Story Highlight
- Chancellor John Healey’s first Budget is in just over three weeks.
- Fiscal headroom may fall from £23.6bn to £14bn due to borrowing costs.
- Plans for a mansion tax could lower the £2m threshold to £1.5m.
- Changes to capital gains tax may affect landlords selling properties profitably.
- Low-income renters face record shortfalls due to frozen housing allowances.
Full Story
Chancellor John Healey is set to deliver his first Budget in just over three weeks, with key issues such as property taxes, housing support, and assistance for first-time buyers expected to be addressed. Healey faces challenges in balancing the agenda set by Mayor Andy Burnham and adhering to the strict fiscal rules left by former Chancellor Rachel Reeves, which mandate that day-to-day spending must be financed by tax revenue and that debt as a share of the economy should decrease.
Recent reports indicate that the Chancellor’s fiscal headroom could drop from an anticipated £23.6 billion to around £14 billion due to increased government borrowing costs influenced by ongoing geopolitical events, notably the US-Iran conflict. Various policies affecting homeowners, renters, and landlords may be considered in the upcoming Budget.
For homeowners, the mansion tax, – officially termed the high value council tax surcharge – was introduced by Reeves in the previous Budget. From April 2028, homes valued at over £2 million will incur annual charges ranging from £2,500 to £7,500. The Times has reported that Healey is contemplating lowering the threshold to £1.5 million, which could increase the number of affected homes from 134,000 to 271,000, according to The i Paper. Approximately half of these properties are located in London, with significant opposition from London councils such as Wandsworth, Kensington and Chelsea, Westminster, and Richmond, which argue that not all residents of these homes are affluent.
In contrast, changes to stamp duty and council tax appear unlikely, despite calls from some Labour MPs for a new annual property tax reflective of home values. Jonathan Brash, MP for Hartlepool, labelled council tax an “injustice” due to outdated valuations, but Burnham has ruled out any alterations to these taxes in the forthcoming Budget.
Landlords face a potential increase in capital gains tax (CGT) on property sales, currently imposed at rates of 18 percent for basic-rate taxpayers and 24 percent for higher rates. Some Labour backbenchers, including Brian Leishman, are advocating for equalisation of CGT with income tax, which could raise the rate on capital gains for high earners. However, concerns about the impact on the rental market have been voiced by other MPs.
Additionally, from April 2027, income tax on rental profits will rise by two percentage points, with thresholds frozen until 2031. This means that as prices and rents rise, more landlords may find themselves subject to higher tax bands. New regulations mandating digital record-keeping for landlords earning over £50,000 a year will be implemented, with lower thresholds planned for 2027.
For first-time buyers, Burnham recently introduced ‘Your First Home’, a scheme for purchasing new-build properties, requiring a 2.5 percent deposit along with a 20 percent government equity loan. The scheme’s details, including income and price caps, will be furnished at the Budget, with registration expected to commence by late 2026.
Renters are facing challenges including the frozen local housing allowance (LHA), which has not been adjusted since April 2024. The Resolution Foundation reported that low-income families renting typical two-bedroom homes in England now experience an average shortfall of £158 per month. The gap between actual rents and the LHA is projected to reach a record high, particularly in areas like Inner East London, where it is estimated at £324 per month. The Foundation recommends reconnecting the LHA to local rental rates, which could incur a cost of around £2 billion annually by 2029-30, though there are no indications that Heather is considering this option in the policy review.
Source: read the original report.
