Property taxes were, as expected, firmly on the agenda in Rachel Reeves’ second Budget, after the chancellor raised council tax on expensive properties and the income levy on rental income. Ultimately, however, the government could have hit property harder.
The council tax increase will be levied on properties worth £2mn or more, and will take effect from April 2028. The Office for Budget Responsibility estimates that it will raise £400mn in 2029-30. Fewer than 1 per cent of properties will pay the additional charge, according to the chancellor.
There will be four price bands for prime properties, based on April 2026 valuations. Those in the lowest band, with values of between £2mn and £2.5mn, will pay an extra £2,500 of council tax each year, while those in the highest band, properties worth over £5mn, will pay £7,500. The bands – and charges – will increase annually in line with inflation.
The government will consult on details of any reliefs and exemptions, including on the ability for “cash-poor, asset-rich” owners to defer payments until after their property is sold.
“[It] is probably the least worst outcome for owners of prime property,” said Lucian Cook, head of residential research at Savills, in reference to the many different policies leaked in the build-up to the Budget.
He added that “any further impact on prices is [likely to be] relatively modest”, given that much of the risk had already been priced in. However, he warned that the tax “is likely to be a further drag on the recovery of the prime market”.
Valuing prime properties will be a subjective and controversial process. “Valuations will inevitably be contested, and annual assessments for unique, high-value homes are costly and prone to disputes,” said Simon Bashorun, head of advice at Rathbones’ private office.
A separate measure will increase the rate of income tax landlords pay on rental income by 2 percentage points, effective from April 2027, a change expected to generate an additional £500mn a year from 2028-29.
The increase will come as yet another blow to private landlords, who are also dealing with new obligations under the recently passed Renters’ Rights Bill. Attempts to pass on the increase to their tenants may be challenged under the bill’s provisions.
“This Budget will clobber tenants with higher costs while doing nothing to improve access to the homes people need,” said Ben Beadle, chief executive of the National Residential Landlords Association.
The move will also widen the gap between private landlords and large institutional groups such as Grainger (GRI), whose real estate investment trust status means it pays no corporation tax.
For housebuilders, the Budget was relatively uneventful. Hopes for a new equity loan scheme for first-time buyers were not met. Fortunately, though, the government did not scrap the reduced rate of landfill tax that is currently applied to waste soil and rubble. Taxing such landfill at the standard rate would have severely reduced the financial viability of housing developments.
“The lack of surprises doesn’t hide the disappointment that many in the development industry will feel after today,” said Melanie Leech, chief executive of the British Property Federation, a trade body.