Labour’s landlord tax proposals will deepen the housing crisis

Proposed new tax measures which could target landlords could aggravate the UK’s housing shortage, warns one property expert.

David Alexander, the managing director of DJ Alexander Ltd, Scotland’s largest lettings and estate agency, was responding to media speculation.

That’s centred on Chancellor Rachel Reeves who is thought to be exploring revenue-raising options for the government’s upcoming spending review.

Speculation is mounting that landlords may face increased financial burdens, potentially leading to reduced property investment, fewer landlords and higher tenant rents.

Taxes would hit landlords

Mr Alexander said: “Once again landlords and property investors are being seen as easy targets for raising finance for the government.

“The last decade has already seen them subject to a series of ever more punishing tax and regulatory changes and now they have come back for more.”

He added: “The problem the government has is that landlords and property investors can simply exit the market.

“They may project that by adding VAT or introducing a landlord income tax that this will produce a quantifiable annual levy based on current incomes.

“However, if many leave the sector, restructure their businesses, or put up prices for tenants to cover the extra taxation then the projected gains will not occur.

“The outcome of this kind of taxation would be that it would not help those needing a home and will, instead, exacerbate the current housing crisis.”

National Insurance on rental income

Apparently, Ms Reeves is considering imposing National Insurance (NI) on rental income, creating a distinct tax band for such earnings.

She might also apply VAT to residential lettings.

These proposals align with the government’s manifesto commitment to avoid tax hikes on ‘working people’, as rental income is currently classified as passive and exempt from NI contributions.

NI on landlord profits

However, introducing NI on rental income could mirror the self-employed model, where contributions are based on business profits.

But with the median age of landlords at 58, this risks creating an uneven system.

Younger landlords, often newer to the market, would face charges, while retirees would be exempt, potentially discouraging new investment.

Also, a separate tax band for rental income could eliminate loopholes where landlords allocate earnings to partners with lower tax liabilities, boosting Treasury revenue but further straining the sector.

VAT on residential lettings

Mr Alexander also points to another option under consideration which is a 20% VAT on residential lettings.

That follows the precedent set by furnished holiday lets and serviced accommodation.

However, experts warn this cost would likely be passed directly to tenants, increasing rental prices.

With tenant demand at record levels and investment already stalling due to uncertainty, Mr Alexander is urging the government to work with landlords to encourage growth.

He said: “By doing this, the private rented sector would grow, landlords would invest, and tenants would benefit.

“This would be a win-win situation for all and would immediately start to address the current housing emergency.”