The Autumn Budget 2025 detailed a 2% property income tax increase and a new “mansion tax” surcharge that will affect the property sector.
From April 2027, landlords will face higher tax on all rental income, with rates reaching up to 47% for higher earners, at a time when costs are already rising due to a 6.7% minimum wage increase, higher National Insurance contributions and a 35% jump in business rates.
Many landlords are already highly leveraged with no cash reserves, and unlike other businesses they cannot fully deduct mortgage interest costs against rental income. When rising maintenance costs, insurance premiums and mortgage rates are factored in, the financial viability of traditional buy-to-let investments becomes increasingly questionable.
The government justifies these measures by claiming to narrow the gap between “passive income” and earned income, but this is an oversimplification. Employees paying National Insurance receive protections such as sick pay, holiday pay and pensions, while landlords receive no such benefits despite bearing full business risk. Property investment requires active management, ongoing maintenance and significant financial commitment.
The UK’s property taxes already exceed those in most European countries. The 20% VAT rate on commercial accommodation is nearly triple Germany’s 7% and double France’s 10%. Add to this the 5% stamp duty surcharge on additional properties, increased capital gains tax and stringent energy-efficiency requirements, and UK property investment becomes far less attractive to both domestic and international investors.
Discouraging individual investors
Driving away international investment reduces long-term financial commitment to the sector. This in turn harms renters, as reduced investment lowers the quality of property maintenance and improvements while constraining supply. Fewer landlords mean higher rents, limited choice and greater competition for the properties that remain.
There is also concern about the impact on innovative property business models. The Budget signals a government preference for large-scale corporate landlords through incentives for Build-to-Rent developments, while discouraging individual investors and emerging models. Companies like Líbere Hospitality Group (LHG) are pioneering digital, asset-light approaches that reduce costs by up to 40% and achieve margins of around 60% through sustainable refurbishments and licensed operations. These models provide modern, flexible renters with the quality and values they seek while delivering attractive returns to investors.
However, squeezed margins caused by cumulative taxation could undermine these innovations before they achieve scale. When emerging models become economically unviable, the sector loses the entrepreneurial energy needed to revitalise the modern rental and housing markets through more diverse accommodation options.
Traditional private landlords also play a vital role by providing property diversity, flexible tenancy terms, relationship-based management, investment in areas overlooked by institutional investors and wealth-building opportunities for smaller investors. Policies favouring corporate landlords over individuals reduce market diversity and choice – both essential components of a healthy market.
There is a strong argument for reviewing these changes: restoring mortgage interest tax relief, reducing VAT on residential construction, reforming business rates and delaying further property tax increases until the sector can recover. There must also be incentives for high-standard long-term landlords and for innovative property models.
The fundamental contradiction is clear: the government cannot simultaneously increase taxes and operating costs, impose stricter regulations, reduce landlord rights and demand greater rental supply at lower rents, while expecting private investors to continue providing accommodation. As more landlords leave the market, buy-to-let will become viable only for the ultra-wealthy and institutional investors who can absorb these pressures.
The sector needs a freeze on further tax increases until the full impact of existing measures can be assessed. Only then can policy support increased housing supply, assist renters and maintain a diverse, competitive property market that serves everyone, not only the government’s revenue requirements.
Líbere Hospitality Group (LHG) is a leading European operator of alternative short- and medium-term accommodation operating property on Edgware Road in London and Southern Europe.
