As you will no doubt be aware, the Government’s 26th November Budget introduced several measures that have significant implications for property investors and company directors. While the property sector avoided some of the more extreme proposals that had been rumoured, there are still important changes that organisations and landlords should prepare for. Below is a summary of the key points.
No National Insurance on Rental Income
There had been considerable speculation that National Insurance contributions might be extended to rental income. Fortunately, this measure did not appear in the final Budget.
2% Increase in Income Tax on Property Income (from April 2027)
Although the property sector escaped the harshest outcomes, the Budget did include a notable tax rise for individuals holding property personally.
Rental income will move to separate tax bands, with each £1 of taxable rental profit attracting an additional 2% tax.
A new set of landlord-specific tax bands will apply:
- 22% basic rate
- 42% higher rate
- 47% additional rate
This is particularly impactful given the existing pressures from Section 24, which already limits relief for individual landlords.
Properties held within limited companies will not face this new structure, though corporation tax will continue to apply.
2% Increase to Dividend and Savings Tax Rates (from April 2027)
This change will directly affect incorporated landlords and company directors. Dividend and savings income will become more expensive, potentially influencing how businesses structure remuneration and profit extraction.
Dividend tax increases:
- Ordinary rate: 8.75% → 10.75%
- Upper rate: 33.75% → 35.75% (from April 2026)
- Additional rate: remains 39.35%
Savings income tax increases:
- Basic rate: 20% → 22%
- Higher rate: 40% → 42%
- Additional rate: 45% → 47% (from April 2027)
These changes indicate a continued shift toward encouraging directors to take PAYE-based remuneration rather than relying on dividends, which have traditionally offered greater flexibility and tax efficiency.
From our perspective, the newly announced measures are likely to reduce the overall attractiveness of savings, place additional pressure on small and medium-sized businesses, and potentially contribute to slower economic growth. The cumulative effect may make entrepreneurial activity less appealing relative to traditional employment, given the narrowing difference in taxation outcomes.
Introduction of a “Mansion Tax” for Properties Over £2m
Although this measure will only affect a limited number of landlords, it nonetheless represents an additional financial burden.
Our primary concern is that this tax will disproportionately impact London and the South East, where high property values do not always correlate with high income or liquidity. Inherited properties, in particular, may force families to sell due to affordability pressures.
The new levy mirrors council tax bands F, G and H, but revenue will go directly to the Treasury rather than local authorities. Importantly, the valuation thresholds are still based on 1991 property data.
The charges are as follows:
- £2m–£2.5m: £2,500
- £2.5m–£3.5m: £3,500
- £3.5m–£5m: £5,000
- £5m+ : £7,500
This raises a broader question: could similar taxes be extended to lower-value properties in the future?
Overnight Levy for Short-Term and Holiday Lets
Local councils and elected mayors will now have the authority to introduce a “tourist tax” on short-term accommodation, including serviced accommodation and Airbnb-style lets.
Operators in this sector should monitor developments closely, as this could materially affect profitability and pricing strategies.
Broader Implications
It is increasingly difficult to identify clear beneficiaries from these changes beyond households receiving child benefit or those on lower incomes. The wider business community may find these measures discouraging, particularly at a time when stimulating private enterprise would support economic growth.
From a property standpoint, the pace of regulatory and fiscal change—combined with the Renters’ Rights Act—may cause some landlords, especially unincorporated ones, to reassess their position.
However, increased professionalism within the sector may ultimately strengthen its resilience. Well-managed portfolios should continue to perform, and responsible landlords are likely to navigate these adjustments successfully.
Furthermore, the rise in ex-rental stock coming to market presents opportunities for proactive investors. Reduced supply in the rental sector is still likely to push rents upward, given sustained demand.
Despite current challenges, the property investment community has a long history of adaptability. We expect the next 12 months to present both challenges and significant opportunities for those prepared to act strategically.
