Budget 2026: real estate perspective

Three months into the new Government’s tenure, the UK saw John Healey’s first budget (the Budget) as Chancellor. The focus was on creating “breathing space” whilst maintaining the commitment to the fiscal rules with a “buffer to protect against uncertainty.”

This note considers the potential impact of the Budget announcements from a real estate perspective. For further, broader commentary please see our Autumn Budget 2026 article, which also includes an overview of the policy position and information on additional points of relevance for the real estate sector, specifically; i) Group relief from stamp duty land tax (SDLT); ii) Sovereign immunity reform; and iii) Annual tax on enveloped dwellings (ATED). 

Infrastructure

As part of the strategy to drive more investment into the public sector, the Chancellor announced an additional £20.4bn towards the National Wealth Fund and British Business Bank to support delivery of renewable energy, defence, AI and other projects. Investment into these sectors will invariably also drive demand for factories, warehousing, logistics and associated office space.

By increasing the capacity of public finance institutions (PuFins) the Government is able to take advantage of the opportunities created by the fiscal rules and “make financial investments to support growth while generating a return for the Exchequer.”¹ This also allows the Chancellor to operate within the fiscal rules margins and preserve bond market confidence. 

Alignment of infrastructure investment, supported by infrastructure policy and the Mansion House Accord should help to drive the Government’s growth agenda and give confidence to infrastructure investors.

Datacentres

The IMF reported that AI has “helped to improve more than most other major economies over the past six months, primarily as a result in an uptick in business investment in AI related areas such as data centres and infrastructure.² A recent publication by the IMF also identified investment AI as a significant opportunity to boost the UK’s productivity growth³ and identified infrastructure as one of the five enabling conditions required for realising such gains. The Chancellor’s announcements in the Budget are relevant to achieving this growth:

• Funding: the above-mentioned capitalisation of public finance institutions for infrastructure purposes should help to satisfy this requirement. 

• Energy: the Chancellor’s energy-related announcements will also favour data centres. The Chancellor pledged to bring energy costs in line with those in Europe through a costs control framework – the high costs being a disincentive to construction and running costs for UK property (including high-energy consumers such as industry and data centres). In addition, the Chancellor committed to building cheaper faster connections through GB grid. The Government has also published a response to is consultation on accelerating electricity network connections for strategic demand which “includes, confirming the introduction of prioritisation of strategic demand and strategic alignment of data centre connections.”

• Data centre covenant: the Chancellor has proposed new requirements for developers to invest in local communities in efforts to appease public opposition to infrastructure build-out. In return, critical data centre projects that satisfy the covenant will be allocated priority access to the electricity grid and permission to build onsite generation while they wait. The Government has published a related policy paper which sets out the standards data centres are encouraged to meet, with additional requirements for strategically important projects. The standards relate to matters including national security and resilience, energy-system costs, benefits for local communities, environmental standards, and support for UK jobs.

These new measures supplement the Government’s AI Opportunities Action Plan and AI Growth Zones to accelerate delivery of data centres and clean power provision and to attract private capital. The reduction in uncertainty (particularly around energy provision) may also assist in alleviating some of the immediate cost pressures on data centre investment decisions.

Alongside the Budget announcements, Government has also published a consultation on a draft national policy statement for data centres. The consultation sets out the policy and planning framework for determining applications for consent made under the NSIP regime, the decision criteria and considerations. The consultation closes on 8 January 2027.

Housing

A series of housing related measures were announced in the Budget to “deal with immediate pressures” and to take steps towards addressing “long term challenges.” These included:

• Building regulations: there will be no major changes to building regulations during this Parliament unless required for critical safety. This will create more certainty and stability for those constructing and funding housing developments. The planning system and planning policy has recently been subject to a raft of changes (including the publication of a new NPPF in August 2026) so a similar approach to stabilising planning would help to cement the intended impact of this new measure.

