The property sector entered this year’s Budget looking for certainty.
Developers wanted planning reform and a simpler route to bringing forward new housing. Investors were seeking confidence that long-term investment would continue to be supported. Landlords, meanwhile, were hoping for recognition of the increasingly important role the private rented sector plays in meeting housing demand.
Whilst the Budget contains some positive measures for housing delivery and development, it is likely to receive a more mixed reception from private landlords.
Planning Reform and Housing Supply Remain Front and Centre
Long before Budget Day, the Government had made clear that increasing housing delivery was one of its key priorities.
That commitment has been reinforced by a series of measures designed to accelerate development, including further planning reform, additional infrastructure investment and a £1.5 billion boost to affordable and social housing programmes.
The Government has also committed to reducing obstacles to development, including exempting certain smaller brownfield residential sites from Biodiversity Net Gain requirements and providing further support for regeneration projects across the country.
For developers, these measures are likely to be viewed positively. Planning delays and costs have arguably represented greater barriers to growth in recent years than taxation alone.
The real test, however, will be whether these reforms translate into homes being delivered more quickly on the ground.
Support for Housebuilding
Alongside planning measures, the Budget contains further support aimed at stimulating housing delivery.
Additional investment in affordable housing, support for first-time buyers through the new “Your First Home” scheme and measures intended to unlock development land all point towards a clear policy objective of increasing supply.
The Budget also introduced a VAT zero rate for land sold to registered providers of social housing from April 2027. The measure is intended to reduce development costs within the affordable housing sector and support the delivery of additional housing stock. Whilst the practical impact will depend on how widely the relief is utilised, it is one of the more targeted property tax measures announced in the Budget and is likely to be welcomed by those operating within the affordable housing sector.
Taken together, these measures can be viewed as a welcome signal that residential development remains central to the UK’s wider economic growth strategy.
Commercial Property and Business Occupiers
The Budget also contains a number of measures relevant to commercial property owners and occupiers.
The Government has confirmed further business rates support for smaller businesses, alongside wider reforms intended to improve the operation of the business rates system. Whilst the long-term effectiveness of these measures remains to be seen, they will be welcomed by many occupiers continuing to face cost pressures.
The Budget also included changes to capital allowances for plant & machinery, which includes items such as electrical systems, plumbing etc in buildings. The first-year allowance has been increased from 40% to 50%, allowing businesses to obtain tax relief more quickly on qualifying expenditure. At the same time, the writing down allowance rate for special rate expenditure will reduce from 14% to 12%, slowing the rate at which relief is obtained for expenditure that does not qualify for first-year allowances.
The practical benefit of these changes will depend significantly on the nature of the property business and the assets being acquired. Many owner-occupied trading businesses will continue to obtain 100% relief through the Annual Investment Allowance or Full Expensing regime, meaning the changes may have limited practical impact where those reliefs remain available.
However, the position is often very different for property investors. Businesses holding commercial property investments, structures involving the leasing of plant and machinery and certain property investment activities can find themselves outside some of the more generous relief regimes available to trading businesses. For those taxpayers, the increase in the first-year allowance could provide a more meaningful acceleration of tax relief on qualifying expenditure.
As a result, the announcement is likely to be of greater interest to certain commercial property investors and developers than to many trading businesses, which may already have access to more generous relief through existing capital allowance regimes. Careful identification of qualifying expenditure remains essential to maximise the value of available reliefs.
A Difficult Budget for Landlords
However, the picture looks very different for individual landlords.
The headline tax measure for the sector is the further increase in property income tax rates for individuals from April 2027. Rental profits will be subject to rates of 24%, 44% and 49%, representing a further increase in the tax burden on personally held property investment.
This comes after a prolonged period during which landlords have faced:
• Higher borrowing costs;
• Restrictions on finance cost relief;
• Increased compliance obligations;
• Renters’ Rights reforms; and
• Rising maintenance and operating costs.
At a time when demand for rented accommodation remains exceptionally strong across many parts of the UK, increased taxation risks further reducing the attractiveness of residential property investment by individuals.
Could This Reduce Rental Supply?
This remains one of the key questions arising from the Budget.
Government policy is rightly focused on increasing housing supply, but supply comes from several sources, not just new development. The private rented sector continues to house millions of tenants across the UK. If further landlords decide to exit the market as returns come under pressure, the result may be fewer rental properties being available at a time when demand remains high. In practical terms, reduced supply can place additional upward pressure on rents, potentially undermining broader affordability objectives. The challenge for policymakers is balancing the desire to raise revenue with the need to encourage long-term investment in housing.
A Small but Welcome MTD Concession
Away from the headline property announcements, there was also some positive news for landlords affected by Making Tax Digital.
As more landlords are brought within the MTD regime over the coming years, many have expressed concerns regarding the increased compliance burden associated with quarterly reporting requirements.
The Government has confirmed a soft-landing approach to penalties for taxpayers entering the regime from April 2027. Whilst this does not remove the obligation to comply, it should provide some reassurance for landlords and other individuals transitioning to the new reporting requirements and may provide additional time to adapt systems and processes.
Our View
There is undoubtedly some good news in this Budget for developers and those involved in bringing forward new housing.
The continued focus on planning reform, affordable housing delivery, business investment and infrastructure demonstrates a serious attempt to tackle some of the structural issues facing the UK property market.
Measures such as the new VAT relief for land sold to registered providers of social housing, improvements to first-year capital allowances, business rates support and further planning reforms are all likely to be well received by much of the development and commercial property sector. Equally, the decision to provide a soft landing for new entrants into Making Tax Digital demonstrates some recognition of the practical challenges facing taxpayers and advisers alike.
However, the position for individual landlords is considerably less positive. The further increase in taxation on rental income is likely to be viewed as another disincentive to investment in the private rented sector outside a corporate structure.
As a result, we expect many landlords to revisit whether their existing ownership arrangements remain fit for purpose.
For those considering entering the buy-to-let market, obtaining advice on ownership structures before acquiring properties is likely to become increasingly important. Decisions made at the outset can significantly affect future tax liabilities, financing arrangements and long-term investment returns.
For existing landlords, this may be an appropriate time to review projected future tax liabilities and assess whether alternative ownership structures could offer advantages. However, care should be taken before implementing any restructuring.
The growing popularity of incorporation has inevitably been accompanied by the promotion of a number of aggressive restructuring arrangements. Whilst legitimate incorporation reliefs and planning opportunities remain available in the right circumstances, any proposed restructuring should be carefully reviewed to ensure it is both commercially and fiscally robust.
Every landlord’s position is different. Factors such as portfolio size, borrowing arrangements, future acquisition plans, succession objectives and exit strategy can all influence the most appropriate structure. What is right for one landlord may be entirely inappropriate for another.
The Government’s long-term objective is clearly to increase housing supply. The success of that strategy may ultimately depend not only on how many homes are built, but also on whether developers, investors and landlords continue to see UK property as an attractive place to commit capital.
In the meantime, this Budget is likely to leave much of the development sector cautiously optimistic, whilst prompting many private landlords to take a fresh look at their tax position and future investment strategy.
Talk to Our Team
Whether you are acquiring your first investment property, growing an existing portfolio, considering incorporation or evaluating a development opportunity, now may be an appropriate time to review your structure and future plans in light of the Budget announcements. Obtaining advice before taking action can help avoid costly mistakes and ensure that any planning is both commercially and fiscally sound.
This material is for informational purposes only and should not be relied upon as professional advice.
