Chancellor Rachel Reeves has announced a rise in income tax for landlords, set to take effect from April 2027. The basic, higher, and additional rates on property income will increase by 2 percentage points, reaching 22%, 42%, and 47% respectively. Ben Beadle, Chief Executive of the National Residential Landlords Association (NRLA), warns that these measures will hit tenants more than landlords, as higher taxation will likely be passed down in the form of increased rents.
Tenants Face the Real Cost
According to the Office for Budget Responsibility (OBR), these changes are expected to reduce the net returns for private landlords, which could lead to a long-term reduction in the supply of rental properties. With demand remaining high, tenants may face steadily rising rents across the country. In practical terms, typical rent increases are estimated to be between £20 and £25 per month in England, with London tenants potentially paying more than £40 extra per month.
Mansion Tax on High-Value Homes
In addition to income tax changes, the Budget introduces a High Value Council Tax Surcharge, often referred to as a mansion tax, for properties valued at over £2 million. This tax will come into effect from April 2028 and will be paid annually by the property owner. The surcharge is structured progressively: £2,500 for homes worth £2–2.5 million, £3,500 for £2.5–3.5 million, £5,000 for £3.5–5 million, and £7,500 for properties valued above £5 million.
Historical Context of Taxation on Landlords
This latest increase is part of a decade-long trend of taxation affecting private landlords. Previous measures include the abolition of mortgage interest relief (MIR) under George Osborne and the introduction of a 5% stamp duty surcharge on buy-to-let purchases in 2016. Combined with rising compliance costs and regulatory changes, these measures have steadily reduced profitability for landlords.
The Broader Impact on the Private Rented Sector
The continued erosion of rental returns risks deterring investment in the private rented sector (PRS), which could exacerbate the housing shortage in England and Wales. With over 1.3 million people currently on waiting lists for social housing and new builds falling short of targets, the pressure on rental supply is already significant. Additional taxes may push some landlords out of the market entirely, further tightening the supply of rental homes.
Expert Opinion
Leading economist Paul Johnson, former Director of the Institute for Fiscal Studies, highlighted the long-term implications: “Increasing taxation on rental and savings incomes reduces investment incentives and penalises landlords who are already heavily taxed. This will limit the size of the rental sector and ultimately lead to higher rents for tenants.”
Vulnerable Tenants Most Affected
The Budget’s changes will disproportionately affect lower-income renters. Housing benefit rates are set to remain frozen for the second consecutive year in 2026/27, impacting around 1.7 million households in receipt of support. While landlords face higher taxation, tenants are ultimately likely to bear the cost, compounding affordability pressures across the PRS.
Market Outlook for Landlords
Many landlords may need to reassess their portfolios in light of the new taxation. Those with smaller holdings or lower rental yields may struggle to maintain profitability and could consider exiting the market. Conversely, larger investors might adapt by increasing rents or adjusting investment strategies. The cumulative effect of these measures may be a more cautious approach to property investment overall.
Planning Ahead
Landlords now have time to prepare, as the changes do not come into effect immediately. The income tax rise begins in 2027, while the mansion tax is not due until 2028. This window provides an opportunity to reassess rental strategies, consider alternative investments, and explore ways to mitigate the financial impact on tenants.
Policy Uncertainty and Its Effects
The repeated changes to the PRS over the past decade have created uncertainty in the rental market. From fluctuating tax reliefs to compliance and regulatory requirements, landlords have had to navigate a complex environment. The latest Budget measures could further deter investment, slowing market activity and potentially limiting the availability of affordable rental properties.
The Importance of Maintaining Rental Supply
Maintaining a healthy private rental sector is vital for the wider housing market. With social housing insufficient to meet demand, private landlords provide much-needed homes for millions of households. Policies that erode profitability risk driving landlords away, which would exacerbate the ongoing rental crisis and place additional pressure on housing affordability.
The Role of Data and Analysis
The NRLA and other housing organisations continue to monitor the impact of these measures on both landlords and tenants. Detailed analysis of rental yields, property prices, and taxation trends is essential for informing policy recommendations and helping landlords make strategic decisions. Accurate data will be crucial for understanding how these tax changes affect supply and demand in the PRS.
Preparing for Compliance
Landlords should also prepare for additional administrative responsibilities, including updates to Making Tax Digital requirements. Staying compliant will be critical to avoid penalties and ensure accurate reporting of rental income under the new tax framework. Professional advice and careful planning will be increasingly important in navigating these complex changes.
Support and Guidance for Landlords
To assist landlords in understanding and responding to the Budget’s measures, the NRLA is hosting a dedicated member webinar. The session will provide expert insights into the announced changes, offer practical advice on managing financial impacts, and allow participants to ask questions about taxation, compliance, and broader market trends.
Conclusion
The Autumn Budget 2025 introduces significant taxation changes that will reshape the private rented sector. Landlords face increased income tax and a new mansion tax on high-value properties, while tenants are likely to feel the financial impact through higher rents. Strategic planning, awareness of compliance requirements, and access to expert guidance will be crucial for navigating this evolving landscape.
Looking Ahead
While the full effects of these measures will unfold over the coming years, it is clear that the Government’s approach could have lasting consequences for housing supply, affordability, and market stability. Landlords, tenants, and policymakers alike must monitor developments closely to mitigate negative outcomes and ensure a sustainable housing market.
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