduce post-tax returns, which could affect investment decisions, particularly for smaller landlords or those with lower rental yields.
Effect on Tenants
While landlords bear the tax increase, tenants may indirectly feel the impact if landlords raise rents to offset higher costs.
The private rented sector is crucial for providing homes to millions of households, and any reduction in rental supply could exacerbate affordability challenges.
Market Context
Despite rising taxes, rental income has continued to grow. Over the past five years, rents in England have risen by approximately 25%, helping landlords manage increased operational costs.
This trend may soften the short-term impact of higher taxes, though the long-term effects on investment and supply remain a concern.
Wider Policy Landscape
Landlords are also navigating new regulations, including the Renters’ Rights Act and updated energy efficiency standards.
Combined with the recent tax changes, this regulatory environment could influence decisions on whether to invest in, maintain, or sell rental properties.
What Homebuyers Should Know
For buyers in the lower and mid-market segments, the absence of a new annual property tax and unchanged stamp duty thresholds provide some relief and predictability.
Those planning to purchase higher-value homes should consider the implications of the upcoming mansion tax from 2028 when budgeting for ongoing costs.
Timing of Changes
The mansion tax will not come into force until April 2028, giving owners of high-value properties time to plan.
The property income tax rise for landlords takes effect in April 2027, allowing landlords to assess financial strategies and potential adjustments to rental pricing.
Market Sentiment
The Budget provides some clarity after months of speculation, which had created hesitancy among buyers, particularly at the higher end of the market.
By leaving stamp duty largely unchanged, the Chancellor has provided a degree of stability, which could encourage renewed activity in 2026.
Long-Term Considerations
While only a small fraction of homes are affected by the mansion tax, the combined effect of higher taxes on landlords and high-value properties may influence housing market dynamics over the longer term.
Investors and homeowners alike will need to consider these changes in their financial planning and property strategies.
Conclusion
Overall, the Autumn Budget provides a mixed picture for the housing market.
Buyers in lower-value segments gain predictability, while high-value homeowners and landlords face additional costs in the coming years.
The key takeaway is that, although the impact is concentrated among a small segment of the market, these measures could have ripple effects across supply, rents, and overall market activity.
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