Chancellor Rachel Reeves has used her Autumn Budget to confirm the introduction of two significant new property taxes, a move set to reshape aspects of the UK housing market.
The New 'Mansion Tax' Explained
One of the key announcements is the implementation of a so-called 'super council tax' or 'mansion tax' for residential properties valued at more than £2 million. According to HMRC, the policy is designed to ensure that a "£2 million mansion doesn’t pay less tax than a family home".
This specific levy is projected to generate an additional £400 million in revenue. The government states these funds will help address the £40 billion black hole in public finances inherited from the previous Conservative administration.
Impact on Landlords and the Rental Market
The second property tax measure involves a 2% increase to the basic rate of income tax applied to rental income for landlords. This means a landlord's property income will now be taxed at a marginal rate that is two percentage points higher.
Tax specialist Ingrid McCleave, a partner at city law firm DMH Stallard, provided clarity on the change: "Rental income is already charged on individual landlords at their marginal tax rate... The Chancellor has just increased their marginal tax rate in respect of property income by 2%."
She did note a silver lining for some, adding: "For most home owners that rent out a room to a lodger, it won’t have a great impact, provided the rent they receive is £7500 or below pa, since the tax free rent a room relief has not been affected."
Expert Reactions and Market Consequences
The property industry has reacted with concern. Colleen Babcock, Rightmove’s property expert, stated: "The property market needs less taxation not more, to encourage and enable movement."
She warned that the mansion tax could cause distortion at the top end of the market, particularly as the implementation date approaches. "Even if some wealthier buyers are unfazed by an additional cost, we could see some fall-throughs as others in this price bracket reconsider the long-term implication of their purchase," she said.
Babcock also highlighted a potential pricing strategy for sellers, suggesting that "Sellers of homes priced very close to the £2 million mark may need to ask for £1.99 million to avoid putting off potential buyers." Furthermore, she pointed out that retired homeowners in valuable properties might face difficult decisions regarding the affordability of their home's upkeep under the new tax regime.
