Chancellor John Healey has imposed a further 2% tax charge on rental income from April 2027, adding to the 2% increase already announced by Rachel Reeves for the same date.
Basic-rate taxpayers will soon pay 24% on property income, higher-rate taxpayers 44%, and additional-rate taxpayers 49%. Rathbones calculated that the extra tax could cost a London landlord £1,122 in the first year alone. That rises to £12,288 after 10 years and almost £36,000 over 25 years, assuming rents rise by 2% a year.
Long History of Tax Rises on Landlords
This is only the latest assault. Tory chancellor George Osborne started the squeeze in 2015 by restricting mortgage interest tax relief. Landlords gradually lost the right to deduct all their mortgage interest from rental income, instead receiving a tax credit worth only 20%. Osborne also downgraded wear-and-tear allowances.
Landlords also face a 5% stamp duty surcharge when buying additional properties. The total bill for a £300,000 purchase is now £20,000, against £5,000 for home buyers.
Pressure on Pensioner Landlords
Housing Secretary Angela Rayner's Renters' Rights Act has only piled on more pressure. It made it harder for landlords to regain possession and allowed tenants to challenge rent increases.
The burden is particularly painful for small-scale pensioner landlords, who make up almost a third of the market and typically own just one or two properties to supplement retirement income.
Charlie Newsome, senior investment director at Rathbones, said rising taxes and costs, plus more than 150 pieces of lettings legislation, mean the sums no longer stack up for many. "Clients are considering cutting their portfolios or selling up altogether."
This is bad news for tenants too, Newsome warned: "If landlords sell up or cover higher costs through rents, aspiring homeowners could find themselves paying more each month while having even less to save for a deposit."
Market Outlook and Future Risks
The Bank of England announces its latest interest rate decision tomorrow, and any increase will drive up borrowing costs. Andrew Goulter, wealth management consultant at Mattioli Woods, said: "This squeezes net income and may make rental properties even less attractive."
Buy-to-let isn't totally dead. Lender Landbay found that 39% of landlords plan to sell at least one property over the next year, but 34% intended to buy more. However, that research was carried out before the Budget.
One in three reported gross rental yields of between 4% and 5.9%, while almost one in 10 were achieving 10% or more.
Buy-to-let investors can be forgiven for feeling victimised. Given the effort, expense and risk involved, many smaller landlords may decide it's simply no longer worth the bother.
There could be benefits if landlords sell up and free homes for first-time buyers. But if too many exit the rental market, supply will shrink, pushing rents higher and making it even harder for tenants to build a deposit. As with every tax raid, the only clear winner is the Treasury. And now the principle of charging a 4% surcharge on rental income has been set, it could be doubled again to 8%, in line with National Insurance.
