Landlords Warn Tax Increases Could Lead to Higher Rents and Tenant Hardship

Summary: The National Residential Landlords Association (NRLA) has warned that Chancellor Rachel Reeves’ recent tax increases on property income will likely push rents up by £20-25 per month, disproportionately affecting low-income tenants. With housing benefit rates frozen for a second consecutive year, the combined effect risks worsening affordability and tenant hardship across the UK.

Introduction: Tax Changes and Their Impact on the Private Rented Sector

In the 2025 Budget, Chancellor Rachel Reeves announced significant tax increases on property income, savings, and dividends, effective from April 2027. The new rates will see the property basic rate rise to 22%, the higher rate to 42%, and the additional rate to 47%. The NRLA has expressed serious concerns that these changes will lead to increased rental costs, hitting low-income renters hardest.

Projected Rent Increases and Tenant Hardship

According to analysis by the NRLA, the higher tax burden on landlords is expected to translate into rent rises of approximately £20-25 per month for typical properties, with increases potentially exceeding £40 per month in London. This comes at a time when housing benefit rates are frozen for the second year running, limiting the support available to tenants reliant on these payments.

Ben Beadle, Chief Executive of the NRLA, criticised the government’s approach, stating: “It beggars belief that the government thinks it’s helping renters. Piling on further tax rises that will drive up rents, whilst keeping housing benefit rates frozen, is a one-way street to hitting low-income tenants the hardest. This can only be described as a deeply regressive package that will make life more difficult for renters across the country.”

Housing Benefit Freeze and Its Consequences

The Work and Pensions Secretary has confirmed that housing benefit rates will remain frozen for the 2026/27 financial year. Government data reveals that 53% of housing benefit recipients already experience a gap between their benefit payments and their monthly rent obligations. With rents expected to rise due to increased landlord taxation, this gap is likely to widen, exacerbating financial pressures on vulnerable tenants.

Last week, the Institute for Fiscal Studies (IFS) highlighted that the ongoing freeze on housing benefit is contributing to growing disparities among low-income renters, further underlining the challenges faced by this group.

Long-Term Implications for the Rental Market

The Office for Budget Responsibility (OBR), in its Economic and Fiscal Outlook, warned that successive reductions in private landlord returns over the past decade, including the latest tax measures, may reduce the supply of rental properties in the long term. This could lead to a sustained increase in rents if demand continues to outpace supply.

This potential reduction in rental stock availability poses a significant concern for landlords and tenants alike, as it may intensify competition for rental properties and further strain affordability.

What This Means for Landlords and Tenants

Landlords should be aware that the increased tax burden may necessitate rent adjustments to maintain profitability, particularly in high-demand areas such as London. However, they should also consider the broader economic context, including the impact on tenant affordability and potential increases in arrears or void periods.

Tenants, especially those on housing benefit or low incomes, may face increased financial hardship due to rising rents combined with static benefit support. This situation underscores the importance of landlords and agents maintaining open communication with tenants and exploring support options where possible.

Conclusion

The recent tax changes announced in the 2025 Budget represent a significant shift in the private rented sector’s financial landscape. While intended to raise government revenue, these measures risk increasing rental costs and exacerbating tenant hardship, particularly among low-income households. Landlords and property professionals should prepare for these changes and consider their implications carefully to navigate the evolving market effectively.

Keywords: landlord tax, rent increases, housing benefit freeze, NRLA, private rented sector, tenant hardship, property income tax, rental market supply

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