Think tank's suggestion keeps buy-to-let market in crosshairs of likely budget upheaval
Already braced for the impact of the Renters’ Rights Bill and a possible extension of National Insurance to rental earnings, landlords now find themselves in the crosshairs of yet another tax proposal: an increase in income tax.
The Resolution Foundation, a think tank with close ties to the Labour Government, has suggested reducing employee National Insurance contributions by 2p and offsetting the cost by raising income tax by the same margin in the autumn Budget. If enacted by the Government, this would break its manifesto pledge not to increase income tax.
These proposals come as Rachel Reeves, the Chancellor, faces mounting pressure to implement a bold overhaul of the tax system amid a reported £50 billion shortfall in the public finances. The think tank argues that the new proposal would “boost growth and make the tax system fairer.” For landlords, however, it would mean retaining less of their rental income - a development that could prompt some to reconsider their investments or pass costs on to tenants.
This latest idea follows closely on the heels of the Resolution Foundation’s proposal to widen the scope of National Insurance to encompass landlords’ rental earnings, introducing both a basic rate and a higher marginal charge above a certain threshold. Phased in, the think tank believes such a “landlord tax” could raise approximately £3 billion a year once fully implemented. Notably, the proposal would not apply to corporate landlords.
Combined with the introduction of the Renters’ Rights Bill - which proposes the abolition of Section 21 “no fault” evictions and restrictions on rent increases, among other measures - many landlords now face the prospect of diminished control over their investment properties and a larger tax bill.
Reports of stamp duty reform offer little solace. While mooted changes include a new national property tax on homes worth more than £500,000, the proposal would retain stamp duty for second homes and buy-to-let properties.
David Titherington, of The Mortgage Station, told Mortgage Introducer: “The Chancellor is between a rock and a hard place when it comes to prioritising tax rises over spending cuts. If she wishes to adhere to her own ‘non-negotiable’ fiscal rules, she will have to act.”
He sees a less painful alternative to outright income tax rises, adding: “An income tax increase might come in the form of suspending tax thresholds, so more people will fall into higher tax bands as wages rise. This may be the least painful way to implement such a rise.”
Titherington expressed concern about the prospect of a “landlord tax” and believes the buy-to-let sector has already endured sufficient turmoil following the 2022 mini-budget. “This was detrimental not only to landlords, but also to renters,” he said. “Fewer houses were available to rent as landlords sold up; rents increased to keep pace with higher mortgage payments and rising demand. I suspect the buy-to-let market would dip again, and limited company buy-to-lets will become the norm.”
Despite the prevailing gloom as the mortgage industry approaches the autumn Budget, he maintains faith in the sector’s resilience. “Whatever the Budget may bring, our industry will adapt, and the professionals within it will meet the challenges with diligence, skill and determination.”
The influential Resolution Foundation’s report, released ahead of the Chancellor’s autumn Budget, calls for a “fundamental rebalancing” of the tax system. In addition to the 2p income tax increase, the think tank advocates a new tax on pensioners, suggesting that those who benefit from the so-called “triple lock” should contribute more to the public purse.
Critics warn that shifting the tax burden onto income could disproportionately affect landlords, self-employed professionals and pensioners with private income streams. The National Residential Landlords Association has previously cautioned that higher taxes on rental income risk undermining the supply of affordable homes, as some landlords may exit the market or raise rents to cover the shortfall.
Ms Reeves has yet to commit to any specific measures, but the pressure is mounting. The Chancellor faces a delicate balancing act: finding ways to fund public services and meet fiscal targets, while avoiding measures that could stifle investment or harm key sectors such as housing.
As the Budget approaches, landlords and mortgage professionals will be watching closely. Any shift in the tax landscape could have far-reaching implications for the buy-to-let market, mortgage demand and the wider property sector. With the Government seeking to “make the tax system fairer”, property investors may soon find themselves at the sharp end of reform.
