Landlords will be facing higher rates of income tax following the Budget. NRLA chief executive Ben Beadle explains why this is also bad news for tenants.
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Landlords once again found themselves in the firing line in this year’s Budget, with the Chancellor announcing a 2 percentage point increase on rates of income tax on property income, with a new council tax surcharge introduced on homes worth more than £2 million.
In a speech on November 26, Rachel Reeves announced her Budget was designed to tackle the cost-of-living crisis head-on.
It was with some consternation, therefore, that we learned this would involve yet more tax rises for landlords, with basic, higher, and additional rates increasing to 22%, 42%, and 47% respectively from April 2027.
For context, landlords have already been hammered by tax changes in recent years. The abolition of mortgage interest relief (MIR) and introduction of the now 5% stamp duty surcharge on the purchase of homes to rent have made it more difficult for the numbers to stack up for some.
And it is not just landlords, but tenants – particularly those on the lowest incomes – that are likely to be hurt most by the changes.
Rent rises
Our analysis here at the NRLA suggests the tax increase could add between £20 and £25 per month to typical rents in England – rising to more than £40 in London.
This is bad news across the board, but especially for those already struggling to make ends meet, not least as it was also confirmed that Local Housing Allowance rates will remain frozen.
This is despite the fact that more than half of all households receiving help with their housing costs are seeing a gap between the payment they receive and their monthly rent.
For some landlords, such tax increases could well be the straw that breaks the camel’s back, with our own research showing many were already questioning their future in the sector even before the Budget was announced.
And it’s not just us saying this. Goodlord’s recent State of the Lettings Industry report revealed that 19% of landlords had reduced their portfolio size in the past year. Meanwhile, a report from the Office for Budget Responsibility (OBR), leaked ahead of the announcement, revealed:
“The measures announced in this Budget reduce returns to private landlords, following various measures over the past 10 years that have also reduced returns.
“This successive eroding of private landlord returns will likely reduce the supply of rental property over the longer run. This risks a steady long-term rise in rents if demand outstrips supply.”
Putting it bluntly, if the Chancellor really wants to tackle the cost-of-living crisis, increasing landlords' taxes is a bizarre way to go about it.
Rented housing crisis
The imbalance between supply and demand of rental homes has been making the headlines for some time, so it beggars belief that the Chancellor thinks landing those who are providing safe, decent homes for millions around the country should be hit with increased tax rates, not least with recent research from Savills showing we will need an extra million homes to rent by 2030.
With the number of homes built this year 6% down on the previous 12 months, and the waiting list for social housing sitting at over 1.3million, the Government needs a robust and vibrant private sector now more than ever.
In short, landlords should be encouraged into the sector, not taxed out of it.
Increased financial pressure, at a time when landlords are also facing a raft of legislation change, from the introduction of the Renters’ Rights Act next year to new Making Tax Digital responsibilities and proposed changes to minimum energy efficiency standards, is not helping.
By targeting the sector with yet more unfair tax policies, the Government is not only exacerbating the current rental supply crisis, but punishing those who need its help the most.
This article is intended as a guide only and does not constitute legal advice. Visit gov.uk for more information.
