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14/7/25 8:13 pm
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Chancellor Rachel Reeves has hit landlords in the pocket by hiking tax rates on property income by 2% in today’s Budget.
She increased both the basic and higher rate of tax on property, savings and dividend income from April 2027 when the property basic rate will be 22%, the property higher rate will be 42% and the property additional rate will be 47%.
In her speech, Reeves insisted she was closing tax loopholes and ensuring the wealthiest pay their share. She told MPs: “A landlord with an income of £25,000 will pay nearly £1,200 less in tax than their tenant with the same salary because no National Insurance is charged on property, dividend or savings income. It’s not fair that the tax system treats different types of income so differently.”
The Office for Budget Responsibility (OBR) in a leaked report, released before the budget was announced, warned that the measures announced in this Budget would reduce returns to private landlords, following various measures over the past 10 years that have also reduced returns.
It said: “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.”
Adam Jennings, head of lettings at Chestertons, believes that increasing income tax for landlords could have dire consequences on the rental market. “More landlords could decide to sell up which will result in fewer available rental properties and leave more renters struggling to find a property within their budget,” says Jennings.
Jason Tebb, OnTheMarket president, agrees that it will be disastrous for landlords. “After a decade of being squeezed by mortgage interest relief cuts, wear-and-tear allowance removal, SDLT surcharges, fiscal drag, and endless red tape, this move further erodes net yields, especially for highly leveraged landlords,” he says. “This reform will simply see more and more landlords removing themselves from the PRS sector for a further squeeze on rental supply.”
Ben Beadle, chief executive of the NRLA (pictured), says it’s a policy that the Office of Budget Responsibility has made clear will drive up rents. “Almost one million new homes to rent are needed by 2031,” he adds. “But this Budget will clobber tenants with higher costs while doing nothing to improve access to the homes people need.”
In her Budget, Reeves also introduced the High Value Council Tax Surcharge in England – an annual £2,500 charge for properties worth more than £2 million and up to £7,500 for properties worth more than £5 million.
She cited a band D home in Darlington or Blackpool which pays just under £2,400 in council tax, nearly £300 more than a £10 million mansion in Mayfair. The new policy, to be introduced in 2028, will raise over £400m by 2031 and will only affect 1% of properties.
Matthew Thompson, head of sales at Chestertons, believes this could see homeowners rushing to sell their home before the new tax takes effect while buyers would think twice before purchasing a home that will be subject to such a levy in the future. “This could lead to more high-value properties standing empty or force sellers to drastically reduce their asking price.”
Although Reeves didn’t extend National Insurance to rental income, she also didn’t unfreeze LHA, reduce the cost of greening homes, or reform Capital Gains Tax - all measures called for by the NRLA.
Isobel Thomson (pictured), chief executive of safeagent, the UK’s largest not-for-profit accreditation scheme for lettings and management agents, says: “As the Government recognises in its Renters’ Rights Act promotional material, landlords play a major role in providing much-needed housing.
"It is difficult to equate this with the announcement in the Budget of an increase in tax rates on property income and the clearsighted observation of the OBR that the measure will have a knock-on effect on the supply of property to rent with the potential to drive landlords out of the market and increase rent. It is a shame that common sense has not been applied."
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