Budget 2025: Not Without Victims, but General Relief Felt by Most

After weeks of rumours, leaks, opinions and predictions, the Autumn Budget finally landed on Wednesday, and many felt… well, I suppose many did not know quite what to think.

There was a sense of anti-climax for most people – not least, perhaps, as the OBR managed to leak the thing an hour before Rachel Reeves even managed to stand at the despatch box, so by the time she gave us her speech, we’d already got used to it.

On a property front, some headline winners and losers – well, losers mainly. But limited. Owners of property above £2 million. Landlords, facing an extra 2% tax on income…

But after all the drama on the day itself, with so many leaping to voice their thoughts, drop their hot takes and, perhaps, grind their axes, I felt there were more questions to ask – particularly for Landlords and property investors. And so I have just taken a day or two to gather my thoughts, look in the right places, and come to you with a little more grounded analysis, having had the benefit of a little time to read through.

Here are some things that Landlords in London should be thinking about:

A New ‘Mansion Tax’ on £2m-plus Homes

One big talking point in property market terms was the introduction of a “mansion tax” – or, officially, a High Value Council Tax Surcharge, to be aimed at properties valued over £2 million, not to be brought in however until 2028.

Whilst it is not something that will affect the majority of local people, there are plenty of properties worth over the £2 million here in South London – and indeed, above the £5 million mark, which is where the next threshold is set to kick in.

Nobody wants to pay more tax. But realistically the entry-level surcharge of £2,500 extra a year is unlikely to be unmanageable by most people in this bracket. It is a nuisance, but surely not a nail in a coffin for most.

What is perhaps surprising is that the OBR expects this policy to raise only around £400 million. A very nice Euro-Millions win, no doubt, but a small sum in the context of national tax receipts.

To us, it felt more of a political move than a particularly practical one.

The question we had, which was not clearly answered on the day, was: who would pay it? This is because whilst hailed as a ‘tax on the rich’ by those who want to see such things, it was being brought in as something that would be collected through council tax charges – and council tax gets paid by the householder, not necessarily the owner – that is to say, by tenants, not by landlords.

We still don’t quite have the answer to that question, not in a way I am fully happy about; but what I can say is that all the language being used that we have been able to find – including language used by the Government and Treasury Department – is framing this as a charge that would be made to ‘owners’ of £2m+ properties. There is time for consultation on this before 2028, so I would not suggest this is fully set in stone – part of me, a cynical part perhaps, wonders if the Treasury actually thought this particular issue through as fully as they should do.

There is also to be consultation between now and then, about relief for people who might be asset rich but cash poor.

 

Landlords: a tweak to what we expected, but not a shock

Instead of taxing rental income through National Insurance, as we had more than half expected ourselves, the government has opted to raise the tax on property, dividend and savings income by 2%.

That took us a little by surprise, but when we thought about it, it did make some sense; it means being able to levy tax on landlords’ revenues without any consideration for Section 24 and relief on mortgage interest. Section 24 essentially shows that private landlords should be treated as individuals, not businesses – but introducing NI would mean the opposite – something that could have perhaps led to challenges.

What we did have a question over, and what really gave us pause for thought, and pause in bringing you those thoughts in the couple of days it has been since Rachel Reeves spoke, is the question of whether this new 2% tax applies to turnover or profits, in terms of rent received?

The answer to that one lies within this document here: Changes to tax rates for property, savings & dividend income - GOV.UK

And what it tells us, is that it will be a tax imposed on taxable profits only, not on turnover. A relief to landlords – a relative relief, at least.

In any case, though, for landlords it still does mean:

• Higher annual tax bills
• Tighter margins
• More pressure on already stretched profitability.

There are two or three likely outcomes we can foresee. Some landlords may decide to exit the market, already feeling the pressure of tighter margins and extra compliance from Renters Rights Act legislation. Another likely local outcome is that private landlords letting as individuals may look to form companies. And perhaps the strongest likelihood is that tenants will face higher rents, as landlords try to balance rising costs. We are already speaking to landlords about the higher costs that Renters Rights legislation will bring over the next few years, and the push to raise rents to true market values is already on; we suspect that extra costs to landlords by way of higher tax is going to be another reason for them to push rents up.

Ironically then, in the government’s push for fairness, tenants are likely to feel the greatest impact in terms of the extra costs to them each month. Especially over time. One thing that might also mean is greater numbers of challenges to rent increases made by tenants under the new tribunal system – a system that has yet not shown itself to be up to the task.

 

Something that will affect many local people: fiscal drag.

One other outcome from this Budget is what many had come to expect would happen when an increase to income tax was ruled out a couple of weeks before the Budget. That tax thresholds have been frozen again, for three years longer than planned, taking us into the next decade – enough time for more residents of South London to find their wages and salaries increase enough to be pushed into higher tax bands over those coming years.

It is essentially an income tax rise via the back door, set to raise £8 billion in tax receipts by 2029. This matters to tenants – and therefore landlords – as it means stretched affordability, and that can have a knock on effect on rent values, or on whether tenants fall foul of it and struggle to pay rent on time – or at all – as time moves on.

On the flip side, the increase to the national living wage (announced and confirmed before the Budget) is good news for many people, particularly those working in hospitality, as many tenants do.

In other words, there is a bit of take, but there has also been a little give.

What next for the South London lettings market?

What we think will happen now, is that we will get back down to business – thankfully.

The speculation is over; the fear of the unknown has passed; and as far as the local lettings market is concerned, this Budget hasn’t presented any really seismic changes.

Landlords will have worries, but as mentioned, increasing rents will offset a lot of any perceived financial loss. And of course, from 2028, there will be a significant number of people here in London who will face that extra High Value levy – the ‘Mansion Tax’, if we want to call it that. But the rumours had suggested it could come in from £500,000 upwards – not from £2,000,000! And besides, pushed back to 2028 as it is, means two things: firstly, that people will park it at the back of the minds for another 18 months; secondly, depending on economics and politics over the next three years, it could yet be either scrapped, or at least become a can that gets kicked down the road. The Chancellor has her new fiscal headroom, and perhaps that is all that matters for now, for the government. The ability to win some influential hearts and minds in a pre-election year by tweaking this particular proposal before it bites, warrants some thinking about.   

In any case, the Budget has happened at last, and the certainty and clarity that has already settled over the market – despite the sea of angry LinkedIn posts you might see out there – should help unlock decisions people had put on pause, which is good for any market sector.

As a personal, hands on South London Letting Agency, here at Your Home Managed we are glad to be able to at least give our landlords and tenants a little clarity at last.

If you have been waiting for the Budget before deciding what to do next, whatever that may have been, the good news is: you can now move ahead with confidence.