Income tax on rental income for landlords will rise by 2% across the board from 2027, the Chancellor has announced.
The rates will rise to 22% for basic rate taxpayers, 42% for higher rate taxpayers and 47% for additional rate taxpayers.
Reeves said this was designed to account for the fact that landlords don’t pay National Insurance on rental income – and was positioned as making thing fairer.
However, she topped short of bringing rental income within the scope of National Insurance for the first time.
It was thought the government could apply the 8% charge – which usually falls on employee wages – to rental earnings could raise around £2bn.
Steve Cox, chief commercial officer at Fleet Mortgages, said: “Instead of the widely anticipated announcement of National Insurance being levied on landlords’ rental income, the Chancellor has instead decided to increase basic, higher and additional property income tax rates from April 2027. This means landlords will now pay 22%, 42% and 47% from that date, and this is anticipated to raise £0.5bn every year from 2028-29 onwards. It means landlords will once again see their incomes squeezed, at a time when costs continue to rise, and the introduction of the Renters’ Rights Act was already adding further costs to landlords next year, all of which are likely to be passed on to tenants in the form of higher rents.
“Add in this income tax increase to all the extra costs and responsibilities, and again landlords are going to see their margins on properties under further pressure. It is far too early to say how this will impact supply within the PRS, but of course it will require a reassessment by landlords and we are likely to see rents being reviewed in order to maintain profits. I think we can be fairly certain that this decision will move landlords even further towards using corporate vehicles for their portfolios; our most recent Rental Barometer already showed 81% of all mortgage applications we received were from limited company borrowers, and the direction of travel now looks likely to move even further towards this.”
Jason Tebb, president of OnTheMarket, commented: “The additional tax on rental income is disastrous for landlords. After a decade of being squeezed by mortgage interest relief cuts, wear-and-tear allowance removal, SDLT surcharges, fiscal drag, and endless red tape, this move further erodes net yields, especially for highly leveraged landlords. This reform will simply see more and more landlords removing themselves from the PRS sector for a further squeeze on rental supply.”
Colleen Babcock, Rightmove’s property expert, said: “Landlords might look like an easy target, but rental market taxation is usually detrimental to tenants looking to rent a home. The simple fact is that in order to provide tenants with much needed homes landlord investors need to be able to make the sums add up. Changes to mortgage interest relief, higher buy-to-let mortgage rates, the cost of compliance changes, and stamp duty increases have only made that harder. While UK Finance data suggests that despite challenges, more landlords are investing in new purchases and remortgaging than last year, today’s news will make it even harder for some landlords to make investments viable."
Jonathan Stinton, head of mortgage relations at Coventry Building Society, agreed: “Hiking property income tax won’t just hit landlords – it will hit renters in the pocket too. When the cost of being a landlord rises, those pressures almost always find their way into monthly rents – meaning those who don’t own a home pay the price. A similar rise to tax on dividends means the cost will also go up for landlords who hold their property in a limited company.
“The more landlords are taxed the less appealing it is to let a property – which could lead to fewer landlords and reduced choice for landlords. The simple but powerful forces of supply and demand would then push rents higher, making it much more difficult to rent a home. First-time buyers who are trying to save a deposit while renting could especially struggle and worry that their homeownership dreams are pushed even further out of sight.”
Hugo Davies, chief capital officer and managing director of mortgages at LendInvest, added: “This is another tough Budget for landlords and property investors, with higher taxes on rental income, capital gains and pension contributions. It will squeeze returns for many smaller, individual landlords. But it will also accelerate a trend we’ve seen for years: the shift toward larger, professionalised buy-to-let operators and portfolio landlords, whose structures are far more resilient to government tax changes."
