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UK: Chancellor Rachel Reeves delivered the Autumn Budget today, revealing “permanently lower tax rates” for hospitality properties.
The 2025 Budget aims to fill a £20 billion spending gap, with tax rises amounting to £26 billion.
A sugar tax, formally known as the soft drinks industry levy (SDIL), and a tax on overnight stays in England were among the measures previously announced.
From April 2026, the government also confirmed that the National Living Wage will increase to £12.71 – an increase of 4.1 per cent. The wage rate for 18-20-year-olds will also rise by 8.5 per cent to £10.85. In total, the wage increases represent an estimated £1.4 billion in additional costs for hospitality businesses.
Revealed in today’s Budget, the government will “permanently lower tax rates” for more than 750,000 retail, hospitality and leisure properties. This is set to be funded through higher rates on properties with rateable values (RVs) above £500,000 such as warehouses used by online retail giants.
Income tax and National Insurance thresholds will be frozen until the end of the 2030-31 financial year. This means hospitality staff and guests will pay more tax as wages rise, squeezing personal budgets. The OBR estimates that an additional 780,000 people will be brought into paying income tax in 2029-30 as a result of the extension to the freezes.
Salary-sacrificed pension contributions above an annual £2,000 threshold will also no longer be exempt from National Insurance. This will come into force from April 2029.
The Office for Budget Responsibility expects inflation to reach 3.5 per cent for this year, up from 3.2 per cent when initially forecast in March. Predictions for 2026 have also been lifted from 2.1 per cent to 2.5 per cent.
Reeves revealed that the government is raising rates of tax on property, savings and dividend income. Tax on dividend income will rise by two percentage points from April 2026.
This increases the ordinary rate from 8.75 per cent to 10.75 per cent and the upper rate from 33.75 per cent to 35.75 per cent. The additional rate will remain at 39.35 per cent.
The government will also introduce separate tax rates for property income from April 2027. It will now be charged at individual rates.
Reeves told the Commons: “It’s not fair that the tax system treats different types of income so differently and so I will increase the basic and higher rate of tax on property, savings and dividend income by two percentage points, and the additional rate of tax on property and savings income by two percentage points.”
An annual mansion tax will be applied from 2028 to properties valued above £2 million, starting at £2,500 and rising to £7,500 for homes worth over £5 million. Affecting under one per cent of properties, the surcharge is forecast to raise £400 million per year and will sit on top of existing council tax.
Industry reaction
Ben Spier, head of policy and regulation at Sykes Holiday Cottages
“While the Chancellor’s proposal to increase property income tax rates from 2027 will understandably raise concerns for some holiday-let owners, the prospect of a reduction in business rates in 2026 provides a slight counterbalance. However, this business rates change is only replacing the 40% relief that retail, hospitality and leisure businesses received on the back of Covid.”
Kate Nicholls, chair, UKHospitality
“Increases to minimum wage rates are yet another cost for hospitality businesses to balance, at a time when they are already being taxed out. Hospitality businesses have reached their limit of absorbing seemingly endless additional costs. They will simply all be passed through to the consumer, ultimately fuelling inflation.”
Marc Crothall, chief executive, Scottish Tourism Alliance
“With today’s announcement that personal tax thresholds will be frozen for a further three years, pulling more people into higher tax brackets, household disposable incomes will come under even greater pressure, further weakening domestic tourism demand at a time when the sector can least afford it.
“Following the Chancellor’s announcement on business rates for hospitality businesses in England, we would urge the Scottish Government to deliver a permanent reduction in business rates for businesses of all sizes in its 2026-27 Budget announcement. This would give much-needed certainty and ensure our businesses can effectively compete with their counterparts over the border… there will now be even greater pressure on the Scottish Government to ensure that businesses north of the border are not placed at a further competitive disadvantage.”
