Budget 2025 & the Mansion Tax: How New UK Property Taxes Will Hit Landlords and High-Value Homes
A new annual charge on £2m+ homes from 2028 and higher income tax on rental profits from 2027—what it means for yields, prime stock and portfolio strategy.
Executive Summary
Two major property tax changes coming into effect
The Mansion Tax (HVCTS)
New annual charge on homes in England valued at £2m+ (based on 2026 values), payable by owners in addition to council tax from April 2028.
Higher Rental Income Tax
From 6 April 2027, property income taxed at its own rates, all 2 percentage points higher than current levels.
Combined impact: HMRC estimates 2.4m landlords will pay more tax by 2029–30, while fewer than 1% of properties face the mansion tax. Together with the Renters' Rights Act 2025, this pushes many landlords to re-run the numbers on keeping, incorporating or selling stock.
What Actually Changed in Budget 2025
1The High Value Council Tax Surcharge ("mansion tax")
The HVCTS is a new annual charge on residential property in England worth £2m or more in 2026 values. It starts in April 2028 and sits on top of existing council tax—it doesn't replace current bands. The charge is payable by owners, not tenants, and social housing is excluded.
Annual Charge Bands
Values based on
2026 valuation
Revaluations every
5 years
Indexed from 2029 by
CPI
Government estimates HVCTS will raise ~£430m annually for local services. Commentary suggests the policy will be felt most in London and the South East, with around 160,000 homes initially in scope and mounting pressure on "asset-rich, cash-poor" retirees in prime areas.
2Higher Income Tax on Rental Profits
Budget 2025 created a separate tax schedule for property income. From 6 April 2027, rental profits are taxed at rates 2 percentage points higher than other income:
Before (2026/27)
After (2027/28 onwards)
Key mechanism: Property income is treated as a separate step in the income tax calculation, after other earned/trading income but before savings and dividends. Allowances and reliefs are used against other income first, then against property, savings and dividends—squeezing the scope to shelter rental profits.
Scale of impact: HMRC estimates around 2.4 million landlords will pay more tax by 2029–30. The measure raises over £2.2bn annually by 2028–29 across property, savings and dividend changes combined.
Who Is Actually Affected?
Prime & Super-Prime Owners
Mansion Tax (HVCTS)
Target group
Owners of £2m+ homes—including owner-occupiers and landlords, but not tenants
Coverage
Fewer than 1% of properties in England, concentrated in London & South East
Biggest pressure
"Asset-rich, cash-poor" households—older owners in long-held London houses now worth £2m+ but living on pension income
For landlords with £2m+ rental units, HVCTS becomes a fixed annual cost per property, largely unrelated to rent levels, feeding into rent expectations or sale decisions.
Everyday Landlords
Property Income Tax
Scope
Anyone with personal rental income above allowances—single-property "accidental" landlords and professional portfolio investors
Scale
HMRC expects 2.4m landlords paying higher tax by 2029–30
Company landlords
SPVs and REITs aren't hit by personal property rates but still face corporation tax and other measures
Basic-rate landlord with £10k profit pays £200 more/year. Higher-rate landlord with £25k profit pays £500 more/year.
Quick Impact Calculator
Property Income Tax Impact
Example: Basic rate landlord
Example: Higher rate landlord
Mansion Tax (HVCTS) Impact
+ normal council tax
+ normal council tax
+ normal council tax
+ normal council tax, indexed from 2029
Strategic Implications for Different Investor Types
Small / "Accidental" Landlords
Often personally owned, highly leveraged, sitting in basic or lower higher rate band. Tax changes from 2027 reduce take-home cash while RRA 2025 increases operational friction and risk.
Expect: Continued trickle of disposals, especially where capital values have risen and debt costs are high. Those who stay will professionalise: full-service management, tighter tenant selection, careful use of allowable expenses.
Professional Portfolio Landlords
Already more likely to use tax planning (company structures), but many still hold legacy stock personally. Higher property rates tilt the conversation further towards incorporation, though corporate structures bring their own costs and CGT issues.
Fenrir-style actions:
- •Segment the portfolio: which units belong in a company vs remaining personally held?
- •Model post-2027 cashflows including +2% property tax, rent growth under new rules, and refinancing dates
Prime & Super-Prime Investors
For investors with £2m+ homes, especially in London, HVCTS becomes a quasi-service charge from the state—a fixed, index-linked overhead. It reinforces a trend where prime investment is justified mainly by long-term capital preservation, not income.
Expect to see:
- •More disposal of marginally prime units (£2.0m–£2.5m rental houses) where yields look poor after HVCTS
- •Re-positioning of super-prime assets towards ultra-high-end letting where tenants can absorb higher headline rents
Corporate / Institutional PRS and BTR
Institutional investors are generally outside the personal property rate regime but caught by broader corporate and property taxes. Virtually no exposure to £2m+ HVCTS in standard BTR blocks where individual flats rarely reach £2m.
Key questions:
- •Will higher taxes on small landlords push more stock into professional PRS, creating acquisition opportunities?
- •Can they differentiate on stability and compliance, offering investors a clearer long-term ESG and regulatory story?
Practical Actions for Landlords and Investors
Over the next 24 months, Fenrir-type clients should be doing three things:
Run the numbers on 2027+ tax
Re-forecast rental portfolios with 22/42/47% property rates, applying allowances after other income as HMRC will. Identify which properties move from comfortable to marginal after the extra 2%.
Map exposure to £2m+ stock
List all assets that could be at or near £2m on 2026 valuations. Stress-test business plans with £2.5k–£7.5k per-year HVCTS and decide whether to hold, improve or exit.
Align with wider regulatory change
Integrate Budget 2025 tax changes into your Renters' Rights Act 2025 roadmap, particularly where you're already reviewing tenancies, leverage and asset strategies.
Think of this as building a "total tax + regulation" P&L for each property, not just a simple yield calculation.
What This Means in Plain Language
Budget 2025 didn't introduce NI on rent, but it did create a new, higher tax band just for rental income and a new annual charge on £2m+ homes.
For most landlords, the real story is the 2% rise in tax on rental profits from 2027.
For prime owners and some high-end landlords, the mansion tax from 2028 changes the equation on whether it's worth holding a £2m+ property long-term.
For Fenrir's clients, the winning approach is: Treat Budget 2025 as a structural shift in the tax baseline, not a one-off tweak. Rebuild your models from 2027 onwards and adjust strategy now.
Important note: This insight is general information only, based on published government guidance and reputable commentary as at 8 December 2025. It is not tax or legal advice. Landlords and investors should take advice on their specific circumstances from a qualified tax adviser.