Budget Tax Rise Sparks Concerns Over Landlord Sell-Off, Says Knight Frank

The recent Autumn Budget announcement, which includes a 2 percentage point increase in rental income tax, has raised concerns among landlords and agents about potential rent increases and a reduction in rental property supply. Knight Frank’s analysis suggests that this tax rise could prompt some landlords to exit the private rented sector, impacting rental availability and costs.

Impact of Increased Tax Burden on Landlords

Chancellor Rachel Reeves’ decision to raise the tax on rental income by 2 percentage points is expected to increase the financial pressure on landlords. Tom Bill, head of UK residential research at Knight Frank, explains that as the tax burden grows, more landlords may choose to sell their properties. This reduction in supply could lead to higher rents, as demand outstrips availability.

Bill highlights that landlords who remain in the sector may need to pass on these additional costs to tenants, further driving up rental prices. He references the Office for Budget Responsibility’s commentary alongside the Budget, which warns that the continual erosion of private landlord returns is likely to reduce rental property supply over the long term, risking a steady rise in rents.

Evidence of Rising Rents in London

There is already observable upward pressure on rents, particularly in prime London markets. According to Knight Frank’s data, average rental values in prime central London increased by 1.8% in the year to November, while prime outer London saw a 2.2% rise. This trend reflects the tightening supply and growing costs landlords face.

Potential for a Landlord Sell-Off

Gary Hall, head of lettings at Knight Frank, notes that while many landlords are adapting to regulatory changes such as the Renters’ Rights Act, further erosion of profit margins could drive some out of the sector. He points out that landlords are unlikely to retain assets that no longer generate a viable return, leading to a quicker sell-off of rental properties.

In response to the increasing financial burden, Knight Frank reports a growing interest among landlords in incorporation as a strategy to manage tax liabilities. However, despite these challenges, rental yields in the private rented sector (PRS) are increasing due to rising rents combined with declining house prices.

Long-Term Rental Growth Trends

Data from Knight Frank shows significant rental growth since November 2019, with average rents in prime central London rising by 35%, compared to just 2% in the six years prior. Similarly, prime outer London rents have increased by 33% over the same period, up from 8% in the six years before the Covid-19 pandemic. This sustained growth underlines the ongoing demand for rental properties despite tax and regulatory pressures.

Implications for UK Landlords and Agents

For landlords and letting agents, these developments highlight the importance of reviewing investment strategies and rental pricing carefully. The increased tax burden may necessitate rent adjustments to maintain profitability, but landlords should also be mindful of tenant affordability and market conditions. Additionally, exploring incorporation and other tax-efficient structures could become increasingly relevant.

Agents will need to support landlords through these changes, providing clear advice on market trends and regulatory compliance. Monitoring rental market data and tenant demand will be crucial to managing portfolios effectively in this evolving environment.

Looking Ahead: Support for Landlords

The Landlord Association (TLA) is preparing to launch a new Trusted Partners Hub in Q1 2026. This initiative will feature verified and approved service providers to support landlords, tenants, and property management businesses. Legal, trades, insurance, financial, mortgage, tenant screening, and other service providers are invited to register their interest to join the hub, which aims to offer trusted resources to the rental sector.

Landlords and agents should consider how to leverage such support networks to navigate the challenges posed by tax changes and market pressures effectively.