Landlords are facing a further increase in property income tax after Chancellor John Healey announced a two-percentage-point rise from April 2027. The change adds to the increase announced in the previous year’s Budget, prompting concerns that rental property investment could become less profitable.
The Office for Budget Responsibility (OBR) has warned that the measures could encourage landlords to leave the market and contribute to higher rents for tenants.
According to The Telegraph, the new rates are expected to reach 24% for basic-rate taxpayers, 44% for higher-rate taxpayers and 49% for additional-rate taxpayers. Further details are still to be confirmed.
Property income takes centre stage
The tax increase was a key measure in the Budget, which also included support for household energy bills.
Announcing the change in his first Budget, Healey told MPs that property and savings income tax rates would rise by another two percentage points from April 2027. Tax rates on dividend income and employment earnings will remain unchanged under the announcement.
For landlords, the additional increase could put further pressure on rental returns. The extent of the impact will depend on individual circumstances and the final rules.
OBR warns of higher rents and reduced supply
The OBR has raised concerns that the latest tax measures could make the private rented sector less attractive to investors, potentially reducing the number of homes available to rent.
Its assessment identifies two main risks. First, fewer prospective landlords may choose to enter the market, limiting the long-term supply of rental properties. If demand continues to exceed the number of available homes, rents could rise.
Secondly, some existing landlords may decide to sell their properties. Those who remain could have greater scope to increase rents as competition for available homes intensifies.
The OBR believes these pressures could offset some of the financial impact that recent policy changes have had on landlords.
Industry leaders criticise the increase
Greg Tsuman, managing director of lettings at Martyn Gerrard, described the additional tax rise as a surprising decision, arguing that landlords were already under considerable pressure following the previous Budget.
He warned that further increases could accelerate landlords’ departure from the market, reduce the availability of rental homes and put additional downward pressure on house prices as more properties are listed for sale.
Ben Beadle, chief executive of the National Residential Landlords Association (NRLA), also criticised the move. He said higher taxes risk increasing rents and reducing supply at a time when demand for rental housing already exceeds the number of available properties.
Other housing measures announced
Alongside the tax changes, the Budget included several measures affecting housing, tenants and first-time buyers.
The government confirmed that tenants in England will not have to pay Stamp Duty Land Tax on rent under assured tenancies following the introduction of the Renters’ Rights Act on 1 May 2026. The exemption is intended to prevent tenants from unexpectedly becoming liable for the tax because of changes to tenancy arrangements.
A further £430 million was pledged to tackle rough sleeping, adding to the £442 million announced in August. This takes the total planned investment to £874 million by the end of the current Parliament.
The Chancellor also announced the Your First Home scheme, designed to help 70,000 first-time buyers purchase a property and reduce their monthly housing costs. Eligible buyers will be able to put down a deposit of at least 2.5%, take out a repayment mortgage with a participating lender and receive a government equity loan worth 20% of the purchase price. The loan will be interest-free for the first five years.
A further £1.5 billion was allocated to social and affordable housing, bringing planned capital investment over the next decade to more than £40 billion. Smaller housing developments on brownfield sites will also be exempt from Biodiversity Net Gain requirements, with the aim of making development simpler and less expensive.
However, there was no announcement on Local Housing Allowance, meaning the rates remain frozen.
Further concerns over landlord investment
Andrew Lloyd, managing director at property data firm Search Acumen, warned that the additional tax increase could particularly affect small and accidental landlords whose profit margins have already come under pressure. He also highlighted the potential impact on rental supply and rents.
He noted, however, that the introduction of a zero rate for land sold to social housing providers could help encourage the development of more council homes.
Tony Hall, head of business development at Saffron for Intermediaries, said the latest increase would add to the burden on landlords facing higher costs and growing regulatory responsibilities. He warned that taking a larger share of rental income leaves less money available for repairs, maintenance, safety checks and improvements.
Hall also pointed out that some landlords are reconsidering their ownership structures and portfolio strategies. Repeated tax changes, he argued, make long-term planning more difficult and could discourage further investment in rental housing.
Rob Stanton, sales and distribution director at Landbay, said the increase would affect landlords who own properties in their personal names across England, Wales and Northern Ireland, rather than those holding them through limited companies. He warned that the higher rates could prompt some landlords to sell existing properties or reconsider expanding their portfolios.
Stanton also suggested that the additional costs could eventually be passed on to tenants through higher rents, while a reduction in available rental homes could make it harder for households to find suitable accommodation.
Landlords may reconsider ownership structures
Steve Cox, chief commercial officer at Fleet Mortgages, believes the announcement could lead more landlords to review how they hold their properties, particularly those with larger portfolios and higher income tax liabilities.
The company’s latest Q3 Rental Barometer found that limited companies accounted for 71% of buy-to-let mortgage applications in the third quarter, down from 78% in the previous quarter. Cox suggested that the latest tax changes could renew interest in company ownership as landlords assess their options.
Jeremy Leaf, a north London estate agent and former RICS residential chairman, said the Budget offered little encouragement for new buy-to-let investors or existing landlords considering whether to remain in the sector. He warned that continued departures could put further pressure on rents and housing standards.
Marc von Grundherr of Benham and Reeves also criticised the increase, arguing that landlords are already dealing with higher running costs, additional regulations and the expense of maintaining their properties. He warned that making investment less attractive could reduce rental stock and push rents higher.
Roma Sharma, managing director of property management firm Rushbrook, said landlords could only absorb rising costs to a certain point. Some may delay property improvements, increase rents where possible or leave the market entirely, with tenants potentially bearing the consequences through higher costs and fewer choices.
The latest Budget therefore adds another challenge for the private rented sector. With property income taxes set to rise again in April 2027, landlords will need to assess how the changes affect their returns, while the wider market faces continued uncertainty over rental supply and affordability.
Download NOW
4 Simple Steps To Becoming Wealthy Through Property