UK Autumn Budget 2025: What Real Estate Investors Must Understand
Executive Summary
There has been a lot of negative publicity about the UK’s Autumn Budget announced on 26 November 2025. However, it’s important to strip out the noise and focus on the key changes and their impact on the UK property market and real estate investment landscape. Having analysed the Budget, my conclusion is that it actually creates a larger and more interesting opportunity set for professional real estate investors – even though it clearly hurts working individuals and passive investors the most.
Key points:
- The Budget delivers something markets badly wanted: policy clarity and predictability. A big part of the transaction slowdown in 2025 came from investors waiting to see what Rachel Reeves (Chancellor of the Exchequer) would do.
- The headline tax changes bite mainly at the individual level (landlords, high earners, private investors) rather than at the level of institutional structures.
- Higher holding taxes: property income tax rises by 2 percentage points across all bands from April 2027 (basic 20%→22%, higher 40%→42%, additional 45%→47%).
- A new High-Value Council Tax Surcharge (the “mansion tax”) for homes valued above £2m applies from April 2028, costing between £2,500 and £7,500 per year depending on value (indexed to CPI from 2029/30).
- Fiscal drag continues: the personal allowance (£12,570) and higher-rate threshold (£50,270) are frozen until April 2031, pulling more income (including rent) into higher tax bands over time.
- Cost of capital stays elevated: 10-year gilts are hovering around c. 4.4–4.5% at the time of writing, with 5-year gilts just under 4%, keeping financing spreads tight and valuations under pressure.
- The thesis for passive buy-to-let and top-end luxury residential weakens further, while value-add and opportunistic strategies become relatively more attractive – exactly the type of investing we focus on at 404 Capital.
At my newly launched firm, 404 Capital, we are leaning into active, asset-management-heavy strategies in sectors like offices, self-storage, light industrial and special situations, where value can be created despite (and because of) the current macro and tax headwinds.
UK Autumn Budget 2025 – Key Measures Relevant to Real Estate
Property income tax increase (from April 2027)
From the 2027/28 tax year, property income is taxed at separate, higher rates:
- Property basic rate: 20% → 22%
- Property higher rate: 40% → 42%
- Property additional rate: 45% → 47%
Relief for residential finance costs continues to be given at the basic property rate – now 22%, not 20%.
This hits individual landlords directly. Company-held property and institutional structures are affected less by this specific measure and more by the broader macro environment (rates, yields, valuations).
High-Value Council Tax Surcharge (“mansion tax”) from April 2028
From 1 April 2028, owners of homes in England valued at £2m or more (based on 2026 valuations) will pay an additional annual High-Value Council Tax Surcharge on top of normal council tax:
- £2.0m–£2.5m: £2,500 per year
- £2.5m–£3.5m: £3,500 per year
- £3.5m–£5.0m: £5,000 per year
- £5.0m+: £7,500 per year
These amounts will increase annually in line with CPI from 2029/30 onwards.
Freeze on income tax thresholds until 2031
The personal allowance and higher-rate threshold remain frozen until April 2031:
- Personal allowance: £12,570
- Higher-rate threshold: £50,270
National Insurance thresholds remain aligned and are frozen to the same date.
Wider tax changes affecting investors
Key points:
- Dividend tax: basic and higher-rate dividend tax rise by 2 percentage points from April 2026 (e.g., basic 8.75% → 10.75%; higher 33.75% → 35.75%; additional remains 39.35%).
- Savings income: tax on savings income moves to the same 22%, 42% and 47% rates from April 2027 for basic, higher and additional taxpayers respectively.
- Various other measures (including ISA rule changes and NI on salary sacrifice above £2k from 2029) further increase the overall tax take on middle- and higher-income households.
