Contributions by Gabriele Schiavone, SGS Partners, London and Abu Dhabi; and Domenic Pini, Pini Franco LLP, London.
After a period of geopolitical uncertainty, Brexit, rising interest rates, and low transaction volumes, the UK residential property market has entered a more balanced phase in 2025, according to the Nationwide House Price Review and Outlook for 2025, especially in the residential sector, with price growth essentially stable in London and modest increases in other regions.
Supply remains more limited than historical averages, but greater price sensitivity and a focus on intrinsic value are now distinctive features of buyer behavior: a renewed focus on net returns and management costs requires careful analysis of legal and tax variables.
In this context, taxes, including the Stamp Duty (SDLT) and the recently announced High Value Council Tax Surcharge (HVCTS, commonly known as Mansion Tax), are becoming an increasingly crucial factor in purchasing decisions, especially for international investors. Tax provisions for the purchase of non-residential properties remain unchanged—and largely favorable.
International investors are reviewing their positioning strategies, and the UK market, also in light of a potential reduction in interest rates, could represent a valid alternative to other prime locations, especially if the objectives are long-term and focused on the intrinsic value of the acquisition.
The new Mansion Tax
Announced in the UK government’s budget on November 26, 2025, the Mansion Tax applies to residential properties with a value of £2 million or more. The Mansion Tax is applied based on market value with four tax bands: £2,500 for values between £2.0-2.5 million; £3,500 for values between £2.5-3.5 million; £5,000 for values between £3.5-5.0 million; and £7,500 for values over £5.0 million (in percentage terms, this is between 0.1% and 0.15%). The market value will be determined based on 2026 values and updated every five years, with an increase mechanism linked to the Consumer Price Index (CPI).
The HVCTS is due in addition to council tax and falls on the owner: for investors (including non-residents) who purchase properties for rental purposes, the HVCTS therefore becomes an annual cost that directly reduces the net rental yield and ROI of the investment.
Property Transfer Taxes
Stamp Duty is a transaction tax applied (in general terms) in relation to the price paid for the purchase of property in England.
The current regime does not favor the purchase of residential property, as specific additional rates are added to the standard SDLT rates, both for the purchase of a second home (and for this purpose, a property held abroad also counts) and for purchases by non-residents. The combined effect is that the marginal rate of Stamp Duty can be significantly higher than the standard residential rates.
Generally speaking, for the purchase of a residential property, the standard bands and rates are as follows (first value for the “ordinary” case, second value for a second home, and third value for a non-resident buyer):
a) 0 – 250,000: 0%+5%+2%
b) 250,001 – 925,000: 5%+5%+2%
c) 925,001 – 1.5 million: 10%+5%+2%
d) Over 1.5 million 12%+5%+2%
Conversely, mixed-use properties benefit from standard SDLT rates, which are in line with the average rates applicable in similar locations. Correctly identifying mixed-use status can therefore significantly reduce the impact of Stamp Duty, but the rules are complex and require specific analysis.
In the case of non-residential or mixed-use properties, the Stamp Duty applies according to the following methods, regardless of the buyer’s qualification:
i. 0 – 150,000: 0%
ii. 150,001 – 250,000: 2%
iii. Over 250,000: 5%
Plan your purchase
The HVCTS will not come into force until April 6, 2028, leaving sufficient scope for potential improvements in the legislative proposal, including potential relief provisions, including a possible mechanism for realigning values to the effective date.
Although the annual amounts levied by the Mansion Tax are modest compared to similar taxes (on wealth or real estate) in some other European countries, the introduction of this tax demonstrates a change in legislative approach, as it applies a form of flat-rate tax on wealth for the first time.
For those who own multiple properties worth £2 million or more, the cumulative impact could be significant over time. It’s also important to remember that, in addition to Mansion Tax and Stamp Duty, residential property is subject to capital gains tax on disposal, inheritance tax on gratuitous transfer or succession, ATED if the property, held by a foreign vehicle, is at the disposal of the beneficial owner, and, of course, income tax on rental income.
Foreign investors, in particular, should now:
– review existing residential property portfolios in the UK, identifying assets that could be eligible for HVCTS.
– update acquisition budgets to reflect the impact of SDLT and future Mansion Tax.
– Request professional advice on legal and regulatory frameworks, ownership structures, and valuations.
Although the regulatory framework is complex (and the tax variable significant), the English market could now present interesting opportunities, especially in the industrial and logistics sectors but also in the residential sector provided that priority is given to quality and intrinsic profitability.
