Property owners face new Income Tax hikes

Property owners will have to pay a further 2% in Income Tax on their rental earnings from April, Chancellor John Healey announced.

In a Budget that contained little to encourage landlords, he raised the basic level of tax on rent to 24%.

Healey’s predecessor Rachel Reeves had planned to increase the rate to 22% from 20%, but now it is going up even more.

The higher rate will go up from 40% to 44%, and the additional rate from 45% to 49%.

Fair and proportionate

“The Government is keeping the rates of tax paid on earnings unchanged, while seeking an additional contribution from those with taxable income from assets,” the Treasury says.

“Budget 2025 increased the rates of tax on savings and property income by two percentage points across all tax bands from April 2027. The Government will increase these rates by a further two percentage points from that date.

Those who earn more contribute more.”

“This is a fair and proportionate approach, and 84% of income tax payers will be unaffected by these changes.

“This also raises revenue in a progressive way, so that those who earn more contribute more. Around half of the revenue raised from this change is  expected to come from the top 10% of households.”

Industry reaction

Ben Beadle, Chief Executive at the NRLA (National Residential Landlords Association), says: “The Chancellor has today made life harder for renters right across the country.

“As the Office for Budget Responsibility has confirmed, hiking taxes will drive up rents and drive down supply in the rental market when demand is already way ahead of the number of homes available.

“How that fits with a commitment to providing households with more breathing space is anyone’s guess.”

Timothy Douglas, Head of Policy and Campaigns at Propertymark, says: “The proposed steep and punitive rise in income tax on property income from April 2027 is a further disincentive to potential landlords from entering the market, and it will hit existing landlords badly.

“As the Office for Budget Responsibility has pointed out, this decision to raise the tax will result in a steady, long-term rise in rents, impacting tenants as well as landlords.

“Propertymark is concerned about the cumulative impact of successive changes on landlords’ confidence and willingness to invest in the private rented sector. This will be bad news for tenants if the supply of rental homes dwindles.”

Steve Cox, Chief Commercial Officer at Fleet Mortgages, says: “The further increase in property income tax is likely to make many landlords reconsider how they hold their rental properties, particularly those with larger portfolios who may already be paying higher rates of income tax.

“Our latest Q3 Rental Barometer showed that 71% of buy-to-let mortgage applications in Q3 were made through limited companies, compared to 78% in the previous quarter, suggesting there had been some movement back towards individual borrowing.

“However, with property income tax rates now set to rise even further than previously announced, 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.”

Stop and ask

Paul Shamplina, Founder of Landlord Action, says: “I really do wonder how much more the Government thinks private landlords can take.

“Last year we had a two percentage point increase in tax on rental income announced, and now we are being told there is another two per cent on top of that. At what point does someone stop and ask what this is actually going to do to the rental market?

“I am speaking to landlords every single day, and far too many are already questioning whether it is worth staying in the sector. They have got rising costs, more regulation, the changes brought in by the Renters’ Rights Act, and now another tax increase to contend with.

“Of course, landlords should pay their fair share of tax, but there has to be a balance. We rely on private landlords to provide homes for millions of tenants, and if you keep making it more expensive and less attractive to let property, many more will inevitably decide to sell.”