Impact on Real Estate Markets and Investors
Cost of capital remains structurally high
As of early December 2025:
- 10-year gilts: roughly 4.4–4.5%
- 5-year gilts: about 3.9%
- SONIA: just under 4.0% (down from c. 4.7% at the start of the year)
- Bank of England base rate: 4.0%
- Senior real estate debt: roughly 6.5–7.5% all-in for most mainstream sectors (gilts + 250–350 bps is still a good rule of thumb)
Indicative net initial yields:
- Prime offices: 3.75-5.5%
- Non-prime offices: 6.5-8.5%
- Prime logistics: 4.75-5.25%
- Prime self-storage: 5.0-5.75%
Spreads over gilts are still thin for core/core+. That means core real estate continues to compete directly with gilts on a risk-adjusted basis, so cap-rate expansion and valuation pressure remain in play until either: (a) risk-free yields fall, or (b) property yields move out further.
Markets are currently pricing a 25 bps cut to 3.75% at the Bank of England meeting on the 18th of December. Any meaningful easing of base rate would obviously help the underwritten cost of debt and sentiment.
Luxury residential: most exposed at the top end
The High-Value Council Tax Surcharge adds £2,500–£7,500 per year to £2m+ homes. On its own, that’s not catastrophic for most owners in this bracket, but it increases annual holding costs and reinforces the political risk around high-value housing.
I’d not expect a material change in pricing here unless sterling weakens materially and foreign capital steps in size.
Landlords and income investors: net yields further compressed
The 2 percentage point rise in property income tax, layered on top of frozen thresholds and existing rules like Section 24, further hinders the net returns for individual income investors.
Numerically, the impact per year isn’t large but it further hurts this type of investor. Therefore, I would expect more motivated sales from such owners as well as more aggregation plays in the residential sector.
Tax-inefficient structures underperform
With higher tax on property, savings and dividends, direct, personally held ownership becomes less attractive than well-structured vehicles (e.g., funds, SPVs, institutional-style platforms).
Value-add becomes more in vogue
Considering higher base rates, higher tax on income and modest spreads over gilts, passive income strategies become less appealing. This enhances the appeal of value-add strategies that incorporate leasing activities, repositioning of assets, improving operations and redevelopment activities. See more below on this.
How 404 Capital Sees the Opportunity Set Now
Most of what the Budget does is make passive income real estate strategies less attractive.
At 404 Capital, we’re focusing on value-add and opportunistic real estate situations across Europe where returns are driven by execution. That means buying mispriced or under-managed assets at the right basis and then carrying out improvements in the form of: repositioning, re-leasing, ESG and/or amenity upgrades, operations, or selective redevelopment.
These types of strategies are typical for institutionally-managed funds but are less available for private capital sources from HNWs/UHNWs to family offices and smaller institutions.
The sectors we’re noticing the most potential currently and have current/potential projects are:
- Office – repositioning in good locations in London, where you can buy around replacement cost and rebuild NOI through upgrades and targeted leasing.
- Self-storage – there is a significant undersupply present currently in the UK and other European countries.
- Price-affordable multifamily – the lack of good-quality and price-affordable housing across Europe is a major concern. This presents a large opportunity to deliver apartment units either for sale or for rent to individuals and households.
- Light industrial – benefits from constrained supply and solid SME demand amid the continued growth of online economies.
- Special situations – distress, loan-to-own, and mismanaged assets where the problem is ownership or strategy rather than location.
Structurally, the direction of travel for the UK (but also EU) favours institutional-grade vehicles and co-invest structures over ad-hoc direct ownership. This also forms part of the longer-term vision for 404 Capital – to provide access to investors to high-quality value-add deal flow through well-designed tax-efficient structures while benefiting local communities with high-quality and sustainable properties.
Conclusion
Yes, the UK is choosing a more tax-heavy path – particularly for individuals. But it still offers a relatively predictable economy, strong legal framework and deep capital markets in a very uncertain world.
If you’re allocating capital across geographies, I think there is still a strong case for:
- maintaining a meaningful allocation to real assets, and
- keeping the UK firmly in the mix as one of the core European jurisdictions.
At 404 Capital, we are sector-agnostic investors focussing on opportunities where complexity, transition, or mispricing creates the potential for superior risk-adjusted returns—and where our active ownership and execution edge can materially drive returns.
We focus on the UK, Spain and Portugal – currently, Europe’s most dynamic economies – but also are able to carry out investments in other geographies where we can rely on our trusted operator network.
If you’d like to understand how we’re positioning in this new environment or want to explore investing with us, feel free to get in touch – info@404capital.io.
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