Devin Grosse, CEO, Focus Hotels
“Salary-sacrifice pensions have been a really important way for us to attract people, because we could put the National Insurance savings straight into an employee’s pension. People really value that, and it’s one of the reasons they join us and stay rather than leave for slightly higher-paid jobs elsewhere. Any reduction in the ability to do this is a real disincentive. It effectively feels like a pay cut for staff and makes it harder to attract talent. We’re going to have to work out how to handle it, but it’s definitely a big issue.”
Clive Wratten, CEO, Business Travel Association
“An overnight visitor levy may appear modest, but for regional cities competing for conferences, investment and talent, it becomes a direct deterrent. Overnight levies will hit those very areas the government is seeking to level up, penalising travellers whose visits fuel local economies.”
Chris Gamm, CEO, Springboard
“Today’s outcome from the Autumn Budget is deeply concerning for the hospitality industry. With the minimum wage set to increase and a freeze on income tax and NI thresholds extended, we expect entry-level hospitality roles to decrease and further job losses to follow. We also predict that the long-term effects of this will mean, in time, there will be a shortage of future managers and leaders.
“This will put immense pressure on the sector and on charities like Springboard, which are committed to training and supporting people into work. We urge the Government to work closely with us and the wider industry to ensure adequate support is put in place to protect jobs, sustain training and development, and safeguard the long-term resilience of this essential sector.”
Liam Crooks, MD of EMEA hospitality, Lightspeed
“Hospitality is made up of many independent businesses who don’t necessarily have the same vying power or budgets as big sectors like tech. Despite being one of the UK’s biggest employers and the backdrop to many of life’s key moments, challenges like staffing, elevated costs and taxes are continuing to hold the industry back.
“While changes to business rates may offer some relief to venues, some could end up being penalised by charges that don’t reflect their actual profitability. An approach like this doesn’t work; the hospitality industry needs meaningful, sustained support from the government that recognises its true social and economic value.”
Alastair Winsey, founder and CEO, AIVA Revolution
“Once again, the hospitality sector has been left to fend for itself. Costs for employers continue to climb, yet venues and small businesses have almost no room to raise prices when consumers are already stretched.
“It’s becoming increasingly unviable for entrepreneurs to enter, or even remain in, the industry under these conditions. Hospitality is a vital pillar of our economy and holds our communities together; it needs meaningful support and investment if it’s going to modernise, compete and survive.”
Matthew Prosser, senior director, Agilysys
“Today’s Budget offers some respite for the hospitality sector at a moment when stability and confidence are urgently needed. The government’s commitment to “permanently lower tax rates” for more than 750,000 retail, hospitality and leisure properties is a step in the right direction, giving operators breathing room as they now work to manage rising costs that ought to come with raising the national minimum wage for workers.
“Yet uncertainty remains. The proposal of a nationwide tourist tax still looms in the background, and such a levy would dampen domestic tourism. For hotels in regions that depend heavily on local travellers, additional overnight charges risk deterring bookings and widening the performance gap between operators who can adapt quickly and those who cannot.”
Craig Hughes, partner and head of private client services, Menzies LLP
“Although this measure [property tax] is expected to generate an additional £0.5 billion, it risks further distorting the property market and represents yet another setback for landlords and the wider rental sector. It is important to recognise that the rental market provides essential housing for many working individuals who cannot yet afford to buy a home. Repeatedly targeting landlords through tax adjustments may encourage them to exit the market, reducing the supply of rental properties and, in turn, driving up rents for tenants.
“Ultimately, the additional tax revenue is relatively modest, and the long-term impact is likely to fall not on landlords, but on the very people who rely on the rental sector for affordable housing.”
Michael Shapiro, commercial property partner, Spencer West LLP
“Despite lowering business rates for many retail and hospitality businesses through higher rates on warehouses used by online retail companies, the fact remains that the local high street has many empty retail and hospitality premises.
“While an overhaul is scheduled for April 2026, this is something that needs to be addressed with urgency. Hospitality and retail businesses continue to struggle through the current system, which is further compounded by the rise in NI in the last Budget and the incoming rise to the minimum wage in January.
“The domino effect of this on retail and hospitality workers, builders, and tradespeople cannot be underestimated, and the impact is clear to see by walking along any high street.”
