Budget 2025: Income tax hike to hit landlords and tenants in the pocket

With the news landlords will pay increased rates of income tax under plans announced by Chancellor Rachel Reeves today, NRLA chief executive Ben Beadle explains why it’s tenants who will be the real losers. 

The verdict is as categoric as is it damning: “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.” 

These are not my words, but those of the Office for Budget Responsibility (OBR) – highlighting a move that goes against everything the Chancellor has pledged to do in tackling the cost-of-living crisis – clobbering the country’s 4.7 million private rented sector (PRS) households with higher rents. 

What new tax changes have been announced?  

For those of you not yet aware, Rachael Reeves announced rates of income tax from property income will increase by two percentage points from April 2027. 

The basic, higher and additional rates will increase to 22%, 42% and 47% respectively, a move that we estimate could add between £20 and £25 per month to typical rents in England – rising to more than £40 in London. 

Other measures that will affect landlords include an annual High Value Council Tax Surcharge, which will be introduced for properties valued at over £2 million, to be introduced in April 2028.  

These are just the latest in long line of successive tax raids on the PRS in the last decade, including George Osborne’s abolition of mortgage interest relief (MIR) and introduction of the, now 5% stamp duty surcharge on the purchase of homes to rent back in 2016. 

Coupled with the raft of legislation change coming our way – not least with the introduction of the Renters’ Rights Act next year and new Making Tax Digital responsibilities – it is not surprising many of us are asking ourselves, ‘where will it all end?’

The straw that breaks the camel’s back? 

Of course, no-one wants their tax bill to rise, but today’s announcement is about much more than that.  

The PRS has long been treated as a cash cow, but the Government is at real risk of forcing landlords from the sector for good, decimating the supply of homes to let and forcing rents up. 

And it’s not just us saying that. Leading economist and former director of the Institute for Fiscal Studies, Paul Johnson – a recent guest on our podcast Listen Up Landlords – weighed in on X warning: ‘Increasing rates of tax on rental and savings incomes sounds all well and good. But without any changes to tax base this reduces investment incentives and hits landlords who are already (believe it or not) overtaxed. Will again limit size of rental sector and increase rents.’ 

And, as always, it will be the most vulnerable, those on the lowest incomes that lose out, not least as the Work and Pensions Secretary has confirmed today that housing benefit rates will remain frozen for a second year in a row in 2026/27. This will affect almost 1.7 million private rented households across the country in receipt of housing cost support.   

What does this mean for the future? 

It feels as though the Chancellor is hellbent on dismantling the private rented sector, but she should be careful what she wishes for. 

The Government’s figures show that it is failing to hit its own targets, with the number of homes built this year down by 6% on the previous year’s figures, and more than 1.3 million people on waiting lists for the social sector housing. 

Renters need safe, affordable homes in places they want to live, and PRS landlords are providing these for millions of households across England and Wales.  

By targeting the sector with yet more unfair tax policies the Government is not only exacerbating the current rental supply crisis, but punishing those who need its help the most.

Find out more  

Want to understand more about tax? Check out our Training Academy's specialist tax and finance courses including on Making Tax Digital, capital gains tax, and our specialist landlord tax course, or seek advice from tax and investment experts.

Member webinar  

The NRLA team will be hosting an exclusive member webinar this Friday (28th November), offering you an in-depth analysis of all the key announcements and how they are likely to affect your business and the wider sector.  

The hour-long session, starting at 11am, will feature an expert panel including NRLA chief policy officer, Chris Norris, chair of the Chartered Institute of Taxation’s property tax committee, Leigh Sayliss and Founder of Taxd, Arjun Kumar. 

Following a discussion on the headline measures announced, their impact and how you can prepare, the team will also cover our key tax calls, and give an update on the Government’s Making Tax Digital plans. There will also be a Q&A session, giving you the opportunity to put your questions to our team of experts by emailing the campaigns and public affairs team at [email protected] 

You can register for our Budget webinar here – with registering also allowing you to watch a recording back at a time to suit you, if you can’t make it on the day. 

Photo credit: Rachel Reeves ©House of Commons