Autumn Budget: What could be in store for landlords?

Next week's Budget statement from the Chancellor comes at an acutely sensitive time for the country's finances and for the Private Rented Sector (PRS). Our chief policy officer Chris Norris outlines what we can expect on Wednesday - and what it means for you.

Working day in, day out, with you, our members, I know you are focused on, and legitimately concerned about, what the Chancellor, Rachel Reeves, may announce and how it could impact their businesses as well as the tenants they house across England and Wales. 

The backdrop is one of tight fiscal constraints and a considerable 'black hole' in the public finances. The pressure to raise revenue is undeniable, but the Government's pledge not to increase headline taxes like Income Tax, VAT, or National Insurance Contributions (NICs) on 'working people' leaves little room for manoeuvre.

This has led to intense speculation over recent months that the Chancellor will opt for a 'smorgasbord' of narrowly-drawn tax rises—and history tells us that when pickings are slim, private landlords often find themselves in the Exchequer’s crosshairs. 

Not wishing to add to the consternation about what fiscal levers the Chancellor might decide to pull, we have deliberately opted not to comment publicly on the various potential measures that might be announced. However, with less than seven days to go until Ms Reeves takes to her feet at the despatch box, it is worth exploring a few of the highest profile discussion points.  

The Tax Speculation: Three Key Areas to Monitor 

For landlords, the focus will primarily be on three areas that have been the subject of significant media speculation: 

1. National Insurance on Rental Income 

I have written before about my belief that, whilst possible, a tax grab using NIC as the vehicle would be overly complex and extremely shortsighted, given the inflationary effect it would have on rents.

However, the potential introduction of National Insurance Contributions (NICs) on rental profits remains one of the most discussed and concerning proposals. 

Currently, rental income for most landlords is exempt from NI. Introducing a charge, perhaps aligned with self-employed Class 4 NICs, would represent a significant new tax burden. 

This would directly impact margin and for many, already navigating the restrictions of Section 24, this new levy would mean they had little choice but to pass on the cost or reconsider their lettings business. 

Our research suggests that a substantial number of landlords are already planning to sell at least one property over the next year.

Adding another layer of taxation would likely accelerate this behaviour, further reduce the already scarce supply of rental homes and put more pressure on tenants trying to find accommodation. 

2. Capital Gains Tax (CGT) Changes and Investment Incentives 

No Budget season would be complete without CGT speculation. There is persistent talk of changes to CGT, specifically regarding property.

While we cannot rule out a general increase in CGT rates or a reduction in the annual exempt allowance (the latter of which is fairly likely), the NRLA views this as an opportunity for the Chancellor to be more strategic. 

We are urging the Government to reform CGT to incentivise long-term investment in rental homes.

Rather than penalising landlords who have provided housing for years, a reformed system could offer greater incentives for properties held for a significant period - for instance ten years or more - and could extend roll-over relief when sales proceeds are reinvested into the purchase or retrofit of another rental property.  

As discussed recently by Paul Johnson, formerly of the IFS, on our podcast Listen Up Landlords, an ill-considered broad-brush increase in CGT would simply destabilise the market further, but a targeted reform could reward stability and drive worthwhile investment.  

3. Property Transaction and ‘Wealth’ Taxes (including the 'Mansion Tax' threat) 

It is not at all unusual for the Government to use SDLT to ‘nudge’ behaviours they want to see in the housing market, and to raise revenue. However, this year the debate around property taxation has been extended beyond transactional taxes like SDLT or LTT and into holding taxes, which are paid annually.  

While it is widely expected that the existing levy on additional properties will remain, hitting new investment, a new concern comes from speculation about new, annual levies. 

This speculation has centred largely on a so-called “mansion tax," or the reform of Council Tax to apply higher rates to expensive homes (typically valued above £1.5 million). 

While aimed at the wealthiest property owners, any new property-based annual charge would inevitably affect landlords who own properties in high-value areas, particularly London and the Southeast, regardless of whether those properties are luxury homes or simply long-held rental properties caught out by years of price inflation. 

It is also important to remember that, after many years of campaigning, the Government only recently recognised that larger HMOs should be aggregated by default for council tax purposes, meaning that many HMOs around the country will fall into bands F, G, or H and might be subject to any new ‘wealth’ tax.  

Crucially, introducing a new annual holding tax or significantly increasing Council Tax on higher bands would increase the operational costs for HMO landlord, who are typically responsible for Council Tax.

This is a cost that must either be absorbed—further squeezing already tight margins, especially for mortgaged properties—or, more likely, be factored into rent reviews, thus directly increasing the financial burden on tenants. 

Ironically, in the case of HMO residents, this is likely to be exactly the group the Government is trying to shield from increased costs.  

Beyond Speculation: What have we called for? 

While tax measures dominate headlines, the Budget must also address the immediate crisis faced by low-income tenants and the long-term need to decarbonise the housing stock. 

Support for Tenants: The LHA Lifeline 

In the face of the cost-of-living crisis, rising rents, and insufficient housing supply, many vulnerable tenants rely on Local Housing Allowance (LHA) . Despite rising rental costs, LHA rates have been repeatedly frozen over the last decade, erasing any connection with local market rents or the cost of providing housing.  

We have strongly called on the Chancellor to unfreeze Local Housing Allowance rates and ensure they adequately reflect current market rents. 

Contrary to what some seem to believe, this is not a subsidy for landlords, but a vital mechanism to increase access to homes whilst preventing low-income tenants from falling into rent arrears and facing homelessness, which places enormous strain on local authority budgets.

Unfreezing LHA would provide immediate, targeted relief where it is needed most and save government money in the long-term. 

Supporting Landlords to Green Their Homes 

The Government has ambitious goals for improving the energy efficiency of the UK's housing stock. Many landlords are onboard with this objective, but the investment required to retrofit older properties is substantial, often running into many thousands of pounds per property. 

We are seeking tax efficiencies to help landlords retrofit properties. This could take the form of an enhanced capital allowance for energy efficiency improvements, or the redesignation of retrofit measures as revenue expenses, allowing the cost to be offset against tax more quickly.  

In the immediate term we need certainty about targets, timelines, and what funding is likely to be available to the PRS. 

Without financial support, the burden falls entirely on landlords, which risks either disincentivising investment or driving up rents to cover the capital cost.

The Budget is the ideal vehicle to provide this essential, supportive framework. Once again there is an opportunity to drive economic activity if the Chancellor can bring herself to break the habit of her predecessors, who saw private landlords only as cash-cows.  

Our central message for Rachael Reeves 

The Chancellor faces the biggest challenge of her political career in deciding what she wants to use her second Budget Statement to achieve.

She could take the easy route and introduce a set of tax measures that penalise our sector for short-term revenue gains, disincentivise investment and further squeeze those of us still providing homes.  

Or she could break with recent orthodoxy and use the tax system to incentivise long-term investment in good quality, secure homes. Every pound a landlord is encouraged to invest drives local economic activity, adds to supply, and improves stock.  

As an association, we have repeatedly urged the Chancellor to recognise the vital role the PRS plays in the economy.

Our members support labour mobility, provide homes for key workers, and are support opportunity.

Tax increases that reduce rental supply and drive-up costs are not just bad for landlords; they are economically damaging and, ultimately, harm tenants through higher rents and less choice.

The solutions, unfreezing LHA, reducing the cost of greening homes, and sensible CGT reform, are there, waiting to be grasped. 

The coming days will be filled with noise, rumour, and speculation. Our advice remains consistent: stay calm, don't make rash business decisions based on speculation, and await the concