The government has announced a new mansion tax targeting high-value properties and increased income tax for landlords. The measures, set to take effect from 2027 and 2028, will impact less than 1% of the UK housing market but could have broader implications for market sentiment.
Key Takeaways
- Annual mansion tax surcharge introduced for properties valued over £2 million from April 2028
- Tax ranges from £2,500 to £7,500 depending on property value
- Landlord income tax increased by 2% from April 2027, creating new rates of 22%, 42%, and 47%
- No changes announced to stamp duty rates
- Property valuations for mansion tax will be conducted every five years
- Less than 0.5% of homes sold this year were valued above £2 million
Mansion Tax Overview
The Chancellor confirmed that a new annual surcharge will apply to residential properties valued at £2 million and above, effective from April 2028. The measure targets what the government describes as “high-value homes” and will be payable by property owners regardless of whether they are owner-occupiers, landlords, or overseas investors.
The mansion tax will operate as an additional council tax surcharge, calculated based on property valuations conducted every five years. Properties will be assessed according to their market value, with owners required to pay the annual charge on top of existing council tax obligations.
The policy affects a small segment of the UK property market. Current market data shows that less than 0.5% of homes sold this year were priced over £2 million, while approximately 1% of properties currently listed for sale exceed this threshold.
Tax Bands
The mansion tax will operate on a tiered system based on property values:
| Property Value | Annual Surcharge |
|---|---|
| £2m – £2.5m | £2,500 |
| £2.5m – £3.5m | £3,500 |
| £3.5m – £5m | £5,000 |
| £5m+ | £7,500 |
Market Impact Analysis
The premium property segment has already experienced softening demand over the past year. Market data indicates that agreed sales for properties valued above £2 million have fallen by 13% year-on-year, reflecting broader challenges in the high-value market including elevated mortgage costs and economic uncertainty.
The introduction of the mansion tax comes at a time when the London and South East property markets—where the majority of £2 million-plus properties are concentrated—continue to face affordability pressures. The additional annual cost may influence home-mover sentiment among buyers considering properties near the £2 million threshold.
Properties valued just below £2 million may see increased demand as buyers seek to avoid the surcharge, potentially creating market distortion at this price point. Conversely, properties significantly above the threshold may be less affected, as buyers in this segment typically factor ongoing costs into their purchasing decisions.
Expert Commentary
Property market analysts have expressed concerns about the potential ripple effects of increased taxation on the housing sector.
Colleen Babcock commented: “The property market needs less taxation not more, to encourage and enable movement. Today’s announcement of a Mansion Tax could lead to some distortion at the top end of the market… There is an inevitable trickle-down effect for the rest of the market.”
The trickle-down effect referenced relates to how reduced activity in premium segments can impact transaction volumes across lower price brackets, as property chains rely on movement throughout the market.
Landlord Income Tax Changes
Alongside the mansion tax, the Budget confirmed a 2% increase in income tax rates for landlords, effective from April 2027. The measure applies to rental income and will create new tax bands specifically for property investors.
The new landlord income tax rates will be:
- Basic rate: 22% (previously 20%)
- Higher rate: 42% (previously 40%)
- Additional rate: 47% (previously 45%)
The change applies to all rental income regardless of property value or location. Landlords operating through limited companies will not be affected by this measure, as corporate tax rates remain unchanged.
The government has justified the increase as part of broader fiscal policy aimed at addressing the deficit while targeting those with investment income rather than earned employment income.
Impact on Rental Market
The landlord income tax increase adds to existing pressures facing the rental sector. Recent years have seen significant changes to landlord taxation, including mortgage interest relief restrictions and higher stamp duty surcharges for additional properties.
Industry observers note that increased costs for landlords are typically passed through to tenants via higher rents, potentially exacerbating affordability challenges in the rental market. With rental yields already compressed in many areas due to house price growth outpacing rental increases, the additional tax burden may prompt some landlords to exit the market.
Colleen Babcock addressed the landlord measures specifically: “Landlords might look like an easy target, but rental market taxation is usually detrimental to tenants looking to rent a home.”
The concern centres on reduced rental supply as landlords sell properties, potentially intensifying competition among tenants and driving further rent inflation.
Stamp Duty Clarification
The Budget confirmed that no changes will be made to stamp duty rates or thresholds. Current rates remain in place for both residential purchases and additional property purchases, including the existing surcharge for second homes and buy-to-let investments.
This lack of change provides some certainty for prospective buyers and property investors, particularly after speculation that stamp duty thresholds might be adjusted.
When Will Homeowners Feel the Impact?
The staggered implementation timeline means different groups will be affected at different points:
April 2027: Landlords will see increased income tax rates applied to their rental income when filing tax returns for the 2027/28 tax year. This will directly impact net rental yields and may influence investment decisions in the coming months.
April 2028: The mansion tax surcharge takes effect, with property owners receiving bills for the annual charge. The first valuation exercise will determine which properties fall within the tax bands.
Market sentiment may shift before these dates as buyers and sellers adjust their expectations. Properties approaching the £2 million threshold could see price resistance as buyers factor in future tax liabilities.
Conclusion
The Autumn Budget 2025 introduces targeted taxation measures affecting the premium property segment and the landlord sector. While the mansion tax directly impacts less than 1% of properties, the broader implications for market confidence and transaction volumes remain uncertain.
The combination of increased landlord taxation and the new mansion tax surcharge represents a significant shift in government housing policy, prioritizing revenue generation over market stimulation. How the market adapts to these changes will become clearer as implementation dates approach and property owners make strategic decisions about buying, selling, and holding high-value properties.
The lack of stamp duty changes provides some stability, though the overall tax burden on property ownership and investment has increased substantially. Market participants will be monitoring transaction volumes, pricing trends, and rental market dynamics closely over the coming months.
