The UK government has dismissed concerns that the recent increase in property tax announced in the Autumn Budget will lead to higher rents, despite warnings from the Office for Budget Responsibility (OBR) about potential impacts on the private rented sector. This issue is particularly relevant for landlords, letting agents, and property managers as it touches on rental supply and affordability.

Government stance on property tax and rent levels

Following the Autumn Budget, Chancellor Rachel Reeves announced a 2 percentage point increase in tax rates on property income. In response to a written question from Lord Truscott regarding the effect of this tax rise on landlords, rental supply, and rent levels, Lord Livermore, Financial Secretary to the Treasury, stated that the OBR does not expect the reform to property income tax to have a significant impact on rents.

This position suggests that the government believes the tax changes will not translate into increased costs for tenants, aiming to reassure the private rented sector that rental prices should remain stable despite higher taxation on landlords.

OBR’s warning on long-term rental market effects

Contrasting with the government’s view, the OBR’s Economic and Fiscal Outlook report highlights concerns that successive reductions in private landlord returns could reduce the supply of rental properties over time. The report states: “The measures announced in this Budget reduce returns to private landlords, following various measures over the past 10 years that have also reduced returns.”

It continues: “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.”

For landlords, this signals a potential challenge ahead. Reduced profitability may discourage investment in rental properties, which could tighten supply and place upward pressure on rents in the future. This is a critical consideration for those managing portfolios or planning acquisitions.

Industry concerns and lack of impact assessment

The Treasury has not published an impact assessment specifically analysing how the new 2% property income tax rise will affect rents or housing availability. This omission has drawn criticism from industry experts who warn that the tax increase could be detrimental to landlords and tenants alike.

Jonathan Stinton, head of mortgage relations at Coventry Building Society, commented: “Hiking property income tax won’t just hit landlords, it will hit renters in the pocket too. When the cost of being a landlord rises, those pressures almost always find their way into monthly rents, meaning those who don’t own a home pay the price.”

He further noted that landlords holding properties within limited companies will also face increased costs due to a similar rise in dividend tax, compounding the financial pressures.

Stinton added: “The more landlords are taxed the less appealing it is to let a property, which could lead to fewer landlords and reduced choice for landlords. The simple but powerful forces of supply and demand would then push rents higher, making it much more difficult to rent a home.”

These insights underline the interconnected nature of taxation, landlord investment decisions, and rental market dynamics.

Implications for UK landlords and letting agents

For landlords, the tax increase represents an additional cost that may affect net rental yields. While the government maintains that rents will not be significantly impacted, the OBR’s analysis and industry expert opinions suggest landlords should prepare for potential market adjustments over time.

Letting agents and property managers should be aware of these developments as they could influence landlord behaviour, property availability, and tenant demand. Maintaining clear communication with landlords about tax changes and their possible effects will be important in managing expectations and advising on portfolio strategies.

Looking ahead: TLA Trusted Partners Hub

In related news, the Tenant and Landlord Association (TLA) is launching a new Trusted Partners Hub in Q1 2026. This initiative will feature verified and approved service providers selected 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 become part of this network.

This development aims to enhance the support ecosystem for landlords navigating an evolving regulatory and fiscal environment.