2025 UK Budget: What Landlords Need to Know

The Autumn 2025 UK Budget and the Office for Budget Responsibility’s (OBR) latest Economic and Fiscal Outlook have landed and landlords are firmly in the spotlight.

With new tax rises, regulatory tweaks, and a shifting economic landscape, it’s never been more important to understand how these changes affect your property business. Here’s your essential guide.

The Headline: Higher Taxes, Tighter Margins

The 2025 Budget is clear: landlords will pay more tax on rental income, and the government expects this to raise over half a billion per year. Here’s what’s changing:

1. Property Income Tax Rates Rise

From April 2027:

• Basic rate on property income: up to 22%

• Higher rate: up to 42%

• Additional rate: up to 47%

This is a 2 percentage point increase across the board for individuals holding property in their own name. If you’re a basic-rate taxpayer, you’ll see your tax bill rise. If you’re higher-rate, the impact is even greater.

What does this mean?

Your net rental returns will fall, especially if you have a mortgage or operate as a sole trader. Many landlords will look to pass on some of these costs to tenants, but with affordability already stretched, this isn’t always possible.

2. Dividend and Savings Tax Rates Up

If you receive income from dividends or savings (for example, if you own property through a company and pay yourself dividends), those rates also rise by 2 percentage points from April 2026.

3. High-Value Property Surcharge (“Mansion Tax”)

From April 2028, a new annual council tax surcharge applies to properties valued over £2 million:

• £2–2.5m: £2,500/year

• £2.5–5m: £5,000/year

• £5m+: £7,500/year

  
  

This is payable by the owner, not the occupier. If you let out high-value properties, this is a direct hit to your bottom line.

4. Income Tax Thresholds Frozen

Personal tax thresholds are now frozen until 2031. As rents and other income rise, more landlords will be dragged into higher tax bands,

a phenomenon known as “fiscal drag”.

5. Writing Down Allowance Cut

From April 2026, the main rate for writing down allowances (tax relief on certain capital expenditures) falls from 18% to 14%. This means less tax relief for landlords investing in property improvements.

The Wider Economic Picture

The OBR’s Economic and Fiscal Outlook paints a challenging backdrop:

• Growth is modest: GDP growth is forecast at 1.5% in 2025, then steady at 1.4–1.5% per year.

• Inflation remains sticky: CPI inflation is expected to be 3.5% in 2025, only returning to the 2% target in 2027.

• Interest rates and mortgage costs: Average mortgage rates are expected to rise to 5% by 2029, putting further pressure on landlords with borrowing.

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What Does This Mean for Landlords?

1. Squeezed Profits

With higher taxes, frozen thresholds, and rising costs, landlord margins are under pressure. The OBR specifically warns that “successive eroding of private landlord returns will likely reduce the supply of rental property over the longer run. This risks a steady long-term rise in rents if demand outstrips supply.”

2. Pressure to Raise Rents

Many landlords will try to pass on some of the extra costs to tenants. However, with affordability already stretched, this may not always be possible, especially in areas with rent controls or high competition.

3. Professionalisation of the Sector

The environment is becoming less hospitable for “accidental” or small-scale landlords. Expect to see more landlords incorporating (though this has its own tax and compliance complexities) or exiting the market altogether, with larger, more professional operators taking a bigger share.

4. Regulatory Compliance

The Renters’ Rights Act and expanded local licensing schemes are increasing compliance costs and regulatory burdens. Staying on top of these changes is essential to avoid fines and legal issues.

Practical Steps for Landlords

• Review your portfolio: Assess the impact of higher taxes and compliance costs on your profitability.

• Consider incorporation: Some landlords may benefit from holding properties in a company structure, but seek professional advice.

• Plan for rent reviews: If you need to increase rents, communicate clearly with tenants and document your reasoning.

• Stay informed: Keep up to date with local licensing, Renters’ Rights Act changes, and HMRC guidance on Making Tax Digital (quarterly reporting for landlords with income over £50,000 starts in 2026–27).

  
  

The Bottom Line

The 2025 UK Budget and OBR outlook signal a tougher environment for landlords. Higher taxes, more regulation, and a challenging economic backdrop mean that only the most efficient, well-informed landlords will thrive. If you’re considering your next move whether to expand, incorporate, or exit now is the time to review your strategy and seek expert advice.

Sources: HM Treasury Budget 2025, OBR Economic and Fiscal Outlook November 2025, industry analysis.