Budget sees landlords facing second property tax raid

Landlords face a second successive Budget tax raid after Chancellor John Healey announced another increase in tax on property income.

Tax rates on property and savings income will increase by a further two percentage points from April 2027, adding to the rise announced by Rachel Reeves last year.

The Office for Budget Responsibility has warned the measures risk driving landlords out of the market and pushing rents higher for tenants.

The Telegraph reports that the announcement suggests property income tax rates will reach 24% for basic-rate taxpayers, 44% for higher-rate taxpayers and 49% for those paying the additional rate. Full details have yet to be confirmed.

Landlord income focus

The move puts the taxation of landlords’ income at the centre of a Budget which also includes support for household energy bills.

Delivering his maiden Budget, Mr Healey told MPs: “I am increasing the rates of tax on income from property and savings by a further two percentage points from April 2027.

“With no change to tax on income from dividends and tax on income from employment.”

For landlords, the announcement brings a further squeeze on returns, with the precise impact depending on their circumstances and the detailed provisions.

Landlords will be less likely to enter the market

The OBR issued a scathing warning over the property tax rise, saying it risks shrinking the rental market and driving rents higher.

The OBR said: “These measures collectively risk leading to a steady rise in rents through two effects. First, potential landlords are less likely to enter the market, reducing long-run rental supply, which risks a steady long-term rise in rents if demand outstrips supply – which we think is more likely than not.

“Second, landlords are likely to pass on more of these costs to renters in the long-run through a combination of some current landlords leaving, thereby giving more price setting power to remaining landlords, and greater long-run flexibility to raise rents.

“Such rises in rents would offset at least some of the reduction in the commercial viability to landlords from the measures introduced in recent years.”

Government wants to finish sector off

Greg Tsuman, managing director for Lettings, Martyn Gerrard said the further rise “may as well criminalise’ renting out a property”.

He said: “Adding a further two per cent tax to property income on top of the previously announced two per cent is a surprising and incomprehensible decision. Last year’s Autumn Budget dealt a severe blow to the sector, but it looks like the Government wants to finish it off.

“The OBR was already warning that the level of tax being imposed on landlords was likely to drive up rents and reduce rental property supply. This is lunacy and I fear that the Government is actively trying to dismantle the PRS. At this point, the government may as well criminalise renting out a property.

“Landlords have endured successive measures against them for years and we’re already seeing an unprecedented exodus from the rental market. There was a desperate need to reassure and provide confidence. Instead, we’ll see the rush to the door intensifying. The property market is already struggling with the oversupply of rental properties being sold and we’re going to see even more downwards pressure on house prices as a result of this.”

Ben Beadle, chief executive of the National Residential Landlords Association (NRLA), said: “The Chancellor has today made life harder for renters right across the country.

“As the Office for Budget Responsibility has confirmed, hiking taxes will drive up rents and drive down supply in the rental market when demand is already way ahead of the number of homes available.

“How that fits with a commitment to providing households with more breathing space is anyone’s guess.”

Social and affordable housing

Elsewhere in the Budget, the government pledged a further £430m to tackle rough sleeping, on top of the £442m announced in August, taking total investment to £874m by the end of the current parliament.

The Chancellor also announced the Your First Home scheme, which aims to help 70,000 first-time buyers onto the property ladder and save them hundreds of pounds a month.

Eligible buyers will be able to purchase a home with a deposit of at least 2.5%, a repayment mortgage from a participating lender and a government equity loan worth 20% of the purchase price, interest-free for the first five years.

The Budget also includes a further £1.5bn for social and affordable housing, taking total capital investment over the next decade to more than £40bn.

Smaller housing developments on brownfield land will also be exempt from Biodiversity Net Gain requirements, in a move intended to make building cheaper and simpler.

However, the Chancellor made no mention of Local Housing Allowance meaning it remains frozen.

Industry reaction to Budget 2026

On the rise of property tax rise, Andrew Lloyd, managing director at property data firm, Search Acumen, said: “Landlords will feel an underhand blow from the Chancellor today. Raising tax rates on income from property by a further two percentage points from April 2027 is a concern for small and accidental landlords whose margins have already been eroded this year, and we will undoubtedly see this impact in supply and rents over the next year.

“Conversely, the zero-rate on land sold to social housing providers announced will help incentivise the build and supply of council homes, a much-needed win for the struggling sector.”

Tony Hall, head of business development at Saffron for Intermediaries, said: “Last year’s increase has yet to take effect, and the Chancellor has already doubled it. Raising property income tax rates to 24%, 44% and 49% from April 2027 adds yet more pressure on landlords already navigating rising costs and substantial regulatory change.

“The government describes this as fair and proportionate, but landlords will judge it against the cost of providing a home. Maintenance, repairs, safety checks and property improvements all need funding. Taking more of the income leaves less available to reinvest.

“Many landlords are already rethinking how they operate, whether through limited companies, changes to their portfolios or investment in HMOs and multi-unit blocks. These decisions require careful advice and long-term planning. Repeated tax increases make that planning harder and risk discouraging further investment.

“If the government wants more good-quality homes to rent, it needs to give landlords reasons to provide them. Squeezing rental investment further risks leaving tenants with fewer choices and higher costs.”

Rob Stanton, sales and distribution director at Landbay, said: “Having already announced a 2% increase in income tax on property income in last year’s Budget, the Government has now doubled that increase to 4%, which will take the basic rate to 24%, the higher rate to 44% and the additional rate to 49% from April 2027.

“This applies to landlords who hold their rental properties in their personal names across England, Wales and Northern Ireland, rather than those who own through limited companies, and clearly represents a significant additional tax burden at a time when landlords are already managing higher mortgage costs, growing regulatory responsibilities and the expense of maintaining their properties.

“This is unlikely to encourage further investment in the private rental sector, particularly among landlords already questioning whether individual properties remain financially viable.

He added: “Our latest landlord survey, showed that almost 80% of landlords were concerned about further tax changes ahead of the Budget, and today’s announcement suggests those concerns were well founded.

“The consequences of this decision are unlikely to be felt by landlords alone, because when the costs of providing rental housing increase, there is a real likelihood that some of those costs will eventually be passed on to tenants through higher rents.

“Equally concerning is the potential impact on rental housing supply, with further taxation likely to make some landlords reconsider purchasing additional properties, while others may decide to sell existing investments. At a time when we need to encourage investment and ensure there are sufficient rental homes to meet demand, measures which risk reducing supply could ultimately make life even more difficult for tenants, particularly if fewer available properties place additional upward pressure on rents.”

Steve Cox, chief commercial officer at Fleet Mortgages, said: “The further increase in property income tax is likely to make many landlords reconsider how they hold their rental properties, particularly those with larger portfolios who may already be paying higher rates of income tax.

“Our latest Q3 Rental Barometer showed that 71% of buy-to-let mortgage applications in Q3 were made through limited companies, compared to 78% in the previous quarter, suggesting there had been some movement back towards individual borrowing.

“However, with property income tax rates now set to rise even further than previously announced, we would not be surprised to see more landlords considering whether they should continue to hold their properties in their individual names or explore instead the potential benefits of limited company ownership.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: “Sadly, there was nothing to encourage new landlords into the buy-to-let sector or anything to persuade others to stay invested. There is an urgent need to stem the flow of those leaving the sector or rents will keep rising and standards will keep declining.

“Hopefully, activity at the very least won’t be any worse than before, while those sitting on the fence will be persuaded to come down and get on with their moves.”