Chancellor Rachel Reeves is reportedly weighing up a potential tax rise for UK landlords in the upcoming Autumn Budget, as she looks for ways to address a £40bn gap in the public finances.
According to reports, one of the key options under review is the introduction of National Insurance (NI) on rental income, which could bring in an estimated £2bn in extra revenue. The Treasury is said to be working on a series of possible tax measures that would help raise funds without breaking the promises Reeves made before the general election.
Ahead of Labour’s victory, Reeves pledged not to raise taxes for “working people”. This has effectively ruled out increases to VAT, income tax, and National Insurance contributions on wages. However, applying NI to rental earnings would not technically breach these commitments, as it does not involve altering existing tax bands or rates.
At present, National Insurance contributions are mostly linked to employment income. Employees typically pay 8% on monthly earnings between £242 and £967, with an additional 2% on income above that level. Meanwhile, income derived from rental properties, pensions, and savings remains largely exempt.
Introducing NI on rental income would expand the scope of the levy rather than adjust its rates. Supporters of the plan suggest this approach would allow Reeves to raise extra funds while still honouring her election pledges.
Official figures highlight just how significant the measure could be. In 2022–23, around 2.2 million people in the UK reported net property income totalling £27bn. Applying an 8% levy on this figure would have generated approximately £2.18bn for the Treasury.
For landlords, however, the potential changes could not come at a worse time. The private rental sector has been under strain for several years, with returns declining sharply since 2017. Landlords now make up around 84% of the UK’s rental market, yet many are struggling to maintain profitability due to rising costs and regulatory pressures.
A key factor has been the gradual restriction on mortgage interest tax relief. Whereas landlords were once able to offset between 40% and 45% of their mortgage interest against rental income, they are now limited to a flat 20% deduction. Combined with higher interest rates and the impact of inflation, this has eroded margins across the sector.
Shaun Moore, a tax and financial planning specialist at Quilter, described the potential new levy as “another significant blow” to landlords already grappling with reduced yields and tougher regulations. He warned that further taxation risks pushing more landlords out of the market entirely.
Should that happen, supply could fall further at a time when demand for rental properties remains high. “This imbalance will inevitably push rents even higher,” Moore explained, “worsening affordability for tenants and deepening the housing crisis.”
The broader fiscal challenge facing Reeves and the Treasury is substantial. The National Institute of Economic and Social Research (NIESR) has suggested that taxes may need to rise by more than £50bn to restore credibility to the UK’s public finances. Such a move would help reassure bond markets and strengthen confidence in Labour’s economic strategy.
Other analysts, including Capital Economics, have taken a more moderate view, suggesting that tax rises in the region of £15bn to £25bn may be sufficient. Regardless of the final figure, it is widely accepted that the government will need to take decisive action to balance its spending commitments with its fiscal rules.
The Treasury, however, has sought to stress that tax rises are not the only lever available. A spokesperson pointed out that Labour’s “Plan for Change” focuses heavily on economic growth as the best route to strengthening the nation’s finances. Planning reforms, for example, are projected to boost the economy by £6.8bn while also reducing borrowing by £3.4bn.
The spokesperson added that the government remains committed to protecting working households. “At last Autumn’s Budget, we kept our promise not to raise the basic, higher or additional rates of Income Tax, employee National Insurance, or VAT,” they said. “We are determined to keep taxes for working people as low as possible.”
Still, with a significant budget shortfall to plug and limited room for manoeuvre, landlords appear to be firmly in the Chancellor’s sights. Whether Reeves will press ahead with this proposal remains to be seen, but the debate underscores the difficult balancing act facing the government as it tries to deliver growth while maintaining credibility with financial markets.
Download NOW
4 Simple Steps To Becoming Wealthy Through Property