Chancellor Rachel Reeves dropped a fiscal bombshell in the House of Commons on Wednesday, November 26, 2025, announcing sweeping changes to how property income is taxed — and who pays for it. The move, part of a £26 billion tax rise package, isn’t just about balancing the books. It’s a direct challenge to the decades-old imbalance in Britain’s tax code, where landlords pay less in taxes than employees earning the same income. The result? A system that rewards passive wealth over work. And now, the government says, that ends.
Property Income Tax Rates to Jump in 2027
Starting April 2027, the tax rates on property, savings, and dividend income will rise by two percentage points across the board. The basic rate climbs from 20% to 22%, the higher rate from 40% to 42%, and the additional rate jumps from 45% to 47%. That’s not a minor tweak — it’s a structural shift. Reeves made the fairness argument bluntly: “A landlord with an income of £25,000 will pay nearly £1,200 less in tax than their tenant with the same salary because no National Insurance is charged on property, dividend or savings income.” The message was clear: if you’re earning money from assets, you should pay more.
The Office for Budget Responsibility (OBR) warned this could reduce returns for private landlords — a group already battered by previous reforms like the removal of mortgage interest relief. The OBR’s projection? Fewer landlords in the market, less rental supply, and higher rents. Mark Hughes of Pure Property Finance called it a “dangerous gamble,” adding, “We’re not just taxing income — we’re punishing investment.” The Conservative Party quickly condemned the plan as “anti-homeowner,” warning it would force thousands of small landlords out of the market.
The Mansion Tax: £2.5K to £7.5K for the Ultra-Wealthy
But the headline grabber? The new High Value Council Tax Surcharge. Starting April 2028, homes in England valued at £2 million or more will pay an annual surcharge on top of their regular council tax. The bands are precise: £2,500 for properties between £2M and £2.5M, rising in steps to £7,500 for those worth £5 million or more. The Treasury estimates this will raise over £400 million by 2031 — and affect fewer than 1% of properties.
Scott Cabot, head of residential research at CBRE, noted the impact isn’t evenly spread. “It’s not just London,” he said. “It’s Kensington, Richmond, Hampstead, and parts of Surrey and Oxfordshire. These are homes bought by families, not just offshore investors.” He added that the surcharge could trigger a wave of sales among retirees looking to downsize — but only if they can find buyers willing to pay the new tax burden.
Business Rates Get a Break — But Not for Warehouses
Here’s the twist: while landlords get hit, small businesses get relief. The government announced permanently lower business rates for over 750,000 retail, hospitality, and leisure properties. The small business multiplier drops to 38.2p, and the standard multiplier to 43p — the lowest since 1990 and 2010 respectively. But here’s the catch: the savings come from raising rates on warehouses worth £500,000 or more. Specifically, those used by online giants like Amazon and ASOS.
“It’s a targeted rebalancing,” Reeves said. “We’re not punishing Main Street. We’re asking the digital giants to pay their fair share.” The move reflects a broader shift in how the economy is taxed — away from bricks and mortar, toward logistics and digital infrastructure. The government also pledged £4.3 billion over three years to cushion the blow for any business facing sudden rate spikes.
House Prices, Transactions, and the Long Game
The OBR forecasts UK house prices will rise from £260,000 in 2024 to nearly £305,000 by 2030 — still growing, but slower than before. The new property income tax is expected to shave 0.1% off annual growth starting in 2028. That might sound tiny, but over five years, it’s a £5,000 difference on an average home.
Residential transactions are projected to climb from 1.1 million in 2024 to 1.3 million in 2029 — but that’s 155,000 fewer per year than March forecasts. Why? Higher Stamp Duty, elevated mortgage rates, and an ageing population buying less. The market is aging, literally. Buyers over 55 are now the fastest-growing segment, and they’re less likely to trade up or down.
Meanwhile, Capital Gains Tax receipts are set to surge from £14 billion this year to £30 billion by 2030. And in a lesser-known but critical move, the government capped trust charges on pre-October 30, 2024 excluded property trusts at £5 million — a move designed to close a loophole that let wealthy families avoid inheritance tax.
£13 Billion for Regions — and Asset Sales
Reeves also announced £13 billion in funding for local projects, distributed to seven regional leaders to boost infrastructure, housing, and skills. “This isn’t just about taking money,” she said. “It’s about reinvesting it where it’s needed most.” And in a nod to fiscal discipline, the government confirmed it will sell “assets we no longer have any use for” — a phrase that hints at potential sales of surplus government buildings, land, or even IT systems.
What Happens Next?
The property income tax changes take effect in April 2027 — giving landlords two years to adjust. The mansion tax arrives in April 2028. The business rate cuts kick in for 2026-27. That means the next two years will be a scramble: landlords will reassess portfolios, investors will weigh returns, and local councils will prepare for potential sales in high-value areas.
One thing’s clear: the era of tax-free property income is over. The question isn’t whether this will work — it’s whether the cost to renters and homeowners will outweigh the benefits to public finances.
Frequently Asked Questions
How will the new property income tax affect landlords with multiple properties?
Landlords with multiple properties will see their overall tax burden rise significantly, especially if they’re in the higher or additional rate bands. For example, a landlord earning £50,000 in rental income after expenses will pay £2,000 more annually under the new 42% rate compared to the old 40%. Many may choose to sell one or more properties, reducing rental supply — which could push rents up in tight markets like London and Manchester.
Who exactly will pay the Mansion Tax, and how is property value determined?
The Mansion Tax applies to around 100,000 properties in England — roughly 0.4% of all homes — valued at £2 million or more. Valuations will be based on the 2023 Council Tax banding system, updated every five years. Properties in London, Surrey, and Buckinghamshire are most affected. Homeowners won’t pay it unless they’re in the top 1% by value; it’s not based on income, but on the asset’s market worth.
Why are warehouse operators being targeted for higher business rates?
Warehouses used by major online retailers like Amazon and ASOS have grown rapidly in value and size, often sitting on prime logistics land while paying lower rates than high-street shops. The government argues these firms benefit from public infrastructure — roads, broadband, utilities — without contributing proportionally. The rate hike targets only properties worth £500,000 or more, which represents a small fraction of the total warehouse stock.
Will this lead to more homelessness or housing shortages?
The Office for Budget Responsibility doesn’t predict a surge in homelessness, but it does warn of reduced rental supply. If 50,000 landlords exit the market — a conservative estimate — that could remove 150,000 rental units. In cities with low vacancy rates, like Birmingham and Bristol, this could mean rent hikes of 5–8% over the next three years, hitting low-income tenants hardest.
How does this compare to past property tax reforms?
This is the most comprehensive overhaul since 2015, when mortgage interest relief was phased out. Previous reforms targeted buy-to-let investors with higher Stamp Duty and reduced tax relief. This time, the government is attacking the income tax gap directly — aligning property income with employment income. The mansion tax is also new; no similar nationwide surcharge has existed since the 1990s, when a similar idea was scrapped after political backlash.
What’s the long-term goal of these changes?
The goal is twofold: raise revenue to fund public services and reduce wealth inequality. By 2030-31, tax revenue will hit 38% of GDP — the highest since the 1970s. The government believes taxing wealth more fairly will reduce the gap between those who live off assets and those who live off wages. But critics argue it punishes aspiration and could stifle investment in housing — a sector already strained by decades of underbuilding.
