A fresh 2 per cent increase in income tax on rental income has prompted landlords to warn of rent rises and property sales, following Chancellor John Healey's Budget announcement. From April 2027, basic rate taxpayers will pay 24 per cent income tax on rent, up from 20 per cent today. Higher rate taxpayers will face 44 per cent taxation, up from 40 per cent, while additional-rate taxpayers will be taxed at 49 per cent, up from 45 per cent. This follows a 2 per cent increase announced by Rachel Reeves in last year's Budget.
For a basic rate taxpayer landlord receiving £12,000 of rental income annually after expenses, the tax bill will rise from £2,400 to £2,880 from April 2027, an increase of £480. A higher rate taxpayer with the same income would see their tax bill rise from £4,800 to £5,280, while an additional rate taxpayer would face a rise from £5,400 to £5,880. Multiple landlords interviewed expressed concern about the cumulative impact of successive tax rises. Mike Matthews, who owns eight properties in Worcestershire, said he is reluctantly considering selling them all, having already put one property on the market due to increased mortgage costs. He warned that increased costs would mean increased rent, pushing tenants on the brink deeper into crisis.
Other landlords facing cumulative pressures from previous policy changes plan to exit the buy-to-let market. Mark Imray, who owns properties in the East Midlands and East of England, described the latest tax rise as another nail in the coffin for buy-to-let following years of increased taxes and regulations. He and his wife plan to sell at least half their properties as fixed rate mortgage deals expire. Mohamed Ajami, a London landlord with two decades of experience, said his buy-to-lets yield between 1 and 2 per cent after tax each year, with some years resulting in losses. He described buy-to-lets as feeling more like a liability than an investment.
Landlords face multiple other fiscal pressures beyond income tax. They pay a 5 per cent stamp duty surcharge when buying properties and capital gains tax of between 18 and 24 per cent when selling. Mortgage interest can no longer be offset against rental income. Some councils charge landlord licence fees of around £1,000 per property every five years, and from later this year, landlords in England must pay £65 annually per property to register on a national database. The Renters' Rights Act introduced earlier this year banned fixed term tenancies and made evictions harder.
However, not all landlords may be able to pass costs to tenants through rent increases. The average UK rent stands at £1,343 a month after rental growth of 2.6 per cent in the last year, below the inflation rate of 3.5 per cent. Mark Imray said his properties are let at market rate but raising rents could cause tenants to leave. Mohamed Ajami noted that with income tax bands frozen since 2021 until at least 2031, raising rents to cover the tax increase would push him into a higher income tax bracket, worsening his position. Harry Johnston OBE, who owns 40 mortgage-free flats worth £4.5 million in north Manchester, said the tax hike would result in higher rents, warning that government policies are causing the rising rents they criticise.
For UK renters, this means landlords facing higher tax bills may respond by raising rents, selling properties which reduces rental stock, or moving into rent arrears if unable to increase income sufficiently to cover costs.