Chancellor Rachel Reeves has delivered her second Budget, after an unprecedented event when the OBR accidentally revealed the key details 40 minutes before she entered Parliament. Landlords, with ample preparation, across the UK have been apprehensively watching and speculating about her plans to stabilise the country’s finances. The UK Government needs to close a significant public funds deficit while honouring their manifesto commitments of not to raise income tax, VAT, or National Insurance for “working people”.
Ahead of delivering her Budget statement, the Chancellor said she would take “fair and necessary” choices for the economy, addressing cost-of-living pressures and bringing down NHS waiting lists. She also vowed to push ahead with an ambitious drive for growth and investment for many sectors, but that did little to quell speculation for property owners who feared they would bear the brunt of tax hikes. The same can be said for landlords who were the target of the Resolution Foundation think tank which suggested all landlords should pay National Insurance at a basic rate, with additional rates for property earnings.
While some feared measures failed to materialise (notably National Insurance on rental income and major stamp duty reforms), landlords still face meaningful changes that will affect their returns and long-term planning. The tax burden is set to reach all-time high levels of 38% of GDP by 2030-31, and property owners have been hit hard by the Chancellor’s tax hikes.
For landlords already navigating a challenging economy and evolving regulation, the Budget spells out several complexities for the months and years ahead.
How are landlords affected by the Autumn Budget 2025?
This Budget arrives at a particularly vital juncture for the private rental sector. Landlords are contending with a huge regulatory overhaul with the Renters’ Rights Act and its sweeping changes for tenancy agreements, evictions and rent control.
Couple this with the impending rollout of Making Tax Digital (MTD) for Income Tax (due April 2026), rising mortgage costs, and stringent Energy Performance Certificate (EPC) certification requirements, and it’s clear why landlords are feeling the pressure.
Research from SpareRoom earlier this year found that 67% of landlords planned to leave the rental sector altogether or reduce their property portfolios. Only 4.5% of landlords planned to expand their portfolios this year. Record numbers of landlords had no confidence in the private rental sector at present, citing the Renters’ Rights Act, the end of Section 21 evictions, and reduced profitability and tax increases being the most cited reasons for the uncertainty and pessimism.
Amidst growing restlessness in the sector, the Treasury’s search for additional revenue has repeatedly turned towards property tax. With a £22 billion hole and a limited set of options, property has been a fervent area of focus for the Chancellor. As such, landlords have braced themselves for a barrage of new measures targeting national property taxes in place of Stamp Duty Land Tax (SDLT), National Insurance on rental income, Capital Gains Tax (CGT) changes, inheritance tax (IHT) threshold updates, tax-free ISA limit changes, and more.
The collective effect of property tax rises matters tremendously. Every measure may seem manageable in isolation, but the cumulative effect on a landlord’s expected and net returns can have a lasting effect. Many may be, as a result of this Budget, rethinking the viability of their investments, especially those with smaller portfolios working with tighter margins.
A summary of key changes for landlords
1. A 2 percentage point increase for property income tax:
In an attempt to raise £2.1 billion, rental income tax rates and CGT on property sales will change. For capital gains specifically, this means that basic rate taxpayers pay 20% CGT on property (up from 18%) and higher-rate taxpayers pay 26% CGT (up from 24%). For landlords with sizeable portfolios planning exit strategies, this increase could translate into higher liabilities. It also applies to dividend and savings income, so those using limited company structures or those with large cash reserves will still be hit with a higher tax bill.
2. A ‘council tax surcharge’ on high-value properties:
From April 2028, a surcharge will apply to residential properties worth over £2 million, expected to raise £400 million in 2029-30. While this won’t affect most landlords, those with high-value London properties or large rental portfolios will face an additional annual charge. The exact surcharge rate has not been detailed as of yet.
3. Personal tax threshold freeze extended until 2031:
This freeze was initially due to end in April 2028, and has been extended for another three years. The aim is to raise £8.3 billion by the end of the decade, through fiscal drag, where inflation and wage growth push more taxpayers into higher brackets. Landlords may see rental income increasingly taxed at higher rates, as a result. More total income crosses into the higher (40%) and additional (45%) rate bands, and those already in the higher-rate threshold (of £50,270) will be affected if rental profits push them further into these brackets.
