Landlords and those with high value properties were targeted in this year’s Budget and face steeper costs in years to come.
The changes will come as a bitter blow to landlords, who’ve already been hit by an array of tax and regulatory changes and are also facing new obligations under the recently passed Renters’ Rights Bill. The introduction of a mansion tax similarly will be a major concern for those who may have seen their home values increase sharply over time without any corresponding rise in income.
Here, we outline the main changes affecting the property market that were announced in the Budget, and what they mean for those who are impacted.
Tax on property income
The Chancellor Rachel Reeves raised the tax rates on property income by 2%, starting in April 2027. The additional tax means an extra financial burden for landlords, many of whom are already feeling squeezed.
The current basic, higher and additional income bands will rise to 22%, 42% and 47% respectively. Dividends will also be subject to a 2% increase across all tax bands, which could affect limited company landlords.
Tighter lending requirements, higher interest rates and limits on mortgage interest relief have made things much harder for landlords in recent years, so the budget changes, combined with the new Renters’ Rights Bill, could be the final straw for some.
Mansion tax
Homeowners with properties valued at £2 million and above will have to pay a tax surcharge from April 2028, in addition to Council Tax.
Charges will start at £2,500 per year for homes worth £2-£2.5 million, rising to £7,500 per year for properties over £5 million. The bands – and charges – will increase annually in line with inflation.
The charge will be based on valuations set by the government’s Valuation Office Agency so buyers won’t be able to avoid this by negotiating a lower purchase price. Properties will be revalued every 5 years, which could push more homes into having to pay the surcharge.
The Government has said that it will consult on whether “cash-poor, asset-rich” owners may be able to defer payments until after their property is sold.
ISA and Lifetime ISA reforms
The cash individual savings account (ISA) limit will be reduced from £20,000 to £12,000 from April 2027, the Chancellor said. However, savers aged 65 or over will be exempt from the reduction and will still be able to put their full £20,000 ISA allowance into a cash ISA if they want to. The changes won’t affect any savings already built up in cash ISAs prior to 2027.
Although this change predominantly affects savers, it could also have unintended consequences for mortgage rates. That’s because cash ISAs are a key source of funding for lenders, which use savings balances to fund mortgages and loans to households and businesses. Restricting the amount savers can put into these accounts could therefore push mortgage rates up.
There were no changes to Lifetime ISAs announced in the Budget, although a consultation will take place next year, which will explore how a simpler product could ultimately replace the LISA.
