These changes, announced by Chancellor Rachel Reeves, aim to close the tax gap between earned income and unearned income from assets. But as the tax rates climb, experts warn of potential long-term consequences for the housing market.
The government’s decision to increase the tax rates on property income comes at a time when rents in many parts of the UK are already at record highs. According to the Office for Budget Responsibility, these changes could reduce the number of landlords in the market, ultimately leading to fewer rental properties and higher rents. But how will these changes affect the average tenant, and what does this mean for the broader property market?
New Property Tax Rates: Landlords Face Higher Burden
From April 2027, the tax rates on rental income in the UK will rise significantly. Property income will now be taxed at 22% for basic rate taxpayers, 42% for higher rate taxpayers, and 47% for those in the additional rate bracket, up from 20%, 40%, and 45% respectively. These increases are aimed at ensuring that income from assets, such as rental income, is taxed at a fairer rate compared to income from employment, which is subject to National Insurance contributions.
Chancellor Rachel Reeves stated that the changes were necessary because, currently, individuals earning from property, savings, or dividends are paying less tax than people with wages from jobs or self-employment. “It’s not fair that the tax system treats different types of income so differently,” she said. However, the tax hike has stirred controversy, particularly among landlords, who argue that this additional financial burden could be passed down to tenants in the form of higher rents.
This concern was echoed by Ben Beadle, chief executive of the National Residential Landlords Association (NRLA), who warned that these tax increases would “clobber tenants with higher costs while doing nothing to improve access to the homes people need.” With private landlords already facing rising costs, such as maintenance and insurance, many could see these tax changes as an additional financial strain, possibly leading them to sell their properties or increase rental prices to compensate for the higher tax rates.
Impact on Tenants: Will Rents Continue to Rise?
While landlords may feel the brunt of these changes, tenants are likely to see an indirect impact. As the cost of renting rises due to increased taxation, tenants could face even higher rental prices, particularly in cities with already tight housing markets. According to the Office for Budget Responsibility, the increased tax rates for landlords could lead to a reduction in the supply of rental properties over time, which in turn could drive up rents.
This concern is particularly pertinent as the UK already faces a housing shortage, with a predicted need for almost one million new homes by 2031. Despite Labour’s intentions to make the tax system fairer, critics argue that the current tax reform could exacerbate the housing crisis. As Beadle noted, these measures could worsen the situation for tenants by “driving up rents” without delivering the housing that the UK desperately needs.
In addition, while landlords may feel compelled to increase rents, some might choose to exit the market altogether. This could reduce the overall supply of rental homes, making it harder for prospective tenants to find affordable housing. If the market sees fewer rental properties available, competition for homes could increase, further pushing up rents, particularly in urban areas with high demand.
