In her budget speech yesterday, Chancellor Rachel Reeves said she was committed to creating a fairer system and would ‘ensure that the wealthiest will contribute the most’.
Announcing a two percentage point increase in the basic and higher rate of tax on property income, she pointed out that under the current system, a landlord earning £25,000 a year would pay less in tax than tenants earning the same amount.
But many experts have warned that the increase in income tax on rental income for landlords – which will rise to 22% for basic rate taxpayers, 42% for higher rate taxpayers and 47% for additional rate taxpayers – will result in tenants bearing the brunt of the costs, or even losing their homes.
‘For those who rent their homes, many landlords are already feeling the pressure regarding taxation and demands surrounding the implementation of new legislation,’ said Nathan Emerson, CEO of Propertymark.
“In many cases, this combination has been proving unfeasible for significant numbers of landlords who have already opted to leave the sector rather than continue providing high-quality long-term homes for tenants.
“Ultimately, additional tax liabilities could place further pressure on current rental stock levels and any new tax burden introduced on rental revenue may well get passed directly to renters, thereby worsening an already stressful situation.”
Paresh Raja, CEO of Market Financial Solutions, said the budget is ‘yet another jab in the rib for landlords’. He added:
“It’s not a shock; successive governments have treated the buy-to-let sector as an easy target for squeezing tax revenue and piling on financial friction. But it needs to be said again: landlords are crucial to a healthy private rental sector, providing quality homes in high-demand areas for people who can’t or don’t want to buy.
“Today they’ve been hit with fresh challenges in the form of National Insurance on rental income, and increased council tax on properties worth more than £2 million. Safe to say there will be little sympathy for landlords, but the government should tread carefully – the burden of boosting the government’s tax income cannot be spread unfairly, and excessive targeting of landlords risks upsetting the balance of the PRS by driving up rents or diminishing supply.”
Hugo Davies, chief capital officer and managing director for mortgages at LendInvest, agreed. ‘This is another tough budget for landlords and property investors, with higher taxes on rental income, capital gains and pension contributions’, he said. Smaller individual landlords would see returns squeezed, he added, accelerating the shift to larger portfolio landlords ‘whose structures are far more resilient to government tax changes’.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said landlords ‘pay tax on the way in, tax on the sale, and tax on any income along the way’.
‘The hike in the tax rates on rental income make things even worse’, she added. ‘Property investors might have to reconsider whether the maths still adds up under these rules, or whether they should join the exodus from the sector.’
“The move will also be incredibly difficult for renters, who are already wrestling with runaway rents, and could see their monthly costs hiked yet again. The HL Savings & Resilience Barometer already shows they have less money left at the end of the month – at just £39 compared to £299 among mortgage holders. They also have less in savings and are less likely to be on track with their pension than homeowners. Higher rents would make this even worse.”
Andrew Lloyd, managing director at Search Acumen, also warned many landlords would be squeezed out of the market – with an adverse impact on renters.
“Rents have increased nationally by about 36% since 2020, a figure that sits well above wage growth and has tightened the screws on the cost-of-living crisis. What’s more, the scarcity of rental homes will add further pressures to social care and social housing supply, with a housebuilding sector currently in turmoil.
“Our research shows that the gap between social housing availability versus the ballooning volume of the non-working population is the largest since 2019, widening 173% in 2024. This means that non-working people, or those between 16 and 64 who are economically inactive and often most in need of social care, are outnumbering new affordable and social housing numbers 12 to 1. Taxing landlords to the extent that they are forced to increase rents or leave the market paints a concerning future for the UK’s rental population.”
Higher national insurance contributions on rental income could result in inadvertently lowering the standards of rented homes, according to Elliot Castle, CEO of We Buy Any Home.
‘Higher taxation on pre-mortgage profits will likely push landlords to raise rents in order to preserve their returns, transferring much of the burden onto tenants rather than investors’, he explained.
“It could also slow investment in maintenance and upgrades. Landlords facing lower profits will be tempted to postpone expenditure in these areas, which will result in poorer housing stock.
“Given these increased cost pressures, some landlords will be forced to sell – especially if they have low-yield or high-debt properties. The effect on the private rental market will be damaging.”
Craig Hughes, partner and head of private client services at Menzies LLP, said increasing costs for landlords is a false economy. ‘Although this measure is expected to generate an additional £0.5bn, it risks further distorting the property market and represents yet another setback for landlords and the wider rental sector’, he warned.
“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.”
