The recent Budget announcement by Chancellor Rachel Reeves to increase tax on landlords’ rental income is expected to reduce the supply of rental properties and push up rents, according to mortgage expert Simon Gammon. This development is significant for UK landlords as it may force many to exit the market, exacerbating the current shortage of rental homes and impacting rental affordability.

Impact of the new landlord tax on rental supply

Simon Gammon, founder and managing director of Knight Frank Finance, has warned that the proposed 2% uplift in tax on rental income could be the “last straw” for many landlords. He highlights that the private rented sector (PRS) is already under pressure, and further exits by landlords will accelerate the shortage of available homes for rent. Gammon emphasises that as more landlords sell their properties, fewer homes will be available to rent, which will inevitably drive rents higher, creating a challenging environment for tenants and landlords alike.

Concerns over lack of impact assessment

There is growing concern within the property sector that the Treasury did not conduct an impact assessment to evaluate how the new tax charge would affect rental prices or housing availability. This omission is particularly notable given the significant rent increases seen in recent years. Average rents rose by 8% in 2023 and are projected to increase by a further 9% in 2024, with London experiencing an 11.5% rise last year alone. The absence of a thorough assessment raises questions about the policy’s long-term effects on the rental market.

Historical context of landlord taxation

Gammon describes the current situation as “death by a thousand cuts” for landlords, tracing the squeeze on profitability back to the abolition of mortgage interest relief in 2015. Since then, a series of regulatory and tax reforms have reshaped the rental market, including the introduction of the Renters’ Rights Act, which is expected to increase pressures on evictions and rent rises. The cumulative effect of these changes has made it increasingly difficult for landlords to maintain viable rental businesses.

Details of the proposed 2p rental income surcharge

The Labour Party’s proposal to introduce an additional 2p in the pound tax on rental income could be a tipping point for many landlords. Gammon notes that landlords operating on tight margins may find the new tax untenable, prompting them to either exit the market or refrain from entering it altogether. He predicts that the full impact of this tax will become apparent within two years, when landlords receive their tax bills for 2026 or 2027 and begin to reassess their portfolios in light of increased costs.

Rising losses and landlord exits

While some landlords have been willing to absorb modest annual losses in recent years, Gammon warns that the new tax will significantly increase these losses for many. He explains that what might have previously been a manageable cost of a few hundred pounds annually could escalate to thousands of pounds, making continued ownership financially unviable. This is likely to lead to a rise in property sales by landlords, further reducing rental supply and potentially driving rents even higher.

Equality considerations and demographic impact

The government’s impact assessment, although lacking analysis on supply and rent effects, did highlight concerns about equality. It acknowledged that members of the Asian community would be disproportionately affected by the new tax, as they represent 4.8% of landlords despite comprising only 2.8% of the wider population. This demographic detail underscores the varied impact of tax changes across different landlord groups.

Implications for UK landlords and agents

For UK landlords and letting agents, these developments signal a challenging period ahead. Increased taxation combined with existing regulatory pressures may lead to a contraction in the rental market, reducing the availability of rental properties and placing upward pressure on rents. Landlords should carefully review their portfolios and financial planning to prepare for these changes, while agents may need to manage tenant expectations regarding rent levels and property availability.

Looking ahead: TLA Trusted Partners Hub

The Landlord Association (TLA) is launching a new Trusted Partners Hub in Q1 2026, designed to support landlords, tenants, and property management businesses by connecting them with verified and approved service providers. This initiative will include legal, trades, insurance, financial, mortgage, tenant screening, and other relevant services. Providers interested in joining the Trusted Partners Hub are invited to register their interest at the Landlord Association website.