What Labour’s Second Budget Means for the UK Property Market

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Despite a challenging economic climate, the UK housing market has remained resilient in 2025. Annual growth in house prices of 1.9% has seen the average UK property price reach an all-time high of £299,862, according to recent figures.

Government policy can make a huge difference to homeowners, prospective first-time buyers and property investors. For this reason, Labour’s second budget, released in November 2025, has been keenly watched and dissected by those with an interest in the UK property market.

In this article, we cover the key measures affecting property from Labour’s November 2025 budget and how they may affect the UK property market.

Need expert legal support and guidance for property law? Please contact our Property team who will be happy to advise.

Key points to know about the budget’s impact on UK property

  • Separate property income tax rates will be introduced from April 2027 (currently property income is covered by standard income tax).
  • The basic rate will be 22%, the higher rate 42% and the additional rate 47%.
  • Each of these rates will be 2% higher than the current equivalent income tax rates.
  • From April 2028, there will be a new “high value council tax surcharge” for properties in England valued at £2million or above.
  • This new surcharge, commonly called the “mansion tax”, will start at £2,500/year, increasing to a maximum of £7,500/year for properties over £5million.
  • Property valuations used to apply the new surcharge will come from the government’s Valuations Office Agency.

How the new property income tax rates will work

While there will now be a separate property income tax, the basic tax rules for property income are not changing and the new tax rates will be in line with income tax rates.

Property income tax will apply to all income from letting lands and buildings. Any property income under £1,000 is tax-free and does not need to be reported to HMRC. Income from lodgers is also tax-free, as long as it remains under the government’s £7,500/year threshold and the space rented is furnished.

Finance Cost Relief (FCR) remains available for unincorporated landlords (i.e. those who own property directly rather than through a limited company). This allows them to claim tax relief equivalent to the basic tax rate. So, currently, an eligible landlord can deduct 20% of the interest costs on buy-to-let finance from their tax bill. From April 2027, this will rise to 22%.

How Labour’s second budget might impact UK landlords

Higher rates of tax on property income from April 2027 will either reduce landlord’s profits or require them to increase rents to make up the difference. This comes on the back of a number of measures in recent years that have made renting residential property less attractive. So, will this mean more landlords selling up and higher rents, as some have claimed?

There certainly appears to have been an increase in landlords selling up recently, with one survey from early 2025 showing that 26% of UK landlords were considering reducing their portfolios, compared to just 17% the previous year. Rents on private residential property have also increased – going up by 5.7% in the 12 months to August 2025.

Previous and planned reforms that have hit the private rental sector in the last few years include changes to landlord tax relief, which massively reduced the amount of their finance costs that landlords could offset against their tax bills. There is also the introduction of the Renters’ Rights Act 2025 which contains measures such as giving tenants protection from “no-fault” evictions in most cases and enforcing a ‘Decent Homes Standard’ for rental property that could increase costs for many landlords.

At the same time, many landlords are now experiencing much higher mortgage repayment costs. It has been suggested that many landlords originally took out finance with interest rates of around 1-2% and are now having to refinance at rates of 5-6% or higher due to increases in interest rates.

Putting the planned property income tax rises against these other issues, it does seem reasonable to expect a significant effect on the residential rental market.

How Labour’s “mansion tax” could affect the UK property market

Around 0.5% of UK properties will be affected by the high value council tax surcharge or “mansion tax”, it has been estimated. Of these, around 85% will be in London and the South East.

Exactly what impact this may have is hard to predict. As it will mainly affect only the wealthiest households, many may be able to absorb the additional costs. However, the additional tax burden could potentially put off some homebuyers and may prompt some in high value properties to sell up. This might create some degree of slowdown in the high value property market.

How Longmores can help with property law

Longmores’ Property team has extensive experience with a wide range of property law matters. We can assist with all types of property transactions, as well as advising on matters such as regulatory compliance for landlords and property dispute resolution.

For expert legal support and guidance regarding all aspects of property law, please contact our Property team who will be happy to advise.

Please note, the contents of this blog are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.