It was a crisp winter afternoon on Wednesday, 26th November, when Chancellor of the Exchequer Rachel Reeves delivered the highly anticipated 2025 Autumn Budget — a fiscal statement designed to address a mounting deficit and the persistent cost of living crisis.
Citizens from all walks of life braced for substantial tax increases. In the prime property market, the atmosphere was particularly cautious: owners anticipated significant portfolio implications, sellers postponed listings, and buyers adopted a wait-and-see approach. Yet when the measures were unveiled, the impact on high-value residential assets proved considerably more measured than pre-budget speculation had suggested.
High-Value Council Tax Surcharge or “Mansion Tax”
With inflation still biting, the Budget was primarily dedicated to addressing affordability across essential services. On the property front, blue-chip assets have been impacted by a council tax surcharge on properties worth more than £2 million — the only widely expected measure that has materialised.
The surcharge comprises four price bands rising from £2,500 for properties valued between £2 million and £2.5 million to £7,500 for properties valued at £5 million or more. The breakdown is as follows:
This measure is estimated to raise around £430 million of revenue per year from 2028-29 to support funding for local government services, with revaluations being conducted every five years. Commenting on this move, the Chancellor stated, “This new surcharge will raise over £400 million by 2031 and will be charged on less than the top one per cent of properties.”
Becky Fatemi, Executive Partner at UK Sotheby’s International Realty, emphatically commented, “This Budget is probably the best outcome we were ever going to get, and thank goodness the Mansion Tax is not the horror story everyone spent months losing sleep over.”
This new tax mandate is set to come into motion from April 2028, allowing high-value property owners to efficiently plan their asset management. With many sellers and buyers – domestically and internationally – adopting a wait-and-see approach and the tax hikes proving less severe than anticipated, the market is expected to see a release of pent-up activity. Furthermore, the modest hike and clear parameters are expected to steady sentiment and catalyse decisive market engagement, particularly given London's enduring appeal as a global centre for lifestyle, business, and international connectivity.
Alex Isidro, Managing Director at UK Sotheby’s International Realty, shared, “The 2025 Budget confirmed a mansion tax on homes above £2 million, with bands ranging from £2,500 to £7,500. While this may raise short-term costs and marginally cool the £2m to £3m segment, the real value here is clarity. It improves market liquidity, giving buyers and sellers the confidence to make moves they've been waiting for.
He continued, “Greater transparency in the prime sector also strengthens the UK's appeal to international buyers, a dynamic we've observed with the notable rise in American relocations to London. With certainty restored, we expect a more balanced, stable, and confident super-prime market ahead."
Echoing Isidro’s thoughts, Emmanuel Aymes, Private Clients Advisor (Middle East) at UK Sotheby’s International Realty, noted the current stance of high-value buyers from the Middle East and Gulf, explaining, “What has been holding people back is the constant uncertainty around the upcoming Budget. For the last few months, it’s created a sense of ‘let’s wait and see’, even among clients who view the UK as a solid long-term market."
"Now, with the Budget released and the uncertainty lifted, Middle Eastern buyers will feel far more comfortable re-entering. And one thing they all recognise is that London prices are notably economical compared with where they were ten years ago – and, in relation to other major global cities, the capital’s value proposition is particularly exemplary.”
New Tax on Rental Income: What It Means for Landlords
In a less prominent Budget measure, individuals earning income from property rentals, savings, and dividends will see their tax rates increase by two percentage points starting April 2027. The Treasury estimates this will generate approximately £500 million annually.
The Office for Budget Responsibility was blunt in its assessment, warning, "The measures announced in this Budget reduce returns to private landlords, following various measures over the past 10 years that have also reduced returns. This successive eroding of private landlord returns will likely reduce the supply of rental property over the longer run. This risks a steady long-term rise in rents if demand outstrips supply."
From the spring of 2027, landlords are liable to pay higher rates on rental income, with thresholds rising to 22%, 42%, and 47% depending on total earnings. The policy effectively extinguishes earlier speculation that rental income might be subjected to National Insurance contributions.
Despite this being characterised as a blow to landlord profitability, the reality is far more nuanced. London's rental market remains exceptionally profitable, particularly in the prime sector, where landlords continue to see strong returns that can absorb additional costs. This resilience is borne out by UK Finance data, which showed that in spite of countless dents to the rental sector in recent years — including previous tax increases, stricter regulatory requirements, elevated borrowing costs, and the Renters' Rights Act — more landlords are purchasing new properties and remortgaging existing ones compared to last year. The sector has proven remarkably adaptable.
Noteworthy is that professional landlords operating through limited companies have dodged significant tax hikes, as corporate entities remain largely unaffected by the changes.
Final Thoughts
The 2025 Autumn Budget delivers neither the catastrophic intervention some feared nor the reprieve others hoped for. Instead, it offers something arguably more valuable in the current market: clarity. The mansion tax bands are set in stone, rental income rates are well established, and the most aggressive measures floated in pre-budget speculation failed to materialise – all with ample time to prepare ahead of implementation. For a market that has spent months in stasis, this certainty is likely to instigate activity regardless of the additional costs involved.
London's prime property market has weathered far more dramatic overhauls and seismic shifts over the past decade. The combination of regulatory clarity, sustained international demand, and sufficient time to absorb the changes – all underpinned by the release of months of pent-up caution – suggests the sector is well-positioned to resume momentum with immensely more confidence than it has had since speculation began.
As we approach the end of Q4, UK Sotheby’s International Realty reflects on a year of exceptional achievement and bustling activity, notwithstanding market headwinds and investor caution. With this welcome clarity and a fresh start ahead, the firm looks forward to a period of renewed vitality as clients who have been carefully watching from the sidelines feel empowered to move forward with their property decisions in London's prime market.
