Budget 2025 - What It Really Means For You

Budget 2025

The Chancellor has delivered the Autumn Budget and the Treasury has now released the small print. The headlines talk about a “mansion tax”, landlords, and “closing loopholes”. Behind the slogans sit very real changes which will affect how you own property, run businesses, pass on wealth and extract profits.

Some measures start immediately; others phase in over the next two to three years. The planning window is short. This note explains, in plain English, what has actually changed and what you should be thinking about now.

1. The “mansion tax” in all but name: High Value Council Tax Surcharge

From April 2028 there will be a new annual charge on high-value homes in England, called the High Value Council Tax Surcharge.

It applies to owners, not occupiers. If you own a residential property in England worth £2 million or more, you will pay an extra fixed amount each year on top of your normal Council Tax. The current bands are as follows: properties valued between £2 million and £2.5 million will pay an extra £2,500 a year; between £2.5 million and £3.5 million the extra charge is £3,500; between £3.5 million and £5 million it is £5,000; and properties over £5 million will pay £7,500 a year.

The key date is not 2028, but 2026. The Valuation Office Agency will carry out a special valuation exercise using values as at 1 April 2026. That 2026 value will determine whether you are in the regime and which band you fall into, and it will drive the surcharge for years to come, subject only to periodic revaluations and appeals.

The practical question is whether, on that date, your property is worth £2 million or more. For London and South-East property, many “ordinary” family houses are now in range. There will inevitably be disputes around properties sitting just on or just below £2 million and the other thresholds. Evidence and valuation will matter.

What you should do now, if you are a high-end homeowner, is start to build a sensible file: survey reports, evidence of defects, rights of way, restrictive covenants, noise or nuisance issues, and recent comparable sales. That gives us a platform to challenge an excessive valuation if necessary.

2. Landlords: the new “super-tax” on property income

If you are an unincorporated landlord (owning property personally or in a partnership), Budget 2025 is unhelpful.

From 6 April 2027, property income will be taxed under its own rate schedule. The basic rate on property income will be 22 per cent, the higher rate 42 per cent and the additional rate 47 per cent. These are two percentage points higher than the rates that apply to salary or trading income.

The familiar restriction on mortgage interest continues. You will still not get full tax relief for your finance costs. Instead you receive only a basic rate credit. That basic rate will move up to 22 per cent, but the principle is unchanged: gross rent is pulled into tax at up to 47 per cent, and you only get a partial credit for your interest.

The combination of higher rates, frozen thresholds and restricted interest relief is particularly dangerous for highly geared portfolios. In the worst cases, the tax on your rental profit can come very close to, or even exceed, the cash left in your hand after paying the lender.

By contrast, companies are still taxed under the corporation tax regime, with the main rate held at 25 per cent. That does not make “put it all into a company” the automatic answer. Moving properties into a company brings Stamp Duty Land Tax, Capital Gains Tax, possible Annual Tax on Enveloped Dwellings and now much tougher anti-avoidance rules on share exchanges firmly into play.

The message for landlords is simple. Highly leveraged, interest-only buy-to-let held personally is moving from “tax inefficient” to “possibly uneconomic”. We need to review structure, debt levels, and, in some cases, whether the portfolio still makes sense at all.

3. Share exchanges and incorporations: the new trap

A quieter but very important change affects share-for-share exchanges and group reorganisations. This is the sort of structure often used to incorporate a property portfolio or to move assets around a group in a tax-neutral way.

From 26 November 2025, the government has tightened the Capital Gains Tax anti-avoidance rules which sit behind these “paper for paper” transactions. In short, HMRC now has wider powers to deny the normal deferral of gains where one of the main purposes of the transaction is to avoid or defer tax.

Previously, many advisers took comfort from small shareholdings or from a relatively narrow reading of the “main purpose” test. That comfort has largely gone. The focus is now on motive, not percentages. If the obvious driver is simply “we want to pay less tax”, HMRC is far more likely to refuse relief.

For clients thinking of incorporating a personally held property portfolio mainly to escape the new landlord rates, this is a red flag. Any such transaction now needs a genuine and well-documented commercial story: improved governance, bringing in partners or family members, preparing for sale, banking requirements or similar. Boiler-plate language will not be enough.

4. Capital Gains Tax: exits becoming more expensive

Budget 2025 continues the trend of making business exits more expensive.

The special lower Capital Gains Tax rate for qualifying business disposals, known as Business Asset Disposal Relief (formerly Entrepreneurs’ Relief), is being increased in stages. It has already risen from 10 per cent to 14 per cent. From April 2026, it will move again to 18 per cent. That brings it into line with the new general lower CGT rate. There is no longer a preferential 10 per cent business-exit rate.

The very popular route of selling into an Employee Ownership Trust has also been curtailed. For disposals on or after 26 November 2025, only half of the gain can be sheltered. The other half is fully taxable at normal CGT rates. The days of the entirely tax-free EOT exit are over.

