Major reform for Council Tax and Stamp Duty was left behind in the latest Budget, with landlords and those living in London and the South East bearing a disproportionate impact.
After months of speculation and abrupt U-turns, Chancellor Rachel Reeves has set out her strategy for finding the billions needed to narrow the country’s gaping £22 billion black hole.
But instead of radical reforms of Council Tax and Stamp Duty Land Tax, the Chancellor focused instead on landlords and the owners of some of the most expensive properties, subsequently missing a valuable opportunity to shake up embedded tax systems and foster property market movement.
Another blow to landlords
In recent years, increased regulation and legislation for the private rental sector have ensured that many smaller landlords have exited the market, creating greater scarcity in an already over-stretched market.
This scarcity is now likely to increase in the wake of the announcement that basic, higher and additional property income tax rates will be increased. Under the new policy, landlords’ rates will rise by 2% in each category, taking them to 22%, 42% and 47% respectively.
“Investors and landlords have been squeezed, squeezed and squeezed again. They’ve been hit from all angles with higher costs for borrowing, the Renters Reform policy and now higher taxes on rental income,” says Oliver Prior, National Commercial Director of Auction House.
“The increased pressure on viability will likely push more landlords out of the market, reducing supply and increasing rental rates. This will punish renters just as much as landlords.”
Mansion Tax is introduced
Although rumours circulated that Council Tax could receive a full overhaul in the Budget, it turned out that only the Mansion Tax speculations were confirmed.
Under the Chancellor’s plans, owners of properties valued at more than £2 million will now begin paying an annual tax, which will be paid in addition to their regular Council Tax bill.
In total, four price bands will be introduced, starting with an annual surcharge of £2,500 for properties valued at £2 million to £2.5 million. The highest band, for properties worth £5 million or more, will be charged £7,500. In total, this will affect around 100,000 properties.
“The Labour government is pursuing those with the broadest shoulders when it comes to paying increased tax,” commented Oliver Prior. “But the Mansion Tax will have a disproportionate effect, leading to stagnation at the top-end of the market, and in time, a correction at that level, which will stall any market development over £2 million.”
A missed opportunity
“Stamp Duty has long been seen as a barrier to movement,” commented Oliver Prior. “The Stamp Duty burden has grown over the years, meaning the barrier to move has increased considerably. It is therefore disappointing that the Chancellor has not seized the chance to improve liquidity in the market by lowering the burden on buyers.”
Oliver Prior is also disappointed to have not seen Council Tax marked out for full reform: “Council Tax has long been a challenge as the current bands are determined by property values from 1991. There has been a significant move in property prices, which have been disproportionate across the UK, meaning owners in higher-value regions are paying a similar rate of tax to those in significantly lower-value regions.
“By merely adding an additional surcharge to less than the top 1% of properties, the Chancellor ensures that this unwieldy and unfair system continues.”
Looking forward to 2026
“Market commentators are anticipating a December drop in base rate from the Bank of England, which Auction House welcomes,” said Oliver Prior. “Lower interest rates going into 2026 will stimulate the market, leading to heightened levels of activity.
“With further base rate reductions expected throughout Q1, and with the Budget uncertainty stabilised, stakeholders have a clearer investment roadmap, which will boost confidence and improve market sentiment. We therefore look forward to a prosperous 2026.”