4. Cash ISA allowance cut for under-65s:
From April 2027, the annual cash ISA allowance will be cut from £20,000 to £12,000 for savers under 65, whereas over-65s will retain the existing allowance. For landlords building cash reserves for property purchases, renovations or emergency funds, this reduces savings capacity massively. Those using ISAs to accumulate deposits for additional property work or to smooth income volatility between tenancies may find that this reduces their liquidity, thereby affecting financial planning.
5. Salary sacrifice pension contributions capped:
Salary sacrifice pension contributions will be capped at £2,000 per year before NICs apply, raising £4.7 billion by 2030. Landlords operating through limited company arrangements and using salary sacrifice to reduce their NI liabilities can expect to pay additional tax at 13.8%, reducing the tax efficiency of this structure.
Measures that did not materialise
Notably absent from today’s Budget were some feared measures:
- No NI on rental income, with the speculated 6-8% levy on rental profits not materialising
- No stamp duty reforms, with the buy-to-let surcharge remaining unchanged (for now)
For many landlords, particularly those with modest portfolios generating £30,000–£70,000 in annual rental income, the absence of NI charges provides a much-needed reprieve. That said, those with substantial property portfolios should be mindful of inheritance tax planning. The nil rate band has been frozen at £325,000 since 2009 and will stay that way until April 2028, meaning more estates are being dragged into the IHT net due to inflation and property price rises.
IHT and pension planning hurdles
From April 2027, pensions will also enter into the scope of IHT for the first time, removing what has historically been a valuable estate planning tool. Many landlords have traditionally used pension contributions to offset rental income while building IHT-free wealth, but this strategy may no longer prove fruitful.
As professionals, like Hamlyns Chartered Accountants, emphasise, “IHT is a complex area and often feels like it’s constantly changing. Understanding IHT thresholds and allowances is, however, vital for anyone concerned about preserving wealth for their family’s and loved ones’ future.” Being sure of your tax-free allowance for IHT and available reliefs is essential if landlords are looking to pass property portfolios to the next generation.
The residence nil-rate band provides an additional £175,000 allowance when passing your main home to direct descendants, potentially giving couples a combined threshold of £1 million, but this tapers away for estates exceeding £2 million.
Strategic gifting, trusts, and careful timing also play pivotal roles in minimising IHT liabilities.
How landlords should respond
Today’s Budget announcements serve a reminder to landlords to carefully consider their options rather than immediately trigger a knee-jerk reaction. The collective burden of the updates may feel initially overwhelming, but hasty decisions to exit the market, restructure holdings and act on instinct, rather than professional guidance, could leave you in a worse position.
Take the time to absorb what’s been announced and seek professional advice as soon as you can. Tax and financial advisers will no doubt be working through the legislative and regulatory changes themselves, identifying potential opportunities that may not be immediately obvious. Seemingly straightforward tax rises often contain exemptions, provisions and considerations where effective timing can make a pivotal positive difference to optimise your financial position.
It’s recommended that you review your portfolio objectively and strategically, considering what yields the strongest returns and which might be prime candidates for disposal before any CGT changes take effect. Restructuring through a limited company or other alternative vehicle may offer tax advantages under the new rules, particularly given the salary sacrifice pension cap.
Fundamentally, however, timing is everything as far as portfolios are concerned. The grace periods are there for a reason, so take note of the effective dates and windows for transitioning as you make informed decisions about your portfolios. HM Revenue & Customs guidance on allowances, edge cases, and implementation dates will emerge in the coming days and weeks following the budget, which should be given careful attention.
What to do next
This Budget could have been considerably worse for landlords. Whilst some new measures were introduced, particularly the 2 percentage point increase in property income tax, the Chancellor appears to have recognised the importance of the private rented sector and pulled back from punitive measures that were feared. Nevertheless, the cumulative burden continues to grow. The tax burden reaching 38% of GDP by 2030-31 reflects a broader taxation-heavy approach across the UK economy, and landlords should anticipate this to continue.
The weeks ahead will bring greater clarity as detailed legislation is published and professional bodies analyse the implications. In the meantime, landlords should focus on understanding how these specific changes affect their individual circumstances and seek tailored advice to navigate the new rules effectively.
