UK Budget 2025: what it means for the Built Environment

Chancellor Rachel Reeves delivered the Autumn Budget 2025 on 26 November against a backdrop of significant economic and political pressure. For the Built Environment sector, the Budget presents a mixed picture: support for retail and hospitality and a promise to explore further planning reforms alongside infrastructure investment aimed at unlocking development, but individuals face increased taxation on property income and high-value properties.

At a glance

• Business rates: Permanent multiplier reductions for smaller retail, hospitality and leisure assets are funded by a new high-value multiplier for properties with a rateable value of £500,000 or more.
• High-value council tax surcharge: From April 2028, additional annual charges will be made on homes worth £2m or more.
• Private landlord taxation: Higher income tax bands for property income from April 2027 for individual landlords.
• Overnight stay levy: Mayoral powers to set local visitor levies for affected hotels and short-stay operators.
• Housing and planning: The government has reaffirmed its commitment to 1.5m homes over the Parliament, although delivery of new homes is predicted to soften before rising from 2027-28 as reforms bed in.
• Energy and grid: Mileage-based electric vehicle charging and targeted incentives for EV infrastructure sit alongside a more interventionist approach to grid capacity allocation, where credible, "shovel-ready" demand will be prioritised.

Business rates winners and losers 

Changes from the next revaluation in April 2026 will introduce a complex system with five different multipliers depending on sector, business size and rateable value, alongside a transitional relief package to support targeted ratepayers.

The Budget announced that qualifying retail, hospitality and leisure (RHL) properties with rateable values below £500,000 will benefit from a permanently lower rate representing a 5p discount. Funding for this measure comes from a 2.8p increase to the multiplier for larger properties (with rateable values of £500,000 or more).

The stated aim of the policy is to rebalance the burden, with the government mentioning warehouses used by large online retailers as a particular target. However, the implementation will not be sector-specific, and many large premises (including supermarkets, retailers, offices, and industrial and manufacturing units) will be subject to the higher rates. Affected businesses close to the threshold should note the 31 March 2026 deadline to appeal their rateable value.

More substantial reform remains on the table with the publication of a call for evidence, which invites views on improving investment incentives and administrative certainty. Proposals include moving from a "slab" to a "slice" tax structure to soften cliff-edges, enhancing Small Business Rates Relief (including an extended three‑year grace period when opening a second property), refining Improvement Relief beyond the current 12‑month scope, and reforming Empty Property Relief to reflect refit periods and tackle avoidance. The call for evidence also seeks evidence on whether shortening the antecedent valuation date gap could improve predictability.

Overnight stay levy

Mayoral powers to impose an overnight-stay levy will add a locally variable cost for hotel and short-stay accommodation, with the revenue directed towards promoting the local economy. While concerns have been raised over already tight margins and consumer price-sensitivity, similar models have been adopted in Europe without a detrimental impact on visitor numbers. 

Operators will need to plan for adjustments to processes, pricing and contracts, including franchise, management and booking platform arrangements. A consultation on the scope and details is open until 18 February 2026.

Increased income tax on property income

Squeezed supply: A 2% supplement will be added to income tax rates on property income for individual landlords from April 2027, reducing net yields in the private rental sector. This is likely to accelerate the exodus of private landlords from the market, squeezing supply and putting upward pressure on rents.

Sharper focus on tenant covenant strength: While investors in the private rental sector may see headline rental growth, they should be aware of increased tenant affordability stress, which heightens the risk of non-payment and voids. This may compound landlord concerns over rent challenges and court waiting times for eviction proceedings following the Renters' Rights Act.

High value council tax surcharge

A high-value council tax surcharge will be introduced from April 2028, applying to residential properties in England worth £2m or more. It is to be paid by owners (rather than occupiers) and will be in addition to council tax, although unlike council tax, the surcharge will flow directly to the Treasury. Banded rates will increase annually in line with the Consumer Prices Index, with starting charges ranging from £2,500 for a property valued at £2m to £7,500 for a property valued at over £5m.

A consultation will follow in the new year to explore support, relief, exemptions and rules for complex ownership structures. To mitigate the effects on older homeowners, it is anticipated that provision will be made for annual payments to be deferred until the property is sold or the owner dies. While the measure is unlikely to raise significant revenue, it is consistent with the political message that those with "broader shoulders" should contribute more.

Housing and planning

Planning reform: The government reiterates its ambition to deliver 1.5 million homes over the parliament, looking to the Planning and Infrastructure Bill to compress delivery timelines and reduce costs. Additional funding aims to boost capacity in the planning system, directed towards recruitment and improving environmental regulator processes, particularly for priority projects and the delivery of environmental plans introduced by the new legislation (for more on EDPs, see this Insight). The Office for Budget Responsibility predicts that the effects of planning reforms will take time to feed through, with most of the increase in housebuilding occurring from 2027-28. With price growth moderating, housebuilders will look to carefully calibrate build-out and tenure mix to local demand, focusing on aligning section 106 and infrastructure contributions with viability.

Social housing: The government confirmed its commitment to the 10-year rent settlement for 2026-36 which will permit social housing rents to increase by CPI+1% per annum and advised there would be an upcoming consultation on the VAT treatment of land intended for social housing with a view to incentivising the development of land intended for social housing.

Energy 

Electric vehicles: The transition to electric vehicles (EVs) continues to be encouraged with business rates relief for eligible chargepoints, 100% first-year allowances for qualifying expenditure on zero-emission cars and chargepoints, and proposals to extend permitted development rights for EV charging. However, to address the falling revenue take from fuel duty, a new mileage-based charge on electric cars will be introduced in April 2028 of £0.03 per mile for battery electric cars, to be increased annually in line with the Consumer Price Index.

Grid connections and strategic demand: The government notes that "connections to the grid remain one of the biggest blockers in delivering key growth projects across the economy". Plans to address this include new powers in the Planning and Infrastructure Bill to reallocate released capacity and reserve future capacity for strategically important demand projects and to remove speculative demand from the grid connection queue. The Department for Science, Innovation and Technology is to set out a strategic plan for data centres to ensure only the most strategic and credible projects are taken forward. 

Energy Profits Levy replacement: The government confirms that the temporary Energy Profits Levy (EPL) will be replaced by the permanent Oil and Gas Profits Mechanism (OGPM). The OGPM will be a revenue-based mechanism which only operates in times of high prices and will replace the EPL when it ends in 2030, or earlier if the EPL price floor triggers.

Osborne Clarke comment

Overall, there were no surprises in this week's Budget (aside from the accidental pre-Budget release of the OBR forecasts), leaving many in the built environment sector feeling rather underwhelmed. With the industry facing persistent inflation, unpredictable interest rates, supply chain issues, labour market concerns and a viability squeeze, it was disappointing that no meaningful incentives for investment, development or homebuyers were announced. The roll-out of planning reform via the much-anticipated Planning and Infrastructure Act will be one to watch, with the potential to make significant inroads into addressing the delays and red tape hampering developers. Follow the latest developments via Osborne Clarke's dedicated planning microsite.