The UK Budget 2025 and property taxes – key takeaways

The UK Budget 2025 was preceded by intense speculation about property tax reform. Headlines warned of sweeping changes including:

• A possible introduction of a “Mansion Tax” anticipated as:
  • An annual levy on high value homes (valued in excess of £1.5m/£2m); and/or
  • A restriction to Private Residence Relief (PPR) relief for capital gains tax for high-value homes above £1.5m.
• National Insurance Contributions being applied to rental income
• A possible overhaul of Stamp Duty Land Tax (SDLT)

With these in mind, investors and homeowners were braced for significant changes. In reality, the Budget delivered a mix of targeted measures and restraint. Here’s a more detailed look at what changed, what didn’t, and what could be coming in Scotland in the Scottish Budget on 13 January 2026.

A new ‘Mansion Tax’

The most striking announcement was the introduction of a High Value Council Tax Surcharge, widely referred to as a ‘mansion tax’. From April 2028, owners of residential properties in England valued at more than £2 million will pay an annual surcharge on top of their existing council tax bill. The surcharge will apply in four bands, as follows:

• £2m – £2.5m: £2,500 per year
• £2.5m – £3.5m: £3,500 per year
• £3.5m – £5m: £5,000 per year
• £5m+ – £7,500 per year

The charge will be payable by the property owner (not the occupier) and will rise annually in line with CPI inflation from 2029 onwards. A consultation on the detailed implementation is planned for the new year, including consideration of support for those who may struggle to pay. It is expected to raise around £430m of revenue per year.

This measure is expected to affect fewer than 1% of properties in England, concentrated in London and the South East. Scotland, Wales and Northern Ireland are not automatically affected, as council tax is a devolved matter. Any equivalent measure north of the border would therefore require separate legislation by the Scottish Government.

Higher tax rates for property income

From April 2027, landlords across England, Wales and Northern Ireland will face a two-percentage point increase in income tax on rental income. The new rates will therefore be:

• Basic rate: 22%
• Higher rate: 42%
• Additional rate: 47%

This change is designed to address perceived unfairness in the tax system, as rental income is not subject to National Insurance Contributions. It is expected to raise around £500m of revenue per year once fully implemented.

For landlords operating through limited companies, this change will not directly impact them, but individual landlords – already squeezed by previous restrictions on mortgage interest relief – will feel the impact. It has been suggested that this change could accelerate the trend of landlords exiting the market, potentially reducing rental supply and pushing rents higher.

While the UK Budget has introduced some material changes affecting property owners, it should be noted that SDLT rates and thresholds remain unchanged, and PRR relief continues in full, meaning homeowners selling their main residence pay no CGT regardless of value. This is welcome news for those planning to move or restructure property holdings.

Impact on Scottish taxpayers and what’s next

Scotland sets its own income tax rates for non-savings and non-dividend income, so the UK Government’s increase to property income rates does not automatically apply in Scotland. However, Scottish landlords should watch for the Scottish Budget in January 2026, which could introduce a similar measure. This would appear to involve creating a new category of property income in Scotland and would involve negotiation between Holyrood and Westminster.

Similarly, the proposed mansion tax does not apply in Scotland unless Holyrood legislates for it but there is speculation that Scotland could consider its own version.

The Scottish Government could also look to further reform Land and Buildings Transaction Tax (LBTT), and the following options could be considered:

• Increasing LBTT rates for higher value properties, or new bands.
• The surcharge on second homes – the Additional Dwelling Supplement (ADS) – could also be increased from its current rate of 8%.
• Multiple Dwellings Relief could be reformed, with the equivalent relief for SDLT having been abolished by the UK government previously.

How we can help

For most homeowners, the impact of the UK budget was minimal, but landlords and owners of high-value properties should act early to understand their exposure and explore mitigation strategies. If you have questions about how these changes affect you – whether you are a landlord, investor, or homeowner – our property and tax specialists are here to help. Contact Nick.Dobbs@andersonstrathern.co.uk for support on this issue.