Rents set to rise following Chancellor Healey’s Budget tax hike

Rents set to rise following Chancellor Healey’s Budget tax hike

The Chancellor’s announcement of a further 2% increase in property income tax rates from April 2027 is expected to push rents higher and reduce rental supply, according to the National Residential Landlords Association and the Office for Budget Responsibility.

Chancellor John Healey’s recent Budget confirmed a 2% rise in property income tax rates next April, adding to a previously announced 2% increase. This move has sparked concern among landlords and letting agents, who warn it will exacerbate the already strained rental market by driving up rents and discouraging investment in private rental properties.

Budget details and expert reactions

The National Residential Landlords Association (NRLA) swiftly responded to the Budget, stating that the tax hike will make life harder for renters nationwide. Ben Beadle, NRLA chief executive, highlighted the Office for Budget Responsibility’s (OBR) analysis that the combined 4% increase in property income tax rates will reduce landlord returns significantly.

The OBR’s independent report emphasises that the tax rises will likely lead to a steady increase in rents due to two main effects: a reduction in the number of landlords entering or remaining in the market, which tightens supply, and landlords passing on increased costs to tenants. The OBR notes that this will offset some of the intended reduction in landlords’ commercial viability from previous measures over the past decade.

Industry professionals echoed these concerns. Olivia McSweeney, senior lettings director at UK Sotheby’s International Realty, warned that smaller landlords may exit the market altogether, overwhelmed by the combined impact of rising taxes, regulatory reforms, and increased responsibilities. Paul Shamplina, founder of Landlord Action, questioned the sustainability of continued tax hikes on rental income, noting that landlords are already contending with rising costs and the effects of the Renters’ Rights Act.

Heather Powell, partner at Blick Rothenberg, described the additional 2% tax as potentially the “final nail in the coffin” for private rental investors, predicting a shift towards corporate build-to-rent providers as smaller landlords sell up. Greg Tsuman, lettings managing director at Martyn Gerrard, criticised the government’s approach as “lunacy,” warning that the cumulative tax burden threatens to dismantle the private rented sector (PRS) and could worsen housing shortages and homelessness.

Dominic Agace, chief executive of Winkworth, added that the tax increase disincentivises investment at a time when many households rely on renting due to economic uncertainty, further aggravating supply issues.

Context: tax changes and rental market pressures

This latest tax increase follows a series of measures over the past decade that have progressively reduced the financial returns for private landlords. These include restrictions on mortgage interest tax relief, the introduction of the 3% Stamp Duty surcharge on second properties, and the phased removal of wear-and-tear allowances. The cumulative effect has been a tightening of margins for landlords, particularly those with smaller portfolios.

At the same time, the rental market has been under pressure from rising demand, driven by factors such as housing affordability challenges and demographic changes. The Renters’ Rights Act introduced in recent years has also brought significant regulatory changes, increasing landlord responsibilities and compliance costs.

The OBR’s analysis suggests that the combined effect of these tax and regulatory changes will reduce rental supply as some landlords exit the market or choose not to expand, while others raise rents to maintain profitability. This dynamic risks creating a feedback loop where higher rents and reduced supply exacerbate affordability problems for tenants.

Practical implications for landlords and letting agents

Landlords, particularly those with smaller portfolios, may need to reassess the viability of their rental investments in light of the increased tax burden. The prospect of a 4% rise in property income tax rates within a short period could prompt some to consider selling properties or reducing their exposure to the PRS.

Letting agents should prepare for potential shifts in the market, including a possible reduction in available rental properties and increased rent levels. They may also see heightened demand for advice from landlords about tax planning and portfolio management strategies to mitigate the impact of rising costs.

Both landlords and agents should monitor ongoing regulatory developments, including any further changes to the Renters’ Rights Act or other housing policies that could affect rental income or compliance obligations. Staying informed will be critical to managing risk and maintaining sustainable rental operations.

Uncertainties and what to watch

While the Budget sets the framework for the tax increases, the precise impact on rents and supply will depend on how landlords and tenants respond in practice. The extent to which landlords can pass on costs to tenants may vary regionally, influenced by local market conditions and tenant demand.

There is also uncertainty around potential government interventions to support renters or landlords in the future, especially if rent increases lead to affordability crises or homelessness rises. Policy responses could include changes to tax policy, rental regulation, or support schemes, but these remain speculative at this stage.

Landlords and agents should watch for updated guidance from HM Revenue & Customs and government departments, as well as analysis from industry bodies and economic commentators, to gauge the evolving landscape and adjust their strategies accordingly.

What landlords should consider now

Landlords should review their portfolios and financial models to understand the impact of the upcoming tax increases on their rental yields and cash flow. Engaging with professional tax advisors may be beneficial to explore legitimate ways to optimise tax liabilities within the new framework.

It is also advisable to keep detailed records of rental income, expenses, and compliance activities to ensure accurate tax reporting and support any claims for allowable deductions. Staying compliant with regulatory requirements, including those under the Renters’ Rights Act, remains essential to avoid penalties and maintain good tenant relations.

Letting agents can support landlords by providing up-to-date information on tax changes, helping with rent reviews, and advising on tenant communication strategies to manage expectations around potential rent increases.

Keeping your rental properties compliant

TLA membership offers landlords and letting agents access to practical compliance resources and support that can help manage the challenges arising from increased taxation and regulatory obligations. Our developing ORBIT platform, currently in BETA testing, is designed to assist members in organising property records, managing rental documentation, and maintaining evidence of compliance activities.

With the new tax changes and ongoing reforms, staying organised is more important than ever. ORBIT aims to provide tools to record key actions such as rent reviews, inspections, and communications with tenants, helping landlords and agents maintain a clear audit trail. Explore TLA membership to access these resources and learn more about ORBIT BETA access.

Membership also provides timely updates on legislative developments, enabling members to prepare for changes and mitigate risks effectively.

As the rental market adjusts to the Budget’s tax increases, having reliable support and tools will be crucial for landlords and agents to navigate the evolving requirements and maintain sustainable rental businesses.

Sources: Landlord Today