The Autumn Budget 2025 included significant headline measures and a raft of technical changes. The impact on the real estate sector is not as significant as may have been feared. However, a number of measures – some perhaps buried in the detail – have an impact on the taxation of real estate or are relevant to those operating in the sector.
An overview of the key real estate tax measures announced relevant to investors, as well as individuals and homeowners, is set out below.
- New main rate of writing-down allowances and new first year allowance;
- Increase in the income tax rates for individual property investors and the REIT withholding tax;
- Inclusion of further measures to “tackle fraud” in the CIS (including HMRC’s ability to remove gross payment status);
- Update on advance tax certainty for major projects;
- Consultation on VAT rules relating to the development of land intended for social housing;
- Levy on higher education providers’ income;
- Power for mayors to introduce overnight visitor levy;
- Release of business rates consultation and multipliers;
- Amending the time limit for relief from the annual tax on enveloped dwellings (ATED);
- Introduction of a “mansion tax” – new High Value Council Tax Surcharge (HVCTS).
New main rate of writing-down allowances and new first year allowance
The rate of writing-down allowances is to be reduced from 18% to 14%. This will have effect:
- From 1 April 2026 for businesses within the charge to corporation tax;
- From 6 April 2026 for businesses within the charge to income tax.
For businesses whose chargeable period spans those dates, a hybrid rate will have effect, based upon the proportion of a chargeable period falling before the change date and the corresponding proportion falling after the change date.
A new rate of first year allowance of 40% will be increased for main rate expenditure. This will apply to expenditure which does not qualify for full expensing and the £1 million annual investment allowance. The new first year allowance will be available for expenditure incurred from 1 January 2026. Notably, the new 40% allowance will not apply to the acquisition of second hand assets so will not apply to the acquisition of an existing building.
Increase in the income tax rates for individual property investors and the REIT withholding tax
From April 2027 the tax rate for property income received by individuals will be increased by 2% across all bands. Therefore:
- The property basic rate will be 22%;
- The property higher rate will be 42%;
- The property additional rate will be 47%.
The rate of withholding tax which a REIT must apply to distributions of property income (PIDs) is based on the basic rate of income tax (currently 20%). HMRC have confirmed the REIT rules will be amended so that from April 2027 the withholding tax on PIDs will be based on the 22% rate of income tax applicable to property income.
To the extent individual shareholders are higher rate or additional rate taxpayers they will also be liable for income tax on PIDs based on the higher property income tax rates.
Inclusion of further measures to “tackle fraud” in the CIS (including HMRC’s ability to remove gross payment status)
From 6 April 2026, HMRC’s powers to remove gross payment status will be expanded. HMRC will be able to take the following actions where a business makes or receives a payment that it knew or should have known was connected to fraud:
- Immediate cancellation of gross payment status for sub-contractors;
- Assess the business for the related tax loss;
- Charge a penalty of 30%, which can apply to the business or its officers.
Where gross payment status is removed immediately due to fraud or serious non-compliance, it will not be possible to reapply for gross payment status for a period of 5 years.
Update on advance tax certainty for major projects
The Government published its consultation outcome on the Advance Tax Certainty Service, expected to launch in July 2026. The service will enable taxpayers to obtain confirmation of the application of certain tax rules to their project and so is significantly wider than existing clearance services. It is confirmed that projects must meet a £1 billion lifetime in-scope spend threshold, assessed on UK project expenditure excluding financing costs and acquisitions of ownership interests.
Further detail of the new service was released, including:
- Applications may be made by both UK and non-UK resident entities;
- Clearances can accommodate entities not yet incorporated;
- Clearances can remain effective on change of ownership;
- The service will cover issues relating to corporation tax, VAT, stamp taxes, PAYE and the Construction Industry Scheme. It will not provide clearances on transfer pricing, asset valuations, purpose based tests (e.g., unallowable purpose), or hypothetical scenarios;
- No fee will apply at launch, but this will reviewed along with the £1 billion threshold.
Consultation on VAT rules relating to the development of land intended for social housing
It has been announced that the Government will shortly consult on the reform of VAT rules to incentivise the development of land intended for social housing.
Levy on higher education providers’ income
The Government has confirmed it will be introducing a levy on higher education providers’ income from international students of £925 per student per year, starting in August 2028. The tax is widely expected to be passed on to international student fees, which may cause an impact on the PBSA sector.
Power for mayors to introduce overnight visitor levy
On the day before the Budget, the Secretary of State for Housing, Communities and Local Government announced that English mayors will receive a new power to raise levies on overnight visitors.
A consultation has been released, which intends to seek views on the design of the new authority to raise a levy, including in relation to the scope of the levy and its rate.
Business rates consultation and multipliers
The Treasury has released a Call for Evidence on business rates reform. This seeks input on several items, including:
- Moving to a marginal rate system, where successive bands are taxed at increasing rates;
- The overall role business rates play in investment;
- The impact the receipts and expenditure (R&E) methodology has on investment decisions.
The Government has also outlined:
- The business rates multipliers for 2026-2027;
- A regional breakdown of the properties in scope of the retail, hospitality and leisure and high-value multipliers coming into force from 1 April 2026.
Amending the time limit for relief from the annual tax on enveloped dwellings (ATED)
The Government announced that it will amend the ATED legislation to ensure that relief can be claimed in an initial ATED return for any chargeable period for a residential property held for a qualifying commercial purpose. This will include relief claims within late returns (late returns will remain subject to late filing penalties). This will be beneficial where the need for ATED filings and relief claims has been overlooked.
Update on automatic exchange of information on real estate
The Government confirmed that the UK will participate in a new international agreement providing for automatic exchange of information between tax authorities in relation to real estate holdings, acquisitions, disposals and recurrent income. The UK already participates in international agreements relating to the automatic exchange of information relating to financial assets (the CRS and FATCA) and cryptocurrency and digital assets (the CARF).
Introduction of a “mansion tax” – New High Value Council Tax Surcharge (HVCTS)
The anticipated “mansion tax” has been announced – the new High Value Council Tax Surcharge (HVCTS) will be imposed on owners of residential property in England whose properties are valued at £2 million or more. It is expected to take effect in April 2028, and a consultation on details relating to the surcharge is expected in early 2026. Please find our private client tax team’s more detailed article on this measure here: Autumn Budget 2025 – changes related to property taxation for private clients.
In summary, on the details released so far:
- HVCTS will apply to homeowners, rather than occupiers, and the surcharge will be levied along existing Council Tax obligations;
- The Valuation Office will conduct a targeted valuation exercise to identify properties above £2 million, with HVCTS charged on the owners of properties within scope based on 2026 valuations;
- Revaluations are expected to be conducted every five years;
- The surcharge starts at £2,500 for properties valued at between £2 million and £2.5 million, with the highest rate of surcharge at £7,500 for properties valued above £5 million;
- The Government also plans to consult on possible reliefs and exemptions from HVCTS, specifically in respect of the impact HVCTS may have for more complex ownership structures including companies, funds, trusts and partnerships.
It is not clear whether a sale of a property will give rise to an instant revaluation and we would expect this to be addressed in the consultation. If a sale will trigger an instant revaluation the fact that the surcharge is based on fixed bands could impact on transaction pricing, as was previously seen in the SDLT context prior to the introduction of the current “slice” system.
Please reach out to our Key Contacts, or your usual CMS Tax contact, if you would like to discuss any of the above further.
