Government defends landlord tax hikes as “fairer” system

What concerns me most about this argument is not the current tax increase, but the precedent it sets.

The Government is now openly justifying higher taxes on landlords on the basis that rental income is not subject to National Insurance. That same argument has already been used in the past to increase dividend taxation, on the basis that dividends are also outside the NI regime.

So the question naturally follows, where does this end?

We are already seeing credible discussion within Treasury circles about extending National Insurance directly to rental income, framed as a way of “aligning” property income with earned income. That is not a new idea. It is simply the logical next step in a policy direction that has been developing for years.

First, mortgage interest relief was restricted, then dividend taxation was increased using the same “fairness” narrative. Now property income itself is being singled out for higher rates, with separate tax bands already confirmed from 2027.

Each step is presented in isolation, each step is justified as a modest correction, but taken together, they form a very clear pattern.

The underlying message is that income from property is no longer seen as a legitimate business return. It is increasingly being treated as something closer to earned income, but without any of the commercial realities that landlords actually face, especially risk.

If the Government genuinely believes the absence of National Insurance creates an imbalance, then it is difficult to argue that this logic stops here. The same justification can be used again, and again.

That is why many landlords are not reacting to a single tax change; they are reacting to the direction of travel.

Policy uncertainty of this kind does not just affect landlords. It affects supply, investment decisions, and ultimately tenants.

The real issue is not whether the system is “fairer” today. It is whether it is becoming predictable, stable, and commercially viable for the long term.

At the moment, it does not feel that way.

There is also a wider point here that rarely gets acknowledged.

The assumption behind these changes is that rental income should be taxed in a similar way to earned income. In my view, that comparison is fundamentally flawed.

Landlords are not simply earning income. They are deploying capital, taking on leverage, and assuming long-term risk in order to provide housing. The return they generate reflects all of those factors, not just “income” in the conventional sense.

A landlord invests substantial capital upfront, often carries significant debt exposure, absorbs void periods, arrears, and regulatory costs, remains responsible for maintenance, compliance, and tenant outcomes. None of that resembles employment income. If anything, it is much closer to business and investment activity, which historically has been taxed more lightly for a reason. Lighter taxation is not a loophole, it is an incentive. It encourages private capital to flow into areas where the State either cannot or will not provide sufficient supply.

We are already seeing what happens when that incentive is removed. Supply tightens, rents rise, smaller landlords exit and larger institutional players look to step in, often with very different priorities.

Other countries recognise this dynamic more openly. In Portugal, for example, recent policy has moved in the opposite direction, introducing tax incentives of around 10% on certain long-term rental income to encourage supply and stabilise the market. That is a conscious decision to attract and retain private landlords, not penalise them.

The UK appears to be taking a different path. One that increasingly treats landlords as a convenient tax base rather than a necessary part of the housing system.

If the objective is a stable, well-supplied rental market, then the question should not be how closely property income can be aligned with earned income.

It should be how policy can recognise the commercial reality of providing housing, and incentivise it accordingly, because if you remove the incentive, you should not be surprised when the supply follows.

How many of the Lords attending were claiming the £361 tax free daily allowance just for showing up?

When it comes to landlords past retirement age who pay no National Insurance and may well have invested in property as an alternative to pensions (and therefore been contributing tax whilst pension savers claimed tax relief, often at higher marginal rates than they will pay when drawing the pension) it seems grossly unfair.

I’m sure there will be plenty of landlords with just one or two properties who will qualify for the winter fuel allowance due to yearly income below £35,000 but be paying this surcharge on rental income nonetheless even though their only other significant income is the state pension (post 2016 now roughly equal to the personal allowance.

Also conveniently forgotten is the ability for individuals to shelter up to £20,000 per year in ISAs to acoid interest or dividend payments being subject to ANY tax, making the 22% enhanced rate irrelevant for those in the basic tax band.

If there was an option to shelter £20,000 of rental property’s value in an ISA wrapper each year (and receive that proportion of rental profit tax free) I might listen to the Lord’s comparison without laughing. .

I wrote a blog on this back in November when Rachel came out with this rubbish. I’m surprised people are still quoting £1,200 – the number is wrong. I know Rachel is unable to do primary school maths but surely others can do basic arithmetic ?
See my blog post:

https://think-we-are-stupid.blogspot.com/2025/12/its-fair-to-tax-landlords-and-dividend.html

Reply to the comment left by Mark Alexander – Founder of Property118 at 23/03/2026 – 09:05
They are not interested in fairness, only in squeezing the dirty business of private property letting until the horrid perpetrators squeak. They know that landlords don’t have to let property, and are counting on it to rid the country of their baneful existence. That was the clearly stated aim back in 2016, and nothing has changed, or will change, until that perception of landlords is properly challenged either by the consequences or by people standing up and changing the narrative.

Reply to the comment left by Peter Merrick at 23/03/2026 – 15:13
… or by different political thinking ?

The costs will be passed on or the lower end of the PRS will disappear. Government may be hoping that the corporations will take over but the returns are just too low for them. They will only step in when there is no competition, and also require state subsidies as well.

Reply to the comment left by Jack Jennings at 23/03/2026 – 19:09
The correct state subsidy is for the Social Housing sector, not to enrich private companies with public funds. Yet government of all shades have provided a resounding vote of no confidence in public sector Social Housing with predictable results.

Can Housing Associations pick up the demand that Private Rental used to serve…

Reply to the comment left by PAUL BARTLETT at 25/03/2026 – 11:32
Housing associations are just a way of hiding public debt as their financial obligations are not reported in the same way as council housing and the subsidies not so obvious.
We subsidise the private bits of the rail industry, we subsidise the now private steel industry, water, power… Government is treating the small investor PRS as a block to their corporate golfing buddies making money. When the banks and other big players own the PRS stock they will be too big to be allowed to fail and will strong arm the taxpayer for incentives..

Unfortunately the current tax system is ‘simply not fit for purpose’ and no one is brave enough to say it. It is broken and used as a means to extract greater and greater sums of money out of the population to fund govts that are bloated where money vanishes into a black hole with no accountability. If the tax system cannot be understood by the average man on the street (to whom it applies) then it is broken. Finding new ways to tax more (whether it is landlords or any other category) with no real justifications in reality is just acknowledging that fact. The irony is that the original tax system was set up to fund wars…..and very soon there maybe wars again to protest against the system itself.