Chancellor Rachel Reeves is under increasing pressure from Labour MPs to introduce new taxes on landlords. This comes as the government looks for ways to manage a significant budget shortfall while still honouring its pledge not to raise taxes on what it describes as ‘working people’.
A recent survey by the National Residential Landlords Association revealed that 83% of landlords are concerned about the possibility of higher Capital Gains Tax when they decide to sell a rental property. The findings suggest growing unease within the landlord community about potential tax changes.
Prime Minister Keir Starmer has already stated that landlords should not be considered ‘working people’. This comment has led to speculation that Labour may be laying the groundwork for new fiscal policies aimed at increasing taxation on rental income.
Nick Williams, a former Downing Street adviser, echoed these concerns in The Times. He stressed that tax increases are likely unavoidable, stating that “taxes would have to go up” in order to close the country’s financial gap.
Meanwhile, reports in The Times also suggest that several Labour MPs are in favour of increasing taxes on rental income. Such a move could significantly alter the landscape of the UK’s private rental sector if implemented.
Landlords pay income tax
Chris Norris from the National Residential Landlords Association highlighted to the Daily Telegraph that landlords are already required to pay income tax on their rental earnings.
He warned that introducing further taxes would only add more complexity to the system and discourage much-needed investment in the Private Rented Sector (PRS). This, he said, could worsen the ongoing housing crisis.
Norris stated that rumours about a potential new ‘rental income tax’ are misleading, as they give the false impression that rental income is not already taxed in the same way as other personal or business income.
He went on to explain that since 2015, landlords have been burdened by a string of harsh tax and regulatory changes. These include the removal of mortgage interest relief and the introduction, followed by an increase, of the stamp duty surcharge on additional properties.
According to Norris, these financial pressures have already led to reduced investment in the sector. Many landlords have chosen to exit the market altogether, resulting in fewer available rental homes and pushing rents higher for tenants.
Possible landlord tax options
The Telegraph has examined the possible tax measures that Chancellor Rachel Reeves might consider, with one suggestion being that landlords could be required to pay National Insurance on their rental profits.
Supporters of the idea argue that this would bring landlords’ contributions in line with those made by self-employed individuals.
Robert Salter from tax firm Blick Rothenberg outlined how this could work. Landlords might face National Insurance rates of 6% on profits between £12,570 and £50,270, and 2% on any earnings above that threshold.
However, Ian Cook, a financial planner at Quilter, highlighted potential complications with this proposal. He noted that many landlords have a median age of 58, meaning they are close to or already past the state pension age — a point at which National Insurance contributions typically end.
This age factor could require the introduction of a complicated two-tier system to account for different age groups, Cook warned.
Rental income tax band
As an alternative, Mr Cook has proposed introducing a separate tax band specifically for rental income.
At present, landlords can take advantage of a £1,000 tax-free property allowance. Any rental income above this threshold is taxed in line with standard income tax bands.
For example, if a landlord earns £45,000 from employment and an additional £8,000 from letting out property, their rental income could be taxed across both the 20% and 40% brackets, depending on their overall earnings.
Mr Cook also pointed out that many couples reduce their tax liability by assigning rental income to a non-working partner, making use of that person’s personal allowance.
By implementing a standalone rental tax band, the government could limit such tax planning methods and potentially increase tax revenues for the Treasury.
Landlords are worried about CGT
A recent survey by the National Residential Landlords Association (NRLA) has shown that 83% of 882 landlords are worried about the possibility of a rise in Capital Gains Tax (CGT) when selling rental properties.
The results revealed that 61% of respondents said they were ‘very concerned’, while 22% were ‘slightly concerned’ about the potential changes.
In addition to CGT worries, the NRLA survey also found that landlords are becoming increasingly uneasy about the proposed Renters’ Rights Bill. Over half (53%) said they were ‘very concerned’, and 35% said they were ‘slightly concerned’ about the bill’s potential impact.
Ben Beadle, chief executive of the NRLA, commented on the findings by highlighting the fragile confidence of property investors. He noted that many landlords are feeling uncertain due to government approaches on taxation, rental reforms, and energy efficiency requirements.
Beadle added that the current tax system actively discourages investment in the private rented sector. He warned that any increase in Capital Gains Tax could worsen the situation by pushing more landlords to exit the market entirely.
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