Emma Sear
- Partner
- Residential Property
Budget 2025 and residential property: time to assess
As the dust settles on Rachel Reeves’ 2025 Budget, and much of the speculation has been put to rest, it is time to assess what the confirmed measures mean for residential property owners – whether individual homeowners, landlords or custodians of heritage estates.
Individual homeowners
High value council tax surcharge
The new high value council tax surcharge (the surcharge) is less severe than many of us expected from a long feared “mansion tax”, but it will still have a significant impact on those with homes valued over £2 million. Owners in this bracket will face an annual surcharge of £2,500, with three further bands (as set out below), up to a top rate of £7,500 per annum for properties valued at £5 million or more. This is payable alongside their existing council tax. The surcharge will increase each year in line with the consumer prices index (CPI) and five-yearly revaluations will be undertaken by the Valuation Office.
| Property value | Annual surcharge |
| £2.0m – £2.5m | £2,500 |
| £2.5m – £3.5m | £3,500 |
| £3.5m – £5.0m | £5,000 |
| £5m + | £7,500 |
The tax won’t come into force until April 2028, allowing time for consultations to be completed and for properties in the top three council tax bands across the country to be revalued. Inevitably, there will be appeals from homeowners whose properties are valued at or just above a relevant threshold.
Details are awaited regarding reliefs, exemptions and possible payment deferrals for those homeowners who are asset-rich but cash-poor. For some, particularly empty nesters, the surcharge may provide the incentive needed to encourage them to downsize. Others on the other hand, may consider splitting larger homes into smaller units to avoid the surcharge, although this could reduce the availability of family-sized homes.
It is estimated that around 100,000 homes will fall into the new tax regime, with the majority located in London and the Southeast. This may dampen values in these areas and encourage buyers to look further afield. Price “bunching” is expected, particularly around the £2 million and £2.5 million thresholds, as buyers factor in the additional costs when making offers.
Landlords
Surcharge
Whilst the surcharge gives individual homeowners food for thought, landlords have significantly more to unpack.
Landlords of high value properties will be responsible for paying the surcharge, which is levied on the property owner rather than the tenant. This will particularly impact landlords of larger houses in multiple occupation where there are multiple tenants but only one council tax bill. Landlords will need to carefully review their properties and portfolios, carrying out cost analysis to establish whether their property businesses can continue to be profitable going forward.
Whilst some landlords may consider converting these properties into flats that fall outside the impact of the surcharge, many will be unable to do so – either due to cost or because many local authorities, particularly those in London, restrict such conversions to preserve family housing stock.
Property income and dividend income taxes
Private landlords holding properties in their own names (including many accidental landlords) will face a 2% increase in property income tax from April 2027. Those holding properties through corporate vehicles will see a 2% increase in dividend tax rates from April 2026, although these remain significantly lower than income tax rates on property income which may incentivize some landlords to incorporate their property businesses.
For many, the combination of increased income/dividend tax, the impact of the Renters’ Rights Act 2025 and, for those with high value properties, the surcharge may render property letting unprofitable, prompting some to sell up. Whilst this could benefit first time buyers who have deposits ready, those still saving may face higher rents and reduced supply, making home ownership even more elusive.
Annual tax on enveloped dwellings (ATED)
One positive development for corporate landlords (or those considering incorporation) is the removal of the 12-month time limit for ATED relief claims. Claims can now be made at any time, reducing the risk of costly errors or administrative oversights and easing compliance pressure. This change further encourages incorporation and makes corporate ownership more attractive.
Heritage property and landed estates
The surcharge, combined with increases to income and property income tax, will hit country houses and historic estates hard. These homes, often within landed estates, are typically asset-rich but cash-poor with owners already shouldering the cost of preserving heritage properties, maintaining extensive grounds, and keeping them open for the public to enjoy. For many, the surcharge, likely to be at the top rate, risks undermining these efforts. It remains to be seen whether there will be any meaningful reliefs for heritage properties. For many owners, this is not about luxury but stewardship, and the additional tax burden could force difficult decisions about upkeep. Specialist valuation advice and forward planning will be essential before implementation in April 2028.
Conclusion
The 2025 Budget introduces significant changes for property owners at the top end of the market. Whilst the high value council tax surcharge is less severe than initially anticipated, it will still have a marked impact on high value homes, particularly in London and the Southeast. Landlords face a complex mix of increased taxes and regulatory hurdles, with some relief in the form of more flexible ATED claims. For heritage property owners, the outlook remains uncertain, pending further details on possible exemptions. All affected parties should seek specialist advice and begin planning ahead of the various implementation dates.
This article is for general information purposes only and does not constitute legal advice or a comprehensive statement of the law. Specific legal advice should always be sought in relation to individual circumstances.
Meet the team:
Clarissa Levi
- Art & Heritage Counsel
- Art & Luxury Law
