Government dismisses claims property tax rise will push up rents despite OBR warning

The government claim the Office for Budget Responsibility (OBR) does not believe the decision in the Autumn Budget to raise property tax income will affect rents.

In answer to a written question from Lord Truscott about the impact of tax rises on landlords in the Autumn Budget on the supply of property in the private rented sector and rent levels, Lord Livermore claimed the OBR does not expect reform to property tax income to “significantly affect rents.”

This is despite the OBR’s Economic and Fiscal Outlook report warning that the “successive erosion of private landlord returns will likely reduce the supply of rental property.”

Risks a steady long-term rise in rents

In the Autumn Budget, Chancellor Rachel Reeves announced tax rates on property income would increase by 2 percentage points.

Financial Secretary to the Treasury Lord Livermore claimed the OBR “does not expect that the reform to property income tax will have a significant impact on rental prices.”

However, the OBR’s Economic and Fiscal Outlook report, says the plans in the Budget would reduce returns for landlords.

The document says: “The measures announced in this Budget reduce returns to private landlords, following various measures over the past 10 years that have also reduced returns.

“This successive eroding of private landlord returns will likely reduce the supply of rental property over the longer run. This risks a steady long-term rise in rents if demand outstrips supply.”

Final nail in the coffin for landlords

The Treasury failed to carry out an impact assessment on how the new charge would influence rents or housing availability.

Many industry experts have warned the 2% rise could be the final nail in the coffin for landlords.

Jonathan Stinton, head of mortgage relations at Coventry Building Society, warns: “Hiking property income tax won’t just hit landlords, it will hit renters in the pocket too. When the cost of being a landlord rises, those pressures almost always find their way into monthly rents, meaning those who don’t own a home pay the price. A similar rise to tax on dividends means the cost will also go up for landlords who hold their property in a limited company.

“The more landlords are taxed the less appealing it is to let a property, which could lead to fewer landlords and reduced choice for landlords. The simple but powerful forces of supply and demand would then push rents higher, making it much more difficult to rent a home.”