• Biodiversity: the Government will remove biodiversity requirements for brownfield sites by introducing an exemption from Biodiversity Net Gain requirements for residential brownfield developments on sites up to 1.5ha. This supports the Government’s “brownfield first” approach to development. The intention is to reduce the cost and compliance challenges facing housing delivery.

• Zero rating of VAT on land for social housing: from 1 April 2027 the Government will introduce a zero rate of VAT on land sold to registered providers of social housing. This measure will be introduced via secondary legislation which will be made in early 2027. Relevant registered housing providers will not have to wait until “golden brick” to purchase land and should therefore alleviate cash flow issues and delays to grant funding. An associated consultation response has been published alongside the Budget.

• Additional capital for affordable housing: the Chancellor has committed a further £1.5bn towards the Social and Affordable Homes Programme (SAHP) which is a 10-year initiative to facilitate the delivery of social and affordable housebuilding across the country. The additional funding will deliver around 10,000 homes in England and will be prioritised for Social Rent, especially council homes. Industry voices have called for greater clarity as to how funding will operate and the division of responsibilities. This certainty is required to ensure timely institutional capital deployment to unlock ready-to-progress schemes in current delivery pipelines. Government has called upon “providers of all kinds, developers and local leaders” to help with delivery of the Programme. This echoes previous calls by the Housing and Planning Minister at the Housing Community Summit in September 2026 for greater collaboration between councils. 

• Defence land for housing: the Defence Housing Strategy previously identified capacity for over 100,000 new homes on defence land for both civilian and military families. The Budget commits to releasing Ministry of Defence land for housing backed by a new Defence Housing Service, a Ministry of Defence and Homes England partnership and reformed Crichel Down rules on surplus land by Spring 2027. 

Your First Home equity loan scheme

In the run-up to the Budget the Government announced the “Your First Home” initiative, a new equity loan scheme for first time buyers of new build homes in England. This measure falls within the net financial debt rule and allows the Government to deliver on policy through financial transactions.

Under the scheme, first-time buyers in England will be able to buy a new-build home from a developer taking part in the scheme with a minimum 2.5% and maximum 15% deposit, and the Government will lend them a further 20% of the purchase price. The equity loans will start with a five-year interest-free period. Income caps will be set at £110,000 per household outside London and £140,000 inside London. Price caps will also operate, the cap for inner London will be £650,000 and for outer London £500,000. Our article "Your First Home" equity loan scheme for first-time buyers" has further information.

Developers will be expected to pay a contribution when they sign up and will need to enter into a participation agreement. The developer participation fee will be based on final sale price, details of which are set out in this Government publication issued alongside the Budget.

It is estimated that it will help around 70,000 households in England to take their first step onto the housing ladder and support the delivery of an estimated 20,000 new homes. The scheme will open for pre-registration by the end of December 2026 and full applications from February 2027 with the first loans issued from April 2027.

The scheme will be funded by £4.7bn of Government backed lending. Funding will be capped annually but demand will be monitored by Government. 

The Home Builders Federation’s latest SME survey has revealed that 75% of respondents say the First Homes equity loan scheme and/or stamp duty reform could encourage additional site starts.⁴

High street rental auctions and community assets

A £210m Community Assets Programme will support local communities to “reimagine and revive their struggling high streets.” The funding sits alongside the Government’s new strategy for Britain’s high streets: Hope on the High Street (see “Consultations” below for further information). The programme includes £10m of support for local authorities to accelerate and scale delivery of High Street Rental Auctions.

In pursuit of its aim to revitalise town centres and high streets, the Government introduced the concept of high street rental auctions under Part 10 of the Levelling-up and Regeneration Act. Under the statutory provisions, premises located in an area designated by a local authority as a high street or town centre that are vacant for more than 12 months can be subject to compulsory letting by “auctioning” short term leases. We have previously published “Levelling Up and Regeneration Bill - high street rental auctions” considering the potential impact of such measures on commercial landlords.

