Budget 2025: The real impact of the 2% tax rise on rental income

Interesting that: “Under these assumptions, the landlord collects more than £115,000 per year in rent and services almost £1 million of debt, yet ends up with just over £11,000 of post-tax income from eight properties once the 2027 rates apply.”

It just reinforces my gut instinct that it is no longer worth being a private landlord. The reward is just not worth the risk.

And this assumes everything in the garden is rosy. If you have problems with tenants, void periods, EPC upgrades, inability to agree a market rent, interest rate increases, etc you could end up with an even lower return.

Reply to the comment left by Ryan Stevens at 26/11/2025 – 15:57
Without proper planning that’s almost a certainty.

Hmm you might have me hooked.
I’ve got another 10 or so sales to do, going to do my new list in Jan, then think of some I may have to put in FIC as can’t sell em cause 70 year old tenants lived there 20 years etc.

Do you and your calcs work out if put in FIC, then sold some in 6 months year etc., & how worse off we’d be then taking that house sale out the company?

I’d considered selling my five rentals properties, but I will have a huge CGT bill having purchased them in the mid 90’s. If I pay the CGT I will have a considerably smaller amount of capital to reinvest (into stock market, gold etc.) compared to today’s value of my rental portfolio. So far now I’ll stick with my rentals. Luckily my tenants are great but instead of a £50pm rent increase next year it will be £67 to pay the extra £17pm tax. I’m not swallowing £17pm extra tax on each property. Sorry tenants you’re great but you’re going to have to pay this extra 2% tax. Luckily all the rentals are quite a bit below market rates so won’t be too hard a burden for them I assume. Well done Rachel from Complaints.

Gary Smith, Senior Partner in Financial Planning at wealth management firm Evelyn Partners, comments:

“The two percentage point income tax hike made it into the Budget after all. We thought this might be a Budget that targeted saving and investing via dividend taxes but this wider measure was an unwelcome rabbit out of the hat. Alongside the pensions crackdown on salary sacrifice, these 2% increases on most income tax rates on savings interest, dividends and property constitute a penalty on prudence.

“They will deter many people from building financial resilience and the implication is that there is something wrong with creating an income for yourself from anything but paid work. People do this across the UK not because they are hoarding wealth but because they are saving for their families or funding retirement or simply aspiring to build a financial buffer, so that they don’t become a burden on the state.

“With the existing freeze of the personal savings allowances and the forthcoming ISA reforms, savers in particular might wonder what to do with their cash. Income streams from cash deposits are already being reduced by falling interest rates, so the net return if savings are exposed to tax could end up being meagre indeed.

“But wage and salary earners are of course being taxed more heavily too by the freeze in income tax thresholds, now set to last another three years until 2030/31. Along with the host of other smaller tax-raising measures, that will take the overall tax burden to 38% by 2030, according to the OBR – an unprecedented number for the UK and significantly higher than the forecast at the last Budget. It seems impossible that economic growth and prosperity will thrive in such an environment.

“As for property, there have been a lot of tax reforms over the last decade or more that have made being a private landlord steadily less attractive and viable. Coming at a time when tenants are getting increased rights, this could be the straw that breaks the buy-to-let back. Rental properties are already in short supply in important parts of the country and in the absence of any alternative supply of homes, hammering private landlords is probably not going to help matters.”

Presumably this extra 2% tax will mean lenders increase their required rental income cover ?

Reply to the comment left by Mick Roberts at 26/11/2025 – 16:35
Mick. Situations like yours, where tenants have been in place for twenty years or more, often require a different approach. Many landlords prefer not to disrupt long standing households, which means certain units cannot be sold in the short term. This is exactly where careful planning becomes valuable.

Yes, our modelling can show the impact of placing specific properties into a Family Investment Company and then disposing of others either immediately or in later years. It can also illustrate how the overall position changes if a sale takes place inside the company rather than in your personal name. Each scenario produces a different combination of tax, cash flow and long-term outcomes. The right answer depends on the timing of sales, the gains on each property and the wider structure of the business.

It is worth keeping in mind that an FIC is usually a long-term planning tool rather than a short-term tax solution. This means it can work well for properties that you intend to hold because of tenant circumstances or because they form part of your legacy plans. The numbers only become clear once each property is modelled individually, along with the costs of moving it into the company.

If you would like us to map out your options, the first step is to complete the Fact Find, pay for the £400 consultation and then send us a full Property Schedule.

Reply to the comment left by Dylan Morris at 26/11/2025 – 16:45
Thank you for sharing this, Dylan. Your situation is a good example of how long term ownership creates very different tax outcomes compared with recent purchases. Properties held since the mid 1990s often carry substantial gains, which makes disposal planning far more complicated. A large Capital Gains Tax bill can easily remove much of the capital you would have hoped to reinvest elsewhere, which is why many landlords in your position decide to keep holding for now.

Your comment highlights another important point. Decisions about rent need to sit within a wider plan rather than being a reaction to individual tax changes. Some landlords choose to adjust rents gradually to keep pace with inflation and compliance costs. Others decide to let below market rents continue because the stability of reliable tenants offsets the lower yield. Both approaches can work when they are part of a deliberate strategy.

It may still be worth reviewing your portfolio through a structured lens. A detailed model can show whether the CGT position is really as fixed as it appears, whether certain properties would be more efficient disposal candidates than others, and whether options such as phased sales or refinancing could improve your flexibility. This is often clearer once the numbers are set out property by property rather than considered in general terms.

Your tenants sound like they have been a positive part of your journey, which is always valuable. A periodic review of the figures can help ensure that your long-term position remains secure while maintaining fairness and stability for everyone involved.

Reply to the comment left by Dylan Morris at 26/11/2025 – 16:54
Lenders base their rental cover calculations on several factors, including interest rates, operating costs, tax treatment and their own internal risk models. The new two percent tax change will form part of the broader cost landscape, although it is only one component of the affordability picture. Some lenders may adjust their stress tests over time if they believe the overall cost of holding rental property has increased. Others may take a different view.

The important point is that lender criteria do not always move in a straight line with individual tax changes. Each lender reviews its exposure, funding costs and regulatory obligations before making alterations to rental cover requirements. This is why the market often shows a wide range of approaches at any given moment.

A periodic review of your borrowing and rental cover is sensible, especially if you are planning future refinances or portfolio changes. The direction of travel becomes clearer once lenders have had time to react to the new environment.

Reply to the comment left by Dylan Morris at 26/11/2025 – 16:45
Instead of which your estate could have a 40% IHT bill on your whole estate (minus the threshold), rather than a 24% CGT bill on just the gain (difference between sales price and costs), so it is horses for courses.

An FIC can help, but depends on how much it costs to get the properties in there, family set up, etc. And with so many companies being set up for properties they will no doubt be sitting ducks for a future source of tax revenue for our esteemed leaders.