What the 2025 Budget really means for the property market? 🏠
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After months of rumours, leaks and panic, the 2025 UK Budget finally landed — and while it didn’t unleash the nightmare many feared, it quietly introduced a series of changes that will reshape how homeowners, buyers, renters and landlords navigate the property market.
Here’s what the updates really mean for anyone buying, selling or renting property in England right now:
1️⃣ The big “scary” changes that didn’t happen
For weeks there were leaks and rumours flying around. Most of the headline-grabbing ideas did not make it into the final Budget:
❌ No National Insurance on rental income
Landlords still don’t pay NI on property income. The idea was heavily trailed, but dropped.
❌ No stamp duty hike for buyers or investors
No extra surcharge on the existing 3% additional rate, no new bands above £500k, no wholesale rewrite of the system.
❌ No Capital Gains Tax (CGT) increase on property
CGT allowances are already low, but rates weren’t pushed up further. That quietly keeps the door open for landlords who want to sell in the next few years without facing harsher CGT.
The market feared a “Budget bombshell” for housing. It didn’t arrive. That alone is positive for stability, mortgage rates and buyer confidence.
2️⃣ The main new hit: +2% tax on rental profits from 2027
The biggest direct change for many landlords is a new extra 2% tax band on property income, starting April 2027... it effectively nudges rates up by 2 percentage points on rental income:
20% ➜ 22% (basic rate)
40% ➜ 42% (higher rate)
45% ➜ 47% (additional rate)
🔍 What this means for the housing market
🔹 Some landlords will absorb the extra cost.
🔹 Others will try to pass it on through higher rents or decide certain properties no longer stack up and sell instead.
🔹 That decision point (absorb vs pass on vs sell) will shape supply of rental homes and rent levels over the next 2–3 years.
🔹 The rise is annoying rather than catastrophic, but when layered on top of Section 24, higher mortgage rates and regulation, it pushes more landlords to really examine whether each property still earns its keep.
3️⃣ Property income moves into its own tax bucket
There’s a more technical tweak that still matters.
Rental income has been moved out of the general “non-savings income” pile.
Your salary / self-employment income now uses up the lower tax bands first.
Property income is then stacked on top, making it more likely to be taxed at higher rates, especially for people with decent employment income and rentals.
As a summary: if you’ve got a job and a rental, your wages now “eat up” your lower tax bands before your property income gets taxed, so more of that rent is likely to be charged at 40% or above.
4️⃣ Limited company landlords: dividend tax rise from 2026
🔹 Holding property in a company isn’t a free pass either
🔹 From April 2026, dividend tax goes up by 2 percentage points at the main bands.
🔹 That hits anyone taking income out of a company, not just landlords.
🔹 On top of that, the dividend allowance is now tiny (£500), so more of what you draw out is taxed.
🔹 Company structures still work for many landlords, but the gap between “company vs personal” is narrowing. What matters is proper tax planning, not chasing the latest trend structure.
5️⃣ Short-term lets & holiday homes: new local levies possible
🔸There’s a new power for local mayors and councils to charge an overnight levy on short-term lets / furnished holiday lets (FHLs)
🔸It’s optional, not automatic – each council can decide.
🔸Some areas heavy on tourism or with tight housing supply may well use it.
🔸Others might never touch it.
🔸For homeowners with holiday lets, the message is: check what your local council plans to do. In some areas, short-term lets could become less profitable compared with standard long-term renting.
6️⃣ Making Tax Digital: more paperwork for many landlords from 2026
🔹 Making Tax Digital (MTD) for Income Tax is confirmed
🔹 Starts April 2026.
🔹 Affects landlords and self-employed people with property/business income over £50,000.
🔹 Means quarterly digital reporting to HMRC instead of one annual return, plus a final declaration.
🔹 Even if the pounds and pence impact is small, the admin load increases. Many landlords will need software, better bookkeeping, or an accountant – another cost to factor in.
7️⃣ Mansion tax: mainly a London / prime market story 🏰
🔸The Budget also introduced a new “mansion tax” style surcharge:
🔸Applies to homes valued over £2 million.
🔸Charged as an extra layer on top of council tax, but paid by the owner, not the occupant.
🔸Expected annual cost: roughly £2,500–£7,500 per affected property.
🔸Starts April 2028, and affects well under 1% of homes – mostly prime London and a few high-value pockets elsewhere.
🔸Important if you own or rent out a £2m+ property, but irrelevant for the vast majority of homeowners.
8️⃣ The biggest “stealth” change: frozen tax thresholds to 2031
🔹 The single largest revenue raiser in the Budget isn’t a new tax at all – it’s the decision to freeze income tax thresholds:
🔹 Personal allowance and basic/higher rate bands are now frozen until 2031 (previously 2028).
🔹 As wages and rents rise with inflation, more people are dragged into higher tax bands, even if the official rates don’t change.
🔍 Why this matters for property:
🔹 As rents rise to keep up with costs and demand, landlords’ taxable income rises.
🔹 But the thresholds don’t move, so a bigger chunk of that rent ends up at 40% or 45%+.
🔹 This stealth effect hits landlords and homeowners alike – anyone whose income increases over the next six years.
🔹 Even if the headline tax rates stay the same, frozen thresholds mean many of us will quietly pay more tax on the same type of income, simply because our pay and rents go up.
9️⃣ What it all means for buying, selling and renting in England
🗝️ For people buying a home
🔸 No shock stamp duty or CGT changes = more stable market.
🔸 Budget didn’t spook lenders – some banks are already trimming rates, which supports mortgage affordability.
🔸 If some landlords decide higher taxes aren’t worth it and sell to owner-occupiers, that could boost for-sale stock in some areas.
🤝 For those selling
🔸 Landlords who were on the fence may now use the 2027 income tax rise as a trigger to review and maybe sell weaker properties before the new rate bites.
🔸 With CGT left alone, selling in the next few years may look relatively more attractive than holding a marginal, low-yield property.
🔸 For homeowners selling to move up the ladder: the absence of nasty surprises and calmer mortgage rates is a net positive.
📃 For the rental market
🔸 Landlords face:
🔸 Extra 2% tax on rental profits (from 2027)
🔸 Higher dividend tax (for company structures)
🔸 More admin via MTD
🔸 Ongoing regulatory costs (EPC, Renters’ Rights, etc.)
🔸 Some will stay and adjust rents over time; some will exit, especially if they’re already borderline profitable.
🔸 Tenants face:
🔸 Fewer rental homes + strong demand = continued upward pressure on rents, even though the Budget itself didn’t directly target tenants.
🔸 Policy choices aimed at landlords eventually flow through to renters via reduced supply or higher rents.
🔟 Big picture: this Budget wasn’t the nightmare many feared:
🔹 No NI on rent
🔹 No stamp duty or CGT hikes
🔹 No shock announcement that destroys the market overnight
🤫 But it does quietly:
🔹 Increase tax on rental profits (personal and company)
🔹 Make admin heavier via Making Tax Digital
🔹 Use frozen thresholds to slowly draw more income into higher tax bands
🔑 Key message is: don’t panic, but don’t drift.
Use the relative calm after the Budget to review your situation, email Scott (Head of Finance and Operations - pictured second left below), set up a call to run through your circumstances in detail for clear and precise advice: scott.sneath@cavendishproperty.co.uk 📧
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