Here is a summary of the most relevant points for the property sector:

Economic Outlook: Slower Growth, Higher Nominal Income

• Weaker Real Growth: The OBR revised down its forecast for real GDP per person, which is now expected to grow by an average of 1.1% a year over the forecast period, 0.3 percentage points slower than previously forecast. This is due to weaker productivity growth.

• Higher Nominal Earnings and Inflation: Although real growth is weaker, cumulative nominal GDP growth (the measure most relevant to tax revenues) has not been downgraded significantly. This is because the downward revision to real growth is partly offset by an upward revision to inflation.

• Tax-Rich Composition: The composition of economic growth is forecast to be more “tax-rich.” Growth in labour income (which has a high effective tax rate) has been revised up, while corporate profits and business investment (which have lower effective tax rates) have been revised down.

Landlord Impact:

• Rental Demand: Higher nominal earnings coupled with slower real income growth mean that while rent may increase in nominal terms, tenants will be under more pressure, potentially increasing demand for cheaper rentals or houses in multiple occupation (HMOs).

• Cost of Capital: Business investment is forecast to be weaker due to continued low business sentiment and increases in long-term interest rates, which push up the cost of capital. This directly impacts landlords’ financing costs.

Fiscal Outlook: Increased Tax Burden & Spending

• Rising Tax Burden: National Accounts taxes as a share of GDP are forecast to increase to an all-time high of just over 38% from 2029-30 onward. A majority of this increase comes from rising personal taxes due to frozen thresholds.

• Frozen Personal Tax Thresholds: A set of personal tax rises, including freezing tax thresholds from 2028-29 onwards, will raise substantial revenue. This means more taxpayers will be dragged into the higher and additional rate tax bands.

• Property & Savings Tax Increases: Tax rates on dividends, property income, and savings income are being increased by 2 percentage points, raising $\textsterling 2.1$ billion. This is a direct measure impacting the profitability of rental income.

• Increased Spending: The pre-measures spending forecast has increased, driven by higher inflation, earnings, and an increase in disability caseloads (welfare spending), as well as significant increases in spending pressures on local authorities (e.g., Special Educational Needs and Disabilities or SEND) and the NHS.

Landlord Impact:

• Personal Tax Hit: The combination of frozen personal tax thresholds and the 2 percentage point increase on property and savings income tax directly lowers the post-tax profitability of landlords who are individuals or sole traders.

• Mortgage Costs: Higher inflation and interest rates are forecast to increase debt interest spending for the government, which reflects the general environment of higher borrowing costs that landlords are also facing.

Policy Measures: Direct Tax Changes

The EFO confirms several tax changes that directly impact property ownership:

• Income Tax on Property: The 2 percentage point increase on property income tax will reduce net returns for non-corporate landlords.

• Inheritance Tax (IHT) Anti-Avoidance: New legislation will prevent IHT avoidance through certain loopholes, including ensuring UK agricultural property held via non-UK entities is treated as UK-situated and restricting charity exemptions. These changes mostly target higher-wealth individuals and trusts but affect sophisticated property planning.

• Capital Gains Tax (CGT) Reliefs: Changes to CGT reliefs on employee ownership trusts are noted, which is a business measure but indicates a general move to tighten tax reliefs.