Chancellor John Healey announced that the tax rate on savings and property income will rise by a further two percentage points on top of the 2% increase announced at last year’s Budget.
This will apply across all tax bands from April 2027 and take the basic, higher and additional rates to 24, 44 and 49%, respectively.
The government’s Budget report said this was a “fair and proportionate approach” which would not affect 84% of income taxpayers.
The move is predicted to raise £400m a year on average from 2028-29 from property income alone, and £1bn collectively when including the tax on savings.
The Office for Budget Responsibility (OBR) said the policy would result in a “material reduction in return to private landlords”, following a decade of measures that have reduced returns.
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The OBR also predicted these measures could “collectively risk leading to a steady rise in rents through two effects”, firstly by deterring potential landlords from entering the market and reducing long-run rental supply that does not meet demand, adding it believed this was “more likely than not”. Secondly, landlords could pass costs onto renters and, combined with landlords leaving the market, those still in the private rental sector will have more power and flexibility to increase rents, offsetting the reduction in commercial viability.
Unlikely to encourage further landlord investment
Andrew Lloyd, managing director at Search Acumen, said landlords would feel an “underhand blow from the Chancellor” and the higher tax rates could be a concern to small and accidental landlords “whose margins have already been eroded this year”.
Steve Cox, chief commercial officer at Fleet Mortgages, said this was likely to make landlords reconsider how they held their rental properties, particularly those with larger portfolios.
He added: “We would not be surprised to see more landlords considering whether they should continue to hold their properties in their individual names or explore instead the potential benefits of limited company ownership.
“At a time when the private rental sector needs continued investment to meet tenant demand, there is also a wider question about the cumulative impact of tax changes on landlords’ willingness to invest.”
Rob Stanton, sales and distribution director at Landbay, said: “This is unlikely to encourage further investment in the private rental sector, particularly among landlords already questioning whether individual properties remain financially viable.
“The consequences of this decision are unlikely to be felt by landlords alone, because when the costs of providing rental housing increase, there is a real likelihood that some of those costs will eventually be passed on to tenants through higher rents.”
Stanton added that this may impact rental housing supply as some landlords could reconsider purchasing additional properties and others decide to sell their investments.
Tony Hall, head of business development at Saffron for Intermediaries, said this added more pressure onto landlords and taking more of their income would leave them with less to reinvest in maintenance, repairs, safety checks and property improvements.
Hall added: “These decisions require careful advice and long-term planning. Repeated tax increases make that planning harder and risk discouraging further investment.
“If the government wants more good-quality homes to rent, it needs to give landlords reasons to provide them. Squeezing rental investment further risks leaving tenants with fewer choices and higher costs.”
Elliot Vure, sales director at Together, said landlords were already losing incentives to maintain or expand their portfolios, and the government needed to be careful “not to overstretch this key cohort of landlords”.
He added: “Time will tell whether the benefits of the potential £575m yearly tax receipts generated by this move will outweigh the lost rental stock as a result.”
