This year's Budget delivers some of the most significant tax changes to affect London homeowners and landlords in more than a decade.
With a new “mansion tax”-style surcharge confirmed and higher tax rates on property income now scheduled, both buyers and sellers across the capital are reassessing their plans for 2026 and beyond.
At Winkworth, our focus is helping Londoners understand how these reforms may shape the market in the short and long term. Below, we break down the confirmed changes — and what they could mean for property owners, investors and prospective buyers.
Budget 2025: Chancellor Confirms a ‘Mansion Tax’ & Higher Property Income Tax Rates
After months of leaks and speculation — including an early release of the OBR report — the Chancellor has confirmed sweeping reforms impacting high-value homeowners and landlords.
1. A “Mansion Tax” in the Form of a Council Tax Surcharge
Starting April 2028, high-value homes will face an additional annual levy on top of normal Council Tax.
Who will pay?
Properties over £2 million (based on 2026 valuations) will fall into four surcharge bands:
|
Property Value (2026 prices) |
Annual Surcharge |
|
£2m – £2.5m |
£2,500 |
|
£2.5m – £3.5m |
rising scale |
|
£3.5m – £5m |
rising scale |
|
£5m+ |
£7,500 |
Charges will be uprated by CPI inflation each year.
Roughly 100,000 homes are expected to be affected — the vast majority in London and the South East.
Market effect:
- Likely price clustering just below each band.
- Fewer transactions at the top end.
- Lower SDLT and CGT receipts in the short term.
- Long-term cost to Treasury before revenue turns positive around 2028-29.
The measure is expected to generate £400m per year, but not immediately.
2. Higher Tax Rates on Property Income from 2027
From April 2027, landlords will pay two percentage points more on income from property, savings and dividends.
New rates:
- Basic rate: 22%
- Higher rate: 42%
- Additional rate: 47%
The OBR estimates this will raise £500m a year, but warns continued erosion of landlord returns could reduce rental supply — potentially pushing rents higher if demand outpaces availability.
3. Other Relevant Tax Measures
The Budget also confirmed a series of smaller tax amendments likely to affect higher-value London homeowners:
- Continued freeze on income tax thresholds
- National Insurance charges on certain pension salary-sacrifice contributions
- Reduced CGT relief for employee ownership trusts
- New pay-per-mile charges for EVs
- Additional levies on gambling
While none directly target property, the broader fiscal tightening will influence household budgets and may shape market sentiment in early 2026.
What This Means for London’s Property Market
Short Term (Next 6 Months)
- Some owners of £2m+ homes may bring forward selling plans before valuations update in 2026.
- A period of “wait and see” behaviour likely as clarity settles.
- Investor confidence may soften as landlords factor in future tax rises.
Medium Term (2026–2028)
- Homes valued just under surcharge thresholds may become highly competitive, driving a clustering effect.
- Landlords may reassess portfolio viability, potentially reducing rental supply.
- A tighter rental market may put upward pressure on rents, particularly in high-demand central locations.
Long Term (2028 onward)
- The surcharge will become a baked-in annual cost of owning large London homes — similar to wealth-based levies seen in global cities.
- London’s top-end market may experience a small but sustained softening in prices unless offset by strong international demand.
- Families and downsizers may increasingly look to optimise property values below band thresholds.
Winkworth’s View: Clarity Creates Opportunity
While the headline measures are significant, they represent clearer terms after many months of uncertainty. Historically, London’s prime and upper-mid markets have shown remarkable resilience once the rules are known.
For those considering selling, buying or restructuring investments, the coming months could offer strategic advantages — particularly before the 2026 valuation reset.
Our experts across London are on hand to provide personalised guidance, tailored valuations and strategic advice in light of the new tax environment.
Source: Primeresi & OBR
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