More than seven in ten landlords expect to raise rents following the announced increases in property tax, while more than half are considering selling properties.

The snap post-Budget poll of 168 NRLA members by Pegasus Insight found that 73% expected the tax changes to lead to higher rents when they are next permitted to increase them. The largest group (38%) anticipated raising rents by 5% to 10%, or to market levels if higher. A further 11% expected increases of more than 10%, while 24% anticipated rises of less than 5% or to market levels.

Properymark reports that average monthly rents are already rising, and increased in eight out of 11 regions between September and October, with Wales recording the largest rise at 31%, followed by the North East at 29% and the South West at 7%. Scotland, London and the North West were the only regions to record monthly falls.

The NRLA poll also found that 52% planned to sell property during the next 12 months in response to the changes. This included 38% intending to sell some properties and 14% their entire portfolio. Only 2% planned to buy more rental property, while 26% expected to make no changes and 20% said it was too early to decide.

Balance

The findings come as the Intermediary Mortgage Lenders Association (IMLA) warns that higher taxes could force landlords to reconsider the balance between rental income, potential capital growth and the costs of changing their investments.

Using an example of a £250,000 property with a £150,000 mortgage, generating annual rental profit of £4,365 before tax, IMLA calculates that a higher-rate taxpayer below the personal allowance withdrawal threshold would pay about 74% of that profit in tax from 2027/28. For an additional-rate taxpayer earning more than £130,000, the figure rises to around 86%.

For landlords earning between £100,000 and £125,140, where the personal allowance is progressively withdrawn, the effective tax rate can exceed 100%. IMLA's example of a landlord earning a £100,000 salary produces a tax bill attributable to the rental income equivalent to approximately 124% of rental profit.

Shift

IMLA believes the changes may accelerate the shift towards limited company ownership. Executive director Kate Davies says some landlords will continue to see property as a worthwhile long-term investment, particularly where they anticipate capital growth, while others may decide lower rental returns change the calculation.

It adds that properties sold by individual landlords may be bought by other investors, including those building corporate portfolios meaning that a reduction in properties held by individual landlords doesn’t necessarily mean an equivalent fall in the supply of privately rented homes.

Mark Long, director of Pegasus Insight, says the government needs to consider what it is asking landlords to deliver and whether its tax policy supports that. “Tenants need good quality homes at rents they can afford, and providing those homes requires continued investment. Squeezing the income available to fund that investment risks undermining those ambitions.”

‍