Landlord tax rises spark rent increases and sector shifts

Landlord tax rises spark rent increases and sector shifts

New Budget tax hikes on property income will take effect in April 2027, adding four percentage points in total. Landlords warn this will push up rents and influence investment decisions across the private rented sector.

The Chancellor’s recent Budget has introduced a further two percentage points increase on property income tax, adding to the two points announced last year. Both changes come into effect in April 2027, meaning landlords face a total four-point rise on their rental income tax within a short period.

This tax increase has been met with significant concern among landlords, many of whom feel singled out by the government’s approach. While the initial rise announced in 2025 was anticipated, the additional increase before that even takes effect has surprised and unsettled the sector.

Budget tax hikes and landlord reactions

Landlords’ responses to the tax rise vary. Some, like Sarah Fox-Moore, have already decided to increase rents by five per cent to offset the higher tax and regulatory costs. Others, such as Jaeger Von Toogood, view their rental business as a commercial operation and plan to raise rents accordingly to cover expenses.

Conversely, some landlords intend to carefully calculate the impact with their accountants before adjusting rents, reflecting a more measured approach. This diversity of responses highlights the complexity of passing on tax costs in a competitive rental market.

Underlying these individual decisions is the broader question of who ultimately bears the cost of these tax increases. While landlords legally pay the tax, economic factors mean tenants may face higher rents over time, especially as supply and demand dynamics shift.

Office for Budget Responsibility warns of rent rises

The Office for Budget Responsibility (OBR) has weighed in on the issue, warning that higher taxation and regulatory measures could lead to steady rent increases over several years. The OBR’s analysis points to two main effects:

• Reduced returns may discourage new investment, limiting the future supply of rental properties.
• As some landlords exit the market, remaining landlords may have more freedom to raise rents due to reduced tenant options.

This assessment suggests that rent increases may not be immediate or uniform but could develop gradually as market conditions evolve. It also indicates that landlords cannot simply pass on tax hikes directly if local rental rates are constrained by competition and tenant affordability.

Sector shifts and incorporation trends

The tax changes may also influence ownership structures within the private rented sector. Some landlords, particularly smaller ones, may decide that the combined burden of taxation, regulation and administration no longer justifies their investment. This could lead to property disposals and a contraction of smaller-scale landlord portfolios.

Meanwhile, larger investors might respond by expanding through limited companies, which offer opportunities to retain profits for reinvestment and benefit from different tax treatments. Incorporation involves additional costs and compliance obligations but can provide a more corporate framework that is easier for HMRC and other authorities to monitor.

This shift could reshape the sector’s makeup, with a greater share of rental properties held by incorporated entities rather than individual landlords. However, this transition is complex and may not be suitable or desirable for all landlords.

Implications for landlords and tenants

For tenants, the immediate impact may be rent increases in some areas, as landlords seek to cover higher tax and regulatory costs. However, rent rises will depend on local market conditions and tenants’ ability to pay. Landlords cannot uniformly increase rents without risking vacancies if comparable properties are available at lower prices.

For landlords, the tax rise adds to a series of financial pressures, including regulatory compliance costs and administrative burdens. Those with smaller portfolios may find it increasingly difficult to operate profitably, while larger landlords might explore incorporation or other strategies to mitigate tax impacts.

Landlords should review their portfolios carefully, consider the local rental market’s capacity to absorb rent increases, and seek professional advice on tax planning and compliance. Monitoring ongoing government policy announcements and economic forecasts will also be crucial as the sector adjusts to these changes.

What landlords should consider now

• Assess the financial impact of the upcoming tax increases on rental income and overall profitability.
• Review rent-setting strategies in light of local market conditions and tenant affordability.
• Consider the potential benefits and drawbacks of incorporation for portfolio management and tax planning.
• Stay informed about regulatory changes and government guidance affecting landlord obligations.
• Engage with accountants or tax advisors to optimise tax efficiency and compliance.

Supporting landlords through tax and regulatory changes

The Landlord Association (TLA) offers resources and support to help landlords navigate the evolving tax and regulatory environment. TLA membership provides access to practical compliance guides, tax planning information, and expert advice tailored to the private rented sector.

Additionally, TLA’s new property management and compliance platform, ORBIT, currently in BETA testing, is designed to assist landlords and letting agents in organising portfolios, managing documents, and recording key compliance activities. While still in development, ORBIT aims to streamline record-keeping and support landlords in meeting their obligations amid increasing complexity.

Exploring TLA membership and ORBIT BETA access can help landlords stay organised, monitor regulatory developments, and prepare for future changes in the sector.

Looking ahead, the interaction between tax policy, rental market dynamics and landlord behaviour will continue to shape the private rented sector. Landlords should remain vigilant and proactive in adapting to these challenges.

Sources: Landlord Today