Our Journal

We take a look at the potential impact of the Treasury’s Autumn Budget on the London residential property market

UK Chancellor Rachel Reeves’ 2025 Autumn Budget has set out around £26bn a year of additional income to the Treasury through taxation by the end of the decade, largely by raising more from investment income and higher-value assets, as opposed to headline income tax rates as was feared.

For homeowners and landlords, the key levers are a further freeze to income tax thresholds, higher taxes on dividends, savings and property income, and the headline grabbing ‘Mansion Tax’, a new annual surcharge on homes worth over £2m, alongside a cut to ISA allowances and changes to pension tax relief.

New high-value property surcharge (The “Mansion Tax”)

From April 2028, a new high-value council tax surcharge will apply to homes in England valued at more than £2m (in 2026 values). Four bands are proposed, with an annual charge starting at £2,500 for properties in the £2m–£2.5m bracket and rising to £7,500 for homes valued in excess of £5m. This charge will be in addition to existing local tax liabilities, with the bands uprated in line with consumer price inflation.

The Office for Budget Responsibility (OBR) expects this to raise around £400m extra annually, but falls on fewer than 1% of residential property nationally.

Homes valued above £2m are disproportionately concentrated in the South East and in particular across the prime London postcodes, so the obvious target of this surcharge are higher-value owner-occupiers and second-home owners in the capital’s prime boroughs. There are currently several thousand homes listed for sale in excess of £2m across the prime London market, underlining the geographic concentration of the new charge.

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Craig Simpson comments:

“Perhaps there’s been a missed opportunity on the suggested wider reforms to SDLT, however the ‘Mansion Tax’ as it’s been proposed isn’t as punitive as we expected it to be. That said, how the value of a property will be calculated and what defines a value of just under or just over £2m remains to be seen, we’re assuming that’s why the treasury have suggested such a delay to the surcharge coming into effect.”

“It’ll be interesting to see how this plays out over the short to medium term, but the positive is we’ve seen an immediate increase in sales activity and enquiries overall since the Budget, so don’t expect much of a negative impact on the upper end of the market as a result of these changes, even in the longer term.”

Craig Simpson “The ‘Mansion Tax’ as it’s been proposed isn’t as punitive as we expected it to be. We’ve seen an immediate increase in sales activity and enquiries overall since the Budget”

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Income & Investment Tax Changes

The Budget extends the freeze on income tax thresholds for a further three years, to 2031. As wages rise but thresholds do not, more taxpayers are brought into higher bands – this “stealth tax” mechanism has the OBR estimating an additional £7.6bn of tax revenue being generated by 2029/30.

Alongside this, the government will increase tax rates on dividends, property income and savings income by 2 percentage points from April 2026. This move is explicitly designed to narrow the gap between earnings, which attract National Insurance, and income-streams that currently do not. For investors and higher-earning households – particularly those holding wealth via property portfolios and taxable investment accounts – this raises the effective tax drag on returns.

Two further measures affect household balance sheets. From April 2027, the standard annual allowance for Cash ISAs will fall from £20,000 to £12,000 for savers under 65, while over-65s retain the full allowance. And from 2029, the Budget caps the amount that can be routed into pensions via salary sacrifice before employer and employee National Insurance becomes payable at £2,000 a year, reducing the scope for higher earners to shelter income in this way.

Specific Implications for Residential Landlords

For residential landlords, the 2% increase in tax rates on property income directly reduces post-tax rental yields. Basic, higher and additional rates on rental income will each rise by 2%, in addition to earlier reforms introduced over the past decade restricting tax relief for residential landlords in the private rented sector.

These changes are likely to be felt most acutely by landlords with mortgaged properties and those operating in higher-value markets such as central London, where rental yields are typically more conservative. A report in The Financial Times highlighted concerns from landlord groups that higher tax on property income, layered over existing pressures and the parallel renters’ rights agenda, could encourage some landlords to reduce exposure or even exit the market completely.

This has potentially far-reaching implications for supply of stock to the private rented sector and, over time, for rent levels in general. At a time when there is a well publicised housing shortage, a chronic undersupply of new homes being built, a lack of affordable housing and an increase in demand for high quality rented accommodation.

Where rental properties themselves are valued above £2m, the new high-value surcharge adds a recurring holding cost on top of standard council tax and service charges from 2028 onwards. In London’s prime neighbourhoods – where a meaningful share of high-value stock is held as investment as well as for owner-occupation – this combination of higher income tax on rents and a new annual property levy is likely to be a particular focus for portfolio reviews.

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Tavistock Bow’s Anne-Marie Murphy:

“A further 2% tax on private landlords who are already feeling the strain of tax relief on their investments being abolished over the past decade isn’t really a strong indicator of Government support for the Private Rented Sector, especially at a time when it is more important than ever to help make up the shortfall of good quality housing in the UK.”

“We’re fortunate to act for a number of institutional and corporate Landlords who understand the need to keep the supply of high quality rented accommodation coming into the market, but many of our long-standing private residential landlords are questioning whether owning residential property to let is attractive enough anymore. That said, yields have improved in the past year or so making it a little more attractive than it has been, but that is due to a constriction in supply, which can be no good thing for the wider market, especially outside of prime London where the quality and supply of rented accommodation is even more crucial.”

Anne-Marie Murphy “A further 2% tax on private landlords isn’t really a strong indicator of Government support for the Private Rented Sector”

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Other Homeowner-Relevant Measures

The Budget also shifts some energy policy costs into general taxation. Scrapping the Energy Company Obligation scheme from April 2026 and moving part of the Renewables Obligation off bills is expected to reduce average household energy bills by about £150 a year, though at the cost of scaling back a key funding stream for insulation and efficiency upgrades.

Despite extensive pre-Budget speculation, no major reforms were announced to Stamp Duty Land Tax (Stamp Duty or SDLT), Inheritance Tax (IHT) or the Capital Gains Tax (CGT) exemption on main residences in the 2025 Budget, to which many homeowners, prospective buyers & sellers, and those within the housing industry breathed a sigh of relief.

General reactions to this budget have emphasised how the new surcharge and higher taxes on property income sit within an already dense property tax framework – spanning stamp duty, council tax, capital gains tax on non-main residences and inheritance tax – and how this may influence behaviour at the top end of the London market.

Tavistock Bow along with most agents within the Prime Central London Market have begun to map out what the new environment could mean for buyers, sellers and indeed Landlords in the £2m-plus bracket over the medium to long term and will be reporting this in future journal posts to please subscribe for regular updates on this and any other factors impacting the London residential market.