Budget 2026: Good news for development, less good news for landlords

The property sector entered this year’s Budget looking for certainty, writes Zoe Roberts of BHP.

Developers wanted planning reform, investors sought confidence in long-term investment, and landlords hoped for recognition of the private rented sector’s role in meeting housing demand.

The Budget offers positives for housing delivery, but a less welcome outlook for individual landlords.

Planning reform and housing supply remain front and centre

The Government has reinforced its housing delivery ambitions through further planning reform, infrastructure investment and a £1.5 bn boost to affordable and social housing programmes.

Measures include exempting certain smaller brownfield residential sites from Biodiversity Net Gain requirements and supporting regeneration projects.

Developers are likely to welcome this: planning delays and costs have arguably been greater barriers to growth than taxation alone. The test will be whether reforms deliver homes more quickly.

Support for housebuilding

Affordable housing investment, the new ‘Your First Home’ scheme for first-time buyers and measures to unlock development land underline the focus on increasing supply.

A VAT zero rate for land sold to registered providers of social housing from April 2027 aims to reduce development costs and support additional housing stock. Its impact will depend on uptake, but this targeted relief is likely to be welcomed across the affordable housing sector.

Commercial property and business occupiers

Further business rates support for smaller businesses and wider reforms should offer some reassurance to commercial occupiers facing cost pressures, although their long-term effectiveness remains to be seen.

Capital allowance changes also affect plant and machinery, including building systems such as electrical installations and plumbing. The first-year allowance rises from 40% to 50%, accelerating relief on qualifying expenditure. However, the writing down allowance for special rate expenditure falls from 14% to 12%, slowing relief where first-year allowances are unavailable.

Many owner-occupied trading businesses already obtain 100% relief through the Annual Investment Allowance or Full Expensing, limiting the practical impact.

Some commercial property investors, leasing structures and property investment activities fall outside these more generous regimes. For them, the higher first-year allowance could provide a more meaningful benefit. The outcome depends on the business and assets involved, making careful identification of qualifying expenditure essential.

A difficult budget for landlords

For individual landlords, the headline measure is a further increase in property income tax rates from April 2027. Rental profits will face rates of 24%, 44% and 49%, increasing the burden on personally held investment property.

This adds to existing pressures:

• Higher borrowing costs;
• Restrictions on finance cost relief;
• Increased compliance obligations;
• Renters’ Rights reforms; and
• Rising maintenance and operating costs.

With rental demand exceptionally strong in many areas, higher taxation risks further weakening the appeal of residential property investment by individuals.

Could this reduce rental supply?

Increasing housing supply requires more than new development. The private rented sector houses millions of tenants, and further landlord exits could reduce availability while demand remains high.

Reduced supply may put upward pressure on rents, undermining affordability objectives. Policymakers must balance raising revenue with encouraging long-term housing investment.

A small but welcome MTD concession

There is some reassurance for landlords entering Making Tax Digital (MTD), where quarterly reporting has raised concerns about compliance burdens.

The Government has confirmed a soft landing on penalties for taxpayers entering from April 2027. This does not remove compliance obligations, but should give those transitioning greater reassurance and time to adapt systems and processes.

Our view

Developers have grounds for cautious optimism. Planning reform, infrastructure investment, affordable housing support and targeted tax measures represent an attempt to address structural problems in the UK property market. Business rates support and the MTD concession also acknowledge practical pressures.

For individual landlords, however, higher rental income taxation creates another disincentive to investment outside a corporate structure. Many are likely to reconsider whether their ownership arrangements remain appropriate.

New investors should seek advice before acquiring property: early decisions can shape tax liabilities, financing and long-term returns. Existing landlords may also wish to review projected liabilities and alternative structures, but restructuring requires care.

Growing interest in incorporation has brought aggressive restructuring arrangements. Legitimate reliefs and planning opportunities remain available in appropriate circumstances, but proposals must be commercially and fiscally robust.

There is no single right structure. Portfolio size, borrowing, acquisition plans, succession objectives and exit strategy all matter; an approach suitable for one landlord may be inappropriate for another.

Ultimately, increasing housing supply depends not only on building homes, but on developers, investors and landlords continuing to see UK property as an attractive place to commit capital.

Whether buying your first investment property, expanding a portfolio, considering incorporation or evaluating development, now may be the time to review your plans. Advice before action can help avoid costly mistakes and keep planning commercially and fiscally sound.

• Zoe Roberts is a tax partner at BHP