For owner-managers contemplating a sale, or a handing-over of control to employees, these changes directly reduce after-tax proceeds. In some cases the answer will be to accelerate a transaction; in others to rethink structure or expectations. Either way, the numbers have changed and need to be re-run.

5. Inheritance Tax: new caps on Agricultural and Business Property Relief

Inheritance Tax on farms and family businesses is being reshaped in a way that will catch many more estates.

From 6 April 2026 there will be a new combined allowance of £1 million per estate for assets qualifying for 100 per cent Agricultural Property Relief or Business Property Relief. Above that £1 million, the relief will only be 50 per cent. In simple terms, the first £1 million of qualifying value can still be sheltered fully if the conditions are met; any value above that suffers an effective IHT rate of 20 per cent, instead of being completely relieved.

There is some ability to transfer unused allowance between spouses and civil partners, and certain trust structures have their own allowance. However, the broad point remains: substantial farms and trading businesses can no longer assume that the next generation will inherit entirely free of IHT.

This change pushes families towards a mix of life assurance, careful structuring of ownership between family members, pre-death value extraction and, for some, partial or staged sales. Leaving everything “as is” and hoping the reliefs will cover it all will no longer be a safe assumption.

6. Commercial property, business rates and capital allowances

Larger commercial properties are also in the line of fire.

Business rates for smaller retail, hospitality and leisure properties will be eased, but this is paid for by a higher multiplier for bigger warehouses and offices. If your premises have a rateable value above £500,000, your business rates bill is likely to rise under the new “high value” multiplier.

At the same time, the capital allowances regime – the rules which determine how quickly you get tax relief on plant and machinery – is being quietly tightened. A new, generous-looking 40 per cent first year allowance will be available on qualifying spend, but for expenditure that falls outside that regime the standard writing-down rate on the main pool will fall from 18 per cent to 14 per cent from April 2026.

This reduces the speed at which you can write off investment for tax purposes and therefore increases the long-term tax cost of owning and replacing equipment, fixtures and similar assets.

7. Dividends and Stamp Duty: more friction, one small giveaway

For private investors and owner-managers, dividend tax is nudged up again. From April 2026 the ordinary and upper dividend rates will rise by 2 percentage points to 10.75 per cent and 35.75 per cent. The already shrunken dividend allowance remains in place, but is now of limited practical use. More dividend income will be taxed and taxed more heavily.

There is, however, one genuinely positive measure. For companies newly listed on a UK regulated market, trades in their shares will benefit from a three-year exemption from Stamp Duty Reserve Tax. This slightly lowers the cost of raising and trading equity capital in the UK and is aimed at making London listings marginally more attractive.

8. What you should do now

The common thread in all these changes is that the cost of passively holding UK assets is rising. Wealth and income that used to sit comfortably within generous reliefs and lower rates are being pushed back into charge.

If you own one or more high-value homes in England, you should prepare for the 2026 valuation exercise now. Good evidence and valuations will give you a fighting chance of keeping yourself in the right band, or out of the regime entirely if appropriate.

If you are an unincorporated landlord, you should not wait until 2027. The question is whether your current mix of properties, debt and ownership structure still makes commercial sense at the new rates. That may mean de-gearing, selling weaker properties, or moving part of the portfolio into a corporate structure in a controlled way. Each case will turn on its own numbers.

If you are considering any incorporation, group reorganisation, sale to an Employee Ownership Trust or other share-based transaction, the new anti-avoidance rules and the higher CGT rates mean you need a firmer commercial story and careful documentation. Routine, “tax-only” schemes are now squarely in HMRC’s sights.

If you own a farm or trading business where the value of the agricultural or business assets is likely to exceed £1 million, you should quantify the likely IHT exposure under the new rules and consider insurance and structural options well in advance.

None of these decisions should be taken on a back-of-the-envelope basis. They require coordinated tax, legal and financial advice.

How we can help

Budget 2025 is more than a set of rate changes; it is a structural shift in how property, business and investment income are taxed in the UK.

At LEXeFISCAL LLP, our job is to make sure that HM Treasury is not the biggest beneficiary of your hard work.

If you would like a tailored Strategic Review of your position in light of these changes – whether as a landlord, homeowner, business owner or successor – please contact us:

Dr Clifford J Frank

LEXeFISCAL LLP

33 Cavendish Square London, W1G 0PW

Telephone: 0208 092 2111

Email: info@lexefiscal.com

Website: www.lexefiscal.com

“Tax is a statute, not a suggestion. We read the fine print, so you don’t have to.”#

Important notice

This briefing is a general summary of measures announced in Budget 2025 and related information available as at 28 November 2025. It is not legal or tax advice and should not be relied upon as such. Tax outcomes always depend on your specific circumstances and may change if the draft legislation is amended. Before taking, or refraining from taking, any action, you should seek professional advice. To discuss your position, please visit www.lexefiscal.com and arrange an appointment.

LEXeFISCAL_2025 Budget Memo.pdf

Download PDF • 86KB