Alongside the Budget, the Government has published guidance for local authorities about how they can apply for the High Street Rental Auctions (HSRA) fund and new burdens payments. It sets out who can apply, what the funding covers and how to apply.

The Community Assets Programme also provides new opportunities for communities to apply for funding to take over local buildings. This includes £65m via community ownership funding with further information to follow in “early 2027”. The Government has recently consulted on assets of community value in the context of permitted development rights and Chapter 3 of the English Devolution and Community Empowerment Act 2026 includes increased powers of statutory protection for local communities. Taken holistically, these measures are indicative of greater protection of certain community properties, and will be of interest to developers. 

Business rates

As announced on 23 July 2026, business rates for pubs, clubs and live music venues will be cut by 20% in 2027/28 (taking effect from April 2027). The reduction is estimated to have an annual cost of £100m. However, it will not benefit larger live music venues which will “benefit from the previously announced 15% relief in 2026-27 and real-term freeze in 2027-28 and 2028-29, as announced in January 2026.”

In addition, the Chancellor announced that the rateable value threshold for when small retail hospitality and leisure (RHL) businesses start paying business rates will be increased from £12,000 to £18,000. This support is intended to help high street outlets such as bakeries, cafés and hair salons and will, as the Chancellor emphasised in the Budget, result in “half of shops, restaurants and gyms” not paying any rates at all. A rates freeze for qualifying RHL properties will also be introduced for two years. 

This small business rate relief will be funded by a review of other reliefs currently afforded to “businesses that do not make a positive contribution to local communities.” Funding is also expected to be raised through enforcement action against “businesses that sell through online marketplaces but do not comply with their tax obligations.”⁵ Businesses that have “significant sales online” will be required to pay the VAT they owe by requiring online marketplaces to collect it on their behalf. The measures do not include a “warehouse tax” which had been resisted by large UK retailers in the run-up to the Budget. 

Many in the real estate industry have lobbied for broad-base improvements to the business rates regime and are likely to feel that this announcement does not go far enough. Those businesses occupying larger commercial premises (particularly in the RHL sector) may feel that an opportunity has been missed. For example, we consider the impact of the previously announced RHL reliefs on hotels in our article “Hotels: business rates changes in England - what commercial investors need to know”.

The Government has also published its response to its business rates and investment call for evidence which may provide insight into the announcement.

Overnight visitor levy

Strategic authorities will be able to introduce an overnight visitor levy from March 2028, and local leaders will be able to set out plans for how revenues will be invested. Our article “Don’t sleep on the overnight visitor levy” provides additional details as to how the levy is expected to operate.

Bank Surcharge - real estate 

The Chancellor announced a temporary increase to the Bank Corporation Tax Surcharge from 3% to 6% for 15 months from 1 January 2027 to 31 March 2028. This is lower than the 8% that had been predicted in pre-Budget commentary.

The Bayes bi-annual market survey of the UK real estate debt market, published earlier this week, reported that “banks remain the backbone of senior lending” with six lenders accounting for 53% of all new lending.⁶ Residential (i.e. build to rent) and student housing projects are often backed by development finance provided through UK banks and debt funding. If the increase surcharge results in a pass through of senior debt pricing the viability of projects could be adversely impacted. Borrowers are also facing a likely hike in interest rates in the reported “race to refinance” the remainder of the estimated £33bn of loans that were due to mature during 2026. It is possible that if UK mainstream banks take steps to protect capital allocations real estate projects may be required to explore less traditional financing options.

However, there is commentary that suggests that a temporary surcharge can likely be absorbed by banks and the time-limited effect will likely have no effect on the UK’s position as a competitive financial centre. The Government’s Action Plan (March 2025) promises to reform financial regulation to enhance “the attractiveness of the UK as a destination for global financial services, by making it easier for firms to navigate the UK regulatory landscape.” It may be that the continued pursuit of deregulation could offer a counterbalance to these tax changes.⁷

Additional 2% tax on property income

The Government will increase the rate of income tax applied to property income across England, Wales and Northern Ireland by 2 percentage points from 6 April 2027. The following reflects the increased rates:

• property basic rate: 24%

• property higher rate: 44%,

• property additional rate: 49%. 

