Frustration and consternation at the levels of leakage and kite flying before the Autumn budget are well documented. So finally on 26 November, there were no changes to capital gains and inheritance tax. No full-scale reform of SDLT or council tax and no national insurance contributions to be levied on landlords. But, in line with her view that landlords are not working people, the chancellor did increase taxes on property income and savings by 2% to 22%, 42% and 47%. Strange how such a highly regulated sector apparently does not require any work? The idea that earning from renting properties is a passive investment is as out of date as the chancellor’s budget was lacking in any discernible strategy - beyond courting favour with Labour MPs to save her own political skin.
Rachel Reeves’ argument is that a tenant earning £50,000 pays more tax than a landlord earning the same figure. This might be because income not from property is subject to national insurance contributions. But what the chancellor failed to acknowledge is that many landlords ‘income’ will be pushed way above the basic rate tax threshold of £50,270 by section 24 provisions. These pile mortgage interest costs on top of other income and force landlords into higher tax brackets. They often lose their personal allowance before recouping what will be a 22% tax credit once the change comes into force in April 2027. There’s no doubt that landlords will continue to think long and hard about retaining or purchasing properties personally. The taxation is hefty and punitive and makes many of their businesses unprofitable.
Landlords operating through a limited company did not escape either. Basic and higher rate dividend tax will rise by 2% to 10.75% and 35.75% from April 2026. The additional rate will remain at 39.35%. These rates are payable after up to 25% corporation tax, so the combination of both top rates if you take dividends out of the company is an eye watering 64.35%. Welcome to the lucrative world of property! Landlords owning personally and thinking of exiting will at least draw some comfort from the fact that the highest rate of capital gains tax (CGT) on property remains unchanged at 24%.
Various versions of a mansion tax were leaked ahead of the budget and the one we have ended up with is the High Value Council Tax Surcharge. This is essentially a bolt on to the current system which will be based on the valuation of around 140,000 properties over £2m in 2026. The charge will be £2,500 above £2m, £3,500 above £2.5m, £5,000 above £3.5m and £7,500 above £5m, payable from April 2028. It will likely cause issues for selling properties around the margins of each bracket change.
