UK government tightens property market with tax hikes

Starting October 31, the surcharge on second home purchases will increase from 3% to 5%. Additionally, the stamp duty land tax relief for first-time buyers, introduced by the previous government, will be phased out by April 2025.

In her budget speech, Reeves also announced that, from April 2026, agricultural and business properties exceeding £1 mln will face an effective tax rate of 50%. While the current £325,000 inheritance tax threshold will remain in place until at least 2030, the overall inheritance tax rate will stay at 40%.

The government has allocated £3.1 bn to affordable housing, bringing the total government spending on housing supply to over £5 bn, aiming to deliver tens of thousands of new homes. To support small businesses and the BTR sector, the government will allocate £3 bn through expanded housing guarantee schemes.

From 2026-27, retail, hospitality, and leisure properties will benefit from lower tax rates, funded by a higher multiplier for valuable properties, including online retailer warehouses.

The Chancellor also announced plans to reduce ‘Right to Buy’ discounts for council house purchases, using the additional funds to invest in housing development. Furthermore, she committed to providing above-inflation social housing rents for the next five years to incentivize continued construction.

Finally, the government will abolish the non-domiciled tax regime from April 2025, replacing it with a residency-based system.

Jennet Siebrits, head of UK Research at CBRE, said: ‘The increased taxes will provide much-needed funds to support growth, with a focus on industries of the future, new housing stock, and retrofitting key sites across the country. Despite the retained Capital Gains Tax of 24% on residential properties, the increases to Stamp Duty Land Tax on second homes is material, with a further £6,000 payable on a £300,000 second property immediately. This additional charge will act as a disincentive for would-be landlords to enter the market, which could feed through to the supply of new homes.’

Keith Cooney, head of Business Rates, Knight Frank, commented: ‘The Chancellor has cut the business relief for retail, leisure, and hospitality from 75% to 40% albeit retaining the cap of £110,000 per business. Moreover, the move to fund a reduction in the multiplier for retail, leisure, and hospitality from 2026/7 with a higher rate targeting warehouses is shortsighted as the Government is effectively taxing the infrastructure that these businesses rely on to move goods to their premises and directly to the consumer.’

Melanie Leech, CEO, British Property Federation, underlined: ‘Measures to support the delivery of more homes are welcome but the Chancellor knows that much more is needed if the Government is to deliver on its 1.5 million homes pledge. The promised housing strategy needs to be much bolder and go much further. This includes unlocking the billions of pounds of investment into the build-to-rent sector, so it is particularly disappointing that Rachel Reeves did not take the opportunity to reverse the previous Government’s decision to abolish multiple dwellings relief announced in Spring.’

Honor Barratt, CEO of Birchgrove, said: ‘We welcome the government’s commitment to increasing housebuilding and its investment in affordable housing. We would like to see a requirement that a minimum percentage of new housebuilding activity – and we suggest 10% – is in the form of integrated retirement communities (IRCs), in a similar way there are targets for affordable housing. The government has a target to build 1.5 million new homes, so we would hope that 150,000 of these homes would be in IRCs.’

James Dickens, MD of Wavensmere Homes, commented: ‘The £500 million fund for an initial 5,000 extra council houses is certainly needed. However, Angela Rayner’s broader ‘£1 billion council housing revolution’ could play into the hands of the increasingly powerful land-rich PLC housebuilders. Meanwhile, planning and pre-construction issues continue to negatively affect the supply of new homes, with as few as 135,000 expected to be built this year. Constructing 300,000 new homes per year remains a pipedream.’

James Barrett, head of Affordable Housing at BNP Paribas Real Estate, added: ‘The boost to the Affordable Homes Programme is a welcome relief, especially for registered providers reliant on continuous market engagement. However, it’s a temporary measure. The sector’s real need lies in clarity for post-2026 funding—details we won’t see until the Spring spending review. Only with a well-funded, new programme can we realistically ramp up social rent delivery to meet demand.’

Steve Griffiths, CCO at The Mortgage Lender, a specialist lender, commented: ‘Very little was announced by the Chancellor in the Autumn Budget that would have given first-time buyers reassurance that their journey onto the property ladder is going to get better soon. What was missing from the Budget were announcements that would support first-time buyers saving to get onto the ladder today. Affordability is one of the biggest challenges in the market and more needs to be done to support first-time buyers save for their first deposit.’