The increase will impact landlords, many of whom have had to adapt to increasing costs associated with regulatory and statutory changes relating to matters such as building safety and tenant rights (e.g. under the Renters’ Rights Act 2025). There are concerns that some private landlords may exit the market as a result of the combination of these factors which would cause greater pressure on the supply of rental property in the market. The Treasury believe this is revenue raising in a “progressive” way with 84% of taxpayers being unaffected.

Mansion tax

The High Value Council Tax Surcharge (dubbed the “mansion tax”) was announced in the 2025 Budget. Houses with a value of £2m or more would be required to pay an additional charge as a result. Contrary to limited pre-Budget speculation, the Chancellor has not lowered the £2m threshold for payment of the surcharge.

The details of the scheme have been the subject of a consultation which closed in July 2026 and the outcome has now been published alongside the Budget. The consultation proposed discounts/exemptions for certain types of property (i.e. purpose-built student halls of residence, new build property owned by a developer, and social housing owned by RPs) and mechanisms for payment where individuals do not have sufficient funds (a deferral scheme). The Government response confirms that both measures will be implemented. 

The consultation also considered the treatment of freehold and leasehold ownership and has proposed that long leaseholders (where the lease was granted for more than 21 years) should be liable for the tax. Similarly, trustees will be liable for the charge where the relevant property is held in a trust (i.e. for purposes of wider estate planning). Government has said that it will implement the consultation proposals and continue to consider concerns regarding specific leaseholder interests.

To support the administration of the surcharge, Government has announced that it will legislate to support local authorities by enabling effective data sharing between local authorities and HMRC.

SDLT

The Budget includes confirmation that the Government “will remove Stamp Duty Land Tax on rent paid under assured tenancies in England, effective from 1 May 2026, following the introduction of the Renters’ Rights Act 2025. This will be introduced in Finance Bill 2026-27.” This reflects the position set out earlier this year to the Exchequer. 

Consultations and policy papers 

The Government has also responded to the following consultations/calls for evidence, each of which have a bearing on the real estate sector. 

• Tax Treatment of Predevelopment costs - GOV.UK: This consultation response follows the consultation launched in part as a result of the Supreme Court's judgment in Commissioners for His Majesty's Revenue and Customs v Orsted West of Duddon Sands (UK) Limited ([2026] UKSC 12). This will provide “greater certainty for businesses to invest, including by providing greater clarity on what qualifies for different capital allowances.” The outcome will be relevant to major renewable energy and infrastructure projects in the UK.

• Improving Property Income Data Reporting - GOV.UK: Government is seeking views on proposals to improve the reporting of property income data to HMRC by letting agents and tenancy deposit scheme providers.

The following policy paper has been published alongside the Budget and is relevant to real estate:

• Hope on the High Street - GOV.UK: This is a new cross-government strategy to “rejuvenate high streets and empower local leaders, businesses and communities” and is backed by a £210m Community Assets Package.

Conclusion: the calm after the storm(s)

For now, there is resilience in the consistency of the growth figures from the ONS month-on-month and the joint-fastest growth in GDP in the G7 over the first half of the year. The IMF has also recently upgraded the UK growth forecast. That foundation may help weather the perfect storm of rising inflation and cost of borrowing. 

In terms of real estate investment, investors have become somewhat accustomed to lower growth rates and pricing uncertainty has been relatively normalised. The market also now assumes that inflation will be higher for longer. 

As to whether or not the measures introduced in the Budget are enough to move the dial to increase the flow of long-term institutional capital into UK real estate remains to be seen.