The Chancellor has delivered the Autumn Budget, setting out a range of tax measures that affect the housing market. While much of the attention has centred on the introduction of a mansion tax, there are also significant changes for landlords, particularly around rental income. With some measures due to take effect over the coming years, landlords now have a clearer sense of what is coming and how it could influence their plans.
This overview explains the announcements that matter most to landlords and considers how they might affect the wider rental market.
Mansion tax introduced for homes worth more than £2 million
From April 2028, owners of homes valued above £2 million will pay an annual surcharge on top of council tax. The charge varies by property value, starting at £2,500 for homes between £2 million and £2.5 million and rising to £7,500 for homes valued above £5 million.
Although this measure applies to a very small segment of the market, it is still expected to create some disruption. Only around 1 per cent of homes currently for sale fall into the affected price bracket, and fewer than 0.5 per cent of sales agreed this year involve homes over £2 million. However, early signs already show a 13 per cent year-on-year drop in agreed sales for these properties, indicating that buyers and sellers have been preparing for the change.
The tax is likely to have the greatest impact in London and the South East, where high-value homes are more common. A five-year valuation cycle will determine which surcharge band applies to each property.
While most landlords will not be directly affected, movement at the top end of the market often has a knock-on effect. A slower market for premium homes can influence sentiment and behaviour more broadly, creating a more cautious environment for buyers and investors across different price ranges.
Income tax on rental income to rise by 2 per cent
The most significant change for landlords is an increase in the property income tax rates. From April 2027, the rates that apply to rental income will rise by 2 per cent. The new rates will be 22 per cent for basic rate taxpayers, 42 per cent for higher rate taxpayers, and 47 per cent for additional rate taxpayers.
This change replaces the widely rumoured proposal to introduce national insurance charges on rental income. While the decision avoids the introduction of an entirely new tax, the increase in income tax still reduces the net return on rental property.
For landlords with high borrowing costs or thinner margins, this shift may put further pressure on profitability. Many landlords have already felt the impact of rising mortgage rates, changes to mortgage interest relief, increased compliance requirements, and higher purchase taxes. The additional 2 per cent may lead some landlords to consider adjusting rents, reviewing their portfolios, or seeking properties with stronger yields.
Industry commentary suggests that while some landlords continue to invest, others may now reconsider expansion or exit the market entirely. If this leads to fewer rental homes, tenants may face further shortages in local areas where supply is already tight.
No changes to stamp duty
Despite months of speculation, there were no announcements about stamp duty. Landlords purchasing new properties will continue to pay the existing structure, including the higher surcharge for second homes.
Although this brings stability in the short term, many landlords had hoped for a revision of stamp duty bands or a reduction in the surcharge to support investment. For now, the current system remains unchanged.
What these changes mean for landlords
A need to review long-term plans
Since the major changes do not take effect until 2027 and 2028, landlords have time to consider their position. This allows scope for restructuring portfolios, remortgaging, planning tax strategies, or assessing whether existing properties still meet income expectations.
Possible rent adjustments
With operating costs rising, landlords may look at increasing rents where appropriate. Local market conditions will determine whether these adjustments are feasible, but many landlords will feel the need to offset the additional tax.
Pressure on lower-yielding properties
Landlords with properties in areas where yields are already low may find the additional 2 per cent tax difficult to absorb. This could prompt some owners to sell, which may reduce rental supply in already stretched regions.
Continued importance of financial planning
With further changes on the horizon, early planning can help landlords understand how the new rates affect returns. Keeping up to date with mortgage reviews, expense tracking, and tax planning will become even more important.
How soon will the market feel the impact?
Some effects are already visible at the top end of the market due to the mansion tax announcement. For landlords, the changes are more gradual, since the new property income tax rates will not apply until April 2027.
Overall, the Budget gives landlords a clearer timeline for the years ahead. While the changes add new pressures, none take effect immediately, which allows time to plan and adapt. Given the ongoing demand for rental homes across much of the country, well-managed portfolios are still likely to perform steadily, provided landlords take a careful and informed approach to the upcoming tax shifts.
