The Autumn Budget 2025 brings a mix of opportunities and cost pressures for real estate and construction.

For property businesses, higher taxes on rental income and reduced capital allowances will impact returns, while business rates reform offers relief for smaller high-street businesses but increases costs for large commercial sites. In construction, rising National Minimum Wage, frozen tax thresholds, and changes to NICs will push up payroll costs. Meanwhile, halving capital gains tax relief on Employee Ownership Trusts makes them less attractive for succession planning and may prompt business owners to reconsider exit strategies.

Below, we explore the five most significant changes and what they could mean for the sector.

Capital allowances

The upcoming capital allowance changes introduce a new 40% first-year allowance (FYA) for plant and machinery from January 2026 and reduce the writing-down allowance (WDA) rate from 18% to 14% from April 2026. While these adjustments alter the timing of tax relief, many real estate and construction businesses are unlikely to experience a material impact because full expensing and the £1m Annual Investment Allowance remain available for qualifying assets, meaning many projects still achieve 100% upfront deductions.

Who will feel it most?

• Plant and equipment leasing businesses - The new 40% FYA is a significant improvement for firms leasing cranes, diggers, and other heavy machinery, accelerating tax relief compared to the previous slow WDA approach and improving cash flow for capital-intensive operations. The Government has previously committed to expanding full expensing to leasing businesses when affordable, so, this is a step in that direction.

• Business with large historic WDA pools - Property developers and contractors can hold substantial balances from prior years will see slower relief on these pools due to the reduced WDA rate, which may require a reassessment of project returns and cash-flow timings.

• Unincorporated firms - Partnerships and sole traders who previously relied on AIA now benefit from access to the 40% FYA, which can help smooth cash flow on large projects where AIA limits might otherwise be restrictive.

Business rates reform

Business rates will move to a banded “slice” multiplier system from April 2026, replacing the current two-tier approach. Rates are calculated by multiplying a property’s rateable value (RV) by the applicable multiplier, then subtracting any eligible reliefs. Under the new structure, smaller Retail, Hospitality & Leisure (RHL) properties will benefit from permanently lower rates, while high-value assets (over £500k RV) will face higher multipliers. Transitional relief will cap sharp increases for properties over £100k RV, creating a more progressive regime.

For real estate, this means reduced liabilities for smaller RHL occupiers and increased bills for large commercial and logistics sites - raising costs for big warehouses often used by online retailers, while easing pressure on high-street shops, hospitality, and leisure operators.

From April 2026, rateable values will also be updated to reflect rental values as at 1 April 2024 (currently based on April 2021). While multipliers are being reduced, higher rateable values may offset this, leading to mixed outcomes. Support packages will be available for sectors such as hospitality where the high-value multiplier creates additional burden.

In addition, the Government has launched a Call for Evidence on how business rates influence investment decisions, signalling the potential for wider future reform. Key concerns include business rates acting as a barrier to property improvement and creating uncertainty for long term investment planning.

Property, savings and dividend tax - 2% increase

The Chancellor announced a 2% rise in tax rates on investment and property income, designed to reduce the gap between earned and passive income.

Property Income

From April 2027, property income tax bands increase:

• Basic rate: 20% to 22%

• Higher rate: 40% to 42%

• Additional rate: 45% to 47%

The separate property income bands formalise the distinction between rental and other income streams. Mortgage Interest Relief will align with the new basic property rate (22%).

Dividend and savings

• Dividend tax rises by 2% from April 2026 for the basic (10.75%) and higher (35.75%) bands.

• Savings interest taxed at 22%, 42%, and 47% from April 2027.

These changes will make owning and renting property more expensive. Higher taxes on rental income and reduced mortgage interest relief mean landlords will earn less after tax, which may influence future investment decisions or ownership structures. Some may consider using companies to hold properties, but with higher dividend rates, the benefits of incorporation must be weighed carefully against overall tax costs.

Employment tax changes for the construction sector

The most significant tax changes in the Autumn 2025 Budget will directly affect workers, and therefore the construction sector:

• Income tax and National Insurance thresholds frozen until 2030–31, creating fiscal drag as wage increases push more employees into higher tax bands.

• From 6 April 2029, a new £2,000 annual cap on pension contributions via salary sacrifice that are exempt from NICs. Any amount above this will attract employer NIC at 15% and employee NIC at 8% (or 2% for earnings above £50,270), reducing the tax efficiency of these arrangements.

For the construction sector, where payroll is a major cost, these changes will place upward pressure on wage bills and may impact margins. This is on top of the National Living Wage rising by 4.1% for employees aged 21+, 8.5% for 18–20 year‑olds and 6% for 16-17 year-old apprentices. These increases will have the greatest impact where a large proportion of the workforce is younger or in apprentice roles.

CGT Relief Reduction for Employee Ownership Trust (EOT)

Capital Gains Tax (CGT) relief on disposals to Employee Ownership Trusts will be cut from 100% to 50% for transactions completed on or after 26 November 2025.

An Employee Ownership Trust (EOT) is an exit structure that allows a business owner to transfer a controlling interest into a trust for the benefit of its employees. Historically, EOTs have been attractive because disposals qualified for 100% CGT relief and employees could receive tax-free bonuses up to £3,600.

EOTs have been a popular succession planning tool in the construction sector however the halving of CGT relief significantly increases tax liabilities for selling shareholders, potentially making EOTs less attractive compared to alternatives going forwards.

Other areas relevant to the sector are as follows:

• ‘Mansion’ tax – Annual High Value Council Tax Surcharge (HVCTS) from 2028 on homes over £2m.

• Landfill tax rates will rise from April 2026. Positively for construction companies, the lower rate has been retained and quarry backfilling exemption stays.

• Construction Industry Scheme (CIS) fraud – HMRC has new powers effective April 2026 to combat supply-chain fraud. HMRC can immediately revoke Gross Payment Status if a business “knew or should have known” about fraudulent tax evasion.

• Non-Resident CGT clarification – From Nov 2025, each cell of a Protected Cell Company is treated separately for the property-rich test, giving clearer rules for non-resident investors.

• Advance Tax Certainty Service - New binding clearance for Corporation Tax, VAT, Stamp Duties, PAYE, and CIS treatment on major investment projects (those over £1bn in value) from July 2026.

The Autumn Budget introduces a range of changes that will affect planning, cash flow and operating costs across the real estate and construction sectors. Understanding how these measures interact with your project pipeline, investment strategy and workforce model will be key.

If you would like to explore how these changes may affect your plans or upcoming projects, please get in touch with our Real Estate and Construction team.