The Budget 2025 – What changes are coming to the property market?

The 2025 Autumn Budget brought major changes for homeowners, investors and landlords and it confirms a shift in how high-value properties and property income will be taxed. The government’s aim, it says, is to rebalance the tax burden on wealth and assets especially given that income from property, savings or dividends historically avoided National Insurance contributions.

New Tax on High-Value Homes

Perhaps the most headline-grabbing measure is the introduction of a “High Value Council Tax Surcharge” (sometimes referred to as a “mansion tax”). From April 2028, this surcharge will apply to residential properties in England whose valuations – as re-assessed by the official Valuation Office using 2026 data – exceed £2 million.

Under the new rules, there will be four valuation bands. Homes between £2 million and £2.5 million will pay the lowest surcharge, and the fee increases up to £7,500 per year for properties valued at £5 million or more (with the surcharge indexed to inflation).

According to the official estimates, fewer than 1% of residential properties will fall under the surcharge. But for those that do, particularly in high-value London boroughs and affluent parts of the South East, this represents a significant ongoing cost.

The government has announced a consultation on the measures, meaning not all details are confirmed. Details of where the other bands will land have not yet been shared, nor have details of any assumed deferral scheme.

Higher Tax on Property Income

The Budget also raises the rate of tax on property income (where landlords earn rental income). From April 2027, property income will be taxed with new bands: a basic rate of 22%, a higher rate of 42%, and an additional rate of 47%, up by 2 percentage points across each band compared with the current system.

This change is intended to reduce the tax advantage enjoyed by property income (which previously avoided National Insurance), aligning it more closely with income earned from wages.

For landlords and investors, this increase could result in higher costs and lower yields, potentially influencing decisions to invest in buy-to-let property. Meanwhile, tenants could feel the impact if landlords pass on additional tax burden via higher rents. This, combined with the Renters Reform commencing in May 2026, are the most significant changes we’ve seen for years in the renters market.

Regional mayors will also be given the authority to introduce an overnight visitor levy, similar to the upcoming schemes in Wales (£1.30 per night) and Scotland (5% of the accommodation cost). A public consultation will take place to determine how the levy should be structured.

What This Means for the Market

With these reforms, high-value homeowners face a new recurring cost beyond regular council tax, which may discourage speculative purchases or second-home ownership among the wealthiest. For landlords, reduced returns may lead to fewer buy-to-let investments, which in turn risks tightening rental supply.

As rental supply potentially shrinks while demand remains steady or grows, this could add pressure on rental prices over time. Meanwhile, those looking to enter the high-end residential market may need to factor in the surcharge when calculating long-term costs.

For average home-buyers and mid-market properties (below the £2 million threshold), the Budget leaves fewer immediate changes, but the broader shift signals a government direction toward taxing property wealth and income more heavily.

Why the Government Is Doing It

The rationale behind these measures is fairness and fiscal sustainability. The government argues that taxing property income and high-value homes more strictly helps close the gap between tax treatment of earned income and asset-derived income, and helps ensure wealthier individuals contribute proportionally.

At the same time, proceeds from the surcharge on high-value homes are intended to support public services and contribute to wider economic recovery and investment efforts.