‘Fed up’ landlords to pass on income tax hike to tenants

Summary: New polling reveals that most landlords intend to increase rents to cover the Chancellor’s 2% rise in income tax on rental income, set to take effect in April 2027. This tax increase is expected to impact landlords across England, Wales, and Northern Ireland, potentially leading to higher costs for tenants.

Landlords likely to raise rents following income tax increase

According to a recent survey by leading buy-to-let (BTL) mortgage lender Together, 86% of respondents believe landlords will pass on the additional costs from the Chancellor’s income tax hike to tenants. The poll, which included 2,000 participants, highlights growing concerns about affordability for renters already facing financial pressures.

The government has announced a 2% surcharge on property income tax, which will apply from April 2027. This increase will raise the tax rates to 22% for basic rate taxpayers, 42% for higher rate taxpayers, and 47% for additional rate taxpayers. The tax applies to landlords with properties in England, Wales, and Northern Ireland.

Financial impact on landlords

For landlords paying the basic rate of tax, those earning £50,000 annually from rental income will face an extra £755 in tax each year. Higher-rate taxpayers with rental incomes of £125,000 will see an additional £2,460 in tax liabilities annually. These figures illustrate the significant financial burden that the new tax will impose on landlords.

Landlords’ response and implications for tenants

Ryan Etchells, Chief Commercial Officer at Together, commented on the situation: “Many of our landlord customers have previously absorbed increased costs rather than passing them on to tenants, despite ongoing pressures from successive governments on the private rental sector.”

He added, “However, with this new 2% tax increase on property income, landlords with properties in their own names will face a substantial reduction in their incomes. This will inevitably affect tenants, as landlords look to recoup these costs through higher rents.”

Etchells further explained, “Our research shows that the public understands these additional costs will fall on renters. Coupled with recent regulatory, legislative, and tax burdens, including the forthcoming Renters’ Rights Bill, it is likely that rents will rise from next year onwards. If landlords find their portfolios unprofitable, some may be forced to sell their properties.”

Context for landlords and tenants

This tax increase comes amid a challenging environment for landlords, who are already managing a range of new regulations and rising costs. The private rented sector has faced numerous changes recently, including stricter tenancy laws and increased compliance requirements.

For tenants, the prospect of higher rents adds to existing affordability issues, particularly in areas with high demand and limited housing supply. Landlords may feel compelled to adjust rents to maintain their investment returns, potentially exacerbating the cost of renting.

What landlords should consider

Landlords should carefully assess their portfolios and financial strategies in light of the upcoming tax changes. It may be prudent to review rental pricing, operational costs, and long-term investment plans to ensure sustainability.

Additionally, landlords should stay informed about legislative developments, such as the Renters’ Rights Bill, which will further influence the rental market and landlord responsibilities.

Conclusion

The 2% income tax surcharge on rental income represents a significant new cost for landlords across England, Wales, and Northern Ireland. While some landlords have historically absorbed increased expenses, the scale of this tax rise is likely to lead to rent increases, impacting tenants. Landlords and agents should prepare for these changes and consider their implications carefully.

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New polling reveals most landlords plan to raise rents to cover the Chancellor’s 2% income tax increase on rental income from April 2027, affecting tenants across England, Wales, and Northern Ireland.

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Landlords to Pass on 2% Income Tax Hike to Tenants from April 2027