Additional tax on rental income ‘disastrous for landlords’

Property industry stakeholders have strongly criticised the Labour government’s decision to increase tax rates on property rental income, warning that the move will intensify financial pressures on landlords and drive up rents across the country.

From April 2027, landlords will face a two percentage point rise in income tax on rental earnings. The basic rate will increase to 22%, the higher rate to 42% and the additional rate to 47%.

📢 The Budget brings major changes for landlords. From April 2027, the basic, higher, and additional rates of income tax on property income will increase by 2% for each category.

— NRLA - National Residential Landlords Association (@NRLAssociation) November 26, 2025

The Office for Budget Responsibility (OBR) has acknowledged that the policy will reduce landlord returns and is likely to constrain the supply of rental properties. “The measures announced in this Budget reduce returns to private landlords, following various measures over the past 10 years that have also reduced returns,” the OBR stated.

“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.”

Ben Beadle (pictured top, far left), chief executive of the National Residential Landlords Association, contended that the measures conflict with stated government objectives regarding housing accessibility. “Despite claims of tackling cost-of-living pressures, the government is pursuing a policy that the OBR has made clear will drive up rents,” he pointed out.

“Almost one million new homes to rent are needed by 2031. But this Budget will clobber tenants with higher costs while doing nothing to improve access to the homes people need.”

Jason Tebb (pictured top, second from left), president of property listing platform OnTheMarket, characterised the tax increase as particularly harmful. “The additional tax on rental income is disastrous for landlords,” he said.

“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. This reform will simply see more and more landlords removing themselves from the privare rented sector for a further squeeze on rental supply.”

Analysts estimate the tax increase will add between £20 and £25 monthly to rents in England. The measure compounds earlier policy changes affecting property investors, including restrictions on mortgage interest relief, increases to stamp duty on landlord purchases, and certain provisions of the Renters’ Rights Act.

“It seems that landlords dodged the rumoured imposing of National Insurance on their income in the Budget,” noted Ryan Etchells (pictured top, centre), chief commercial officer at property lender Together. “However, the taxman will still take a sizable bite out of their incomes due to Reeves' rise in income tax rates for sole trader landlords who hold properties in their own names.

“Landlords have been hammered with increasing tax and regulation over the last few years thanks to previous policy changes. Regulatory changes, as well as the Renters’ Rights Act, means there will be more pain for landlords to contend with.

“All this will inevitably result in higher rents from next year onwards, which could force landlords to sell up altogether if they can't make the numbers stack up, worsening the UK’s rental crisis.”

Paresh Raja (pictured top, second from right), chief executive of specialist lender Market Financial Solutions, also cautioned about the cumulative effect of repeated tax increases on property investors. “It feels like every Budget includes yet another jab in the ribs for landlords,” he said.

“It’s not a shock; successive governments have treated the buy-to-let sector as an easy target for squeezing tax revenue and piling on financial friction. But it needs to be said again: landlords are crucial to a healthy private rental sector, providing quality homes in high-demand areas for people who can’t or don’t want to buy.

Today they've been hit with fresh challenges. Safe to say there will be little sympathy for landlords, but the government should tread carefully – the burden of boosting the government's tax income cannot be spread unfairly, and excessive targeting of landlords risks upsetting the balance of the private rented sector by driving up rents or diminishing supply.”

However, for Steve Cox (pictured top, far right), chief commercial officer of buy-to-let lender Fleet Mortgages, it is far too early to say how the tax measures will impact supply within the private rented sector. “But of course it will require a reassessment by landlords, and we are likely to see rents being reviewed in order to maintain profits,” he added.

“I think we can be fairly certain that this decision will move landlords even further towards using corporate vehicles for their portfolios; our most recent Rental Barometer already showed 81% of all mortgage applications we received were from limited company borrowers, and the direction of travel now looks likely to move even further towards this.”

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