UK Budget 2026: SDLT relief change among property tax announcements

Property tax expert Andrew McCarthy of Pinsent Masons was speaking after chancellor of the exchequer John Healey announced changes to rules providing tax relief from SDLT in Wednesday’s Budget. The new rules, which take effect from 29 October, are intended to “close a loophole” and ensure clawback of tax relief when a corporate buyer leaves a corporate group.

Under current tax rules, SDLT group relief is withdrawn if the purchaser and vendor cease to be members of a corporate group within three years of an intra-group property transfer, other than where the group is broken by reason of the vendor being wound up.  However, previously within that three-year period, the vendor could be wound up and the purchaser then sold to a third party without any clawback of the group relief – effectively allowing the property to be acquired by the third party without any charge to SDLT.

“This is clearly aimed at closing a loophole and increasing tax revenues, which the government desperately needs,” McCarthy said. “However, there has been no notice of this change and if the legislation when published catches transactions with genuine commercial reasons for a sale within three years subsequent to a winding up of the vendor, it looks again like a sledgehammer being used to crack a nut and will add complexity and further friction to the real estate market.”

SDLT is a tax on the acquisition of an interest in land. Relief from SDLT can apply where land interests are transferred within a group of companies.

The government has also announced that it will introduce a new tax regime for foreign sovereigns, to “bring certain real estate income and gains into UK tax while providing for unique access” to real estate investment trusts (REITs) for investments in UK real estate. This new regime will enable foreign sovereigns to hold a controlling interest in a REIT through a UK company while benefiting from a reduced 15% tax rate on property income distributions (PIDs).

McCarthy said that bringing sovereign investors within the scope of UK tax was unexpected, but welcomed the announcement of a reduced rate of tax on PIDs for sovereign investors. “REITs are an increasingly popular vehicle and increasing the investor base should help build momentum across the UK real estate market. It is also good news that the consultation document confirms that the UK REIT should not need to withhold tax when making a PID to a sovereign,” he said.

Details of the proposed new regime, expected to be introduced from 1 January 2029, were outlined in a consultation document (35-page / 991KB PDF) published alongside the Budget papers. To gain sovereign tax status, sovereign investors will need to apply under a new formal statutory application process administered by HM Revenue & Customs (HMRC). Existing sovereigns who currently benefit from sovereign immunity from direct tax will be required to apply under the new regime.

“The need for a formal application process is understandable. The Treasury has said that it hopes to streamline this process. As is often the case, it’s difficult to know how cumbersome the process might be until draft legislation and HMRC guidance has been published,” McCarthy said.

Other property related tax announcements included confirmation that the government will introduce a new zero rate of VAT on the sale of land to registered social housing providers, with effect from 1 April 2027. McCarthy said that it was “disappointing that this change will not come into effect sooner, since an earlier implementation date could have helped improve the supply of much-need social housing”.

From April 2027 the rates of income tax on property are increasing. The property basic rate will be 24%, up from 22%, the property higher tax rate will be 44%, up from 42%; and the property additional tax rate will be 49%, up from 47%.

“As is often the case with tax rate increases of this nature, this may end up having an inflationary effect if landlords pass the cost onto tenants and may further increase pressure on individual landlords to sell property investments,” said McCarthy.