Autumn Budget 2026 - what it means for real estate

The Budget 2026 contains a focused but important package of tax measures for UK real estate. The most significant developments for international capital are the proposed changes to the existing sovereign immunity framework. Domestic investors and occupiers also face changes to property income tax, capital allowances, VAT, SDLT and business rates.

1. Sovereign investors: the end of sovereign immunity for UK property

For the first time, the government will put the UK taxation of foreign sovereign investors on a statutory footing. A new “sovereign tax status” regime will replace the current practice-based exemption from UK direct tax from 1 January 2029. The government expects the main effect to be that sovereigns’ returns from directly held UK real estate become taxable for the first time.

• What becomes taxable: income from UK land, gains on disposals of UK land held directly and of interests in UK property-rich vehicles, and UK trading income. Sovereign entities will be taxed broadly as non-resident companies, so they pay corporation tax.
• What stays exempt: UK-source interest, and profits of UK investment offices managing the sovereign’s own portfolio. Dividends from UK companies generally remain untaxed, as for other non-residents. A new category of state-operated overseas pension funds will also be exempt from tax on chargeable gains.
• REIT access: sovereigns will continue to qualify for institutional investor status for REITs and most fund regimes. They will also be able to invest in a UK REIT through a new optional “sovereign REIT holding company”, which will pay 15% corporation tax on the gross amount of property income distributions with no deductions.
• Transitional support: assets newly brought into the charge to tax on gains will be rebased to market value at 1 January 2029. A time-limited stamp duty land tax (SDLT) relief for restructuring existing holdings is planned to apply from 2028 until at least 31 December 2030. It will cover property in England and Northern Ireland only, and relief will be clawed back if the acquiring entity changes control within three years. There will also be targeted relief from the debt and derivatives anti-avoidance rules for restructuring finance.
• Compliance: sovereigns will need to apply to HMRC for the new status, including those who already benefit from the exemption. They may fall within the Non-Resident Landlord Scheme. Jurisdictional immunity will be removed for these tax liabilities.

Practical implications: sovereign wealth funds and state-owned investors with UK property investments should begin modelling post-2029 returns now. They should also review their holding structures (in particular, whether a corporate or REIT structure makes sense) and plan any restructuring to fall within the SDLT relief window. Advice should be taken in relation to existing structures which rely on investment from sovereign immune investors to achieve a particular tax treatment. The consultation closes on 20 January 2027, and legislation is expected in Finance Bill 2027-28.

2. Property income tax rates rise by a further 2%

The Autumn Budget 2025 had already introduced separate property income tax rates from April 2027, 2% above the main rates. Announcements at the Autumn Budget 2026 adds a further 2% from the same date. From 6 April 2027, the property rates of income tax will be:

• 24% basic rate
• 44% higher rate
• 49% additional rate

These rates apply in England, Wales and Northern Ireland, and the devolved governments of Scotland and Wales can set their own property income rates. Savings income tax rates are being raised in exactly the same way (24%, 44% and 49%, UK-wide), so property and savings income will be treated alike. The government estimates that 84% of income taxpayers will be unaffected.

Practical implications: individual landlords, partnerships and other unincorporated property businesses face a meaningfully higher tax bill from 2027-28. Companies are not affected, because they pay corporation tax. Investors may want to revisit the relative merits of holding property personally or through a company, and the timing of income. Any restructuring should be weighed carefully against SDLT and capital gains tax costs. The increases also apply to withholding tax rates on property income distributions from REITs.

3. Capital allowances

• Main rate first-year allowance rises from 40% to 50% for expenditure incurred on or after 1 January 2027.
• Main rate writing-down allowance falls by 2% to 12% from 1 April 2027 (corporation tax) and 6 April 2027 (income tax). The government confirmed that full expensing stays in place.
• Leasing anti-avoidance (lease and leaseback): from 28 October 2026, the statutory definition of a finance lease will be widened for lease and leaseback arrangements, so that the anti-avoidance rules apply whether the lessee has a finance lease or a “right-of-use” lease.
• Pre-development costs: following consultation, HMRC will look at clarifying its guidance on how existing capital allowances rules apply to pre-development costs. No change to the law has been announced.

Practical implications: property owners with large existing pools of plant and machinery expenditure will get relief more slowly, while new qualifying spend becomes more attractive upfront. Businesses with planned refurbishment or fit-out spend should consider timing it around 1 January 2027. Businesses that have used, or are considering, sale or lease and leaseback arrangements over plant should review their position.

4. VAT zero rate on land sold to social housing providers

A new zero rate of VAT will apply to sales of land to registered providers of social housing (relevant housing associations) from 1 April 2027, introduced by secondary legislation in early 2027. The aim is to speed up the building of social housing. It sits alongside £1.5 billion of extra funding for around 10,000 social and affordable homes in England.

Practical implications: many transactions require specific structuring to ensure VAT recovery, so taking VAT off land acquisitions should improve the economics of their schemes. Landowners and developers selling to housing associations should check how the change interacts with any option to tax and with their own VAT recovery, and should watch for the detailed conditions when the secondary legislation is published.

5. Stamp duty land tax

• Group relief: from 29 October 2026, winding up the vendor company will no longer stop group relief being clawed back if the purchasing company leaves the group within the usual three years (property in England and Northern Ireland).
• Assured tenancies: following the Renters’ Rights Act 2025, SDLT on the rent element of assured tenancies in England has been removed, along with the requirement to file an SDLT return solely because rent is payable under one, with effect from 1 May 2026.
• Local Government Pension Scheme: a new relief will apply to acquisitions of land and property by LGPS asset pool companies from LGPS member funds, for transactions with an effective date from 28 October 2026 and before 1 April 2032.

Practical implications: intra-group reorganisations that relied on the vendor being wound up should be revisited. Residential landlords benefit from less administration. LGPS pooling transactions can now go ahead without an SDLT cost.

6. Business rates and the high value council tax surcharge

• Retail, hospitality and leisure (England): from April 2027, the Small Business Rates Relief thresholds rise to £18,000 rateable value for 100% relief and £21,000 for tapered relief. Bill increases for qualifying properties will also be capped at CPI inflation in 2027-28 and 2028-29. Relief for pubs, social clubs and most live music venues rises to 35%.
• Other changes: the 1p Transitional Relief Supplement is extended for two years. Valuation Tribunal appeal fees are abolished, and fees already paid for appeals on the 2026 list will be refunded. Vape shops and adult gaming centres lose access to the retail, hospitality and leisure multipliers, and vape shops also lose Small Business Rates Relief. A general anti-avoidance rule for business rates will follow consultation. There is also a 10-year 100% relief for eligible EV charge points and EV-only forecourts, and the government will engage with businesses on incentives to reoccupy empty property.
• High value council tax surcharge: as announced at the Autumn Budget 2025 an additional charge on residential properties in England worth £2 million or more will take effect from April 2028. Announcements at the Autumn Budget 2026 confirm that the surcharge will come with a deferral scheme, discounts and exemptions, and a 100% premium on properties left empty and unoccupied for 12 months or more.

Practical implications: landlords of retail, hospitality and leisure assets should see improved tenant affordability, but owners of empty or avoidance-sensitive properties face tighter scrutiny. Owners of high-value homes, including investors with residential portfolios, should start assessing their exposure ahead of 2028.

7. Non-resident capital gains tax: late filing penalties

From 28 October 2026 (i.e. Budget Day 2026), late filing penalties for failing to submit a UK property disposal return for a residential property disposal will stop accruing once the disposal is reported on the person’s self-assessment return. This is a welcome easing, but the underlying reporting deadline is unchanged, so prompt filing remains essential.

Other measures to note

• Annual tax on enveloped dwellings: annual charges rise by 3.5% from 1 April 2027.
• Transparency and data: the UK will join a new OECD international agreement to automatically exchange information on real estate from 2029-30. HMRC is also consulting on expanded third-party reporting of property income.
• Housing and planning: the new £4.7 billion “Your First Home” equity loan scheme (participating developers will make a contribution). Residential brownfield sites of up to 1.5 hectares will be exempt from Biodiversity Net Gain, and there will be no major changes to building regulations for the rest of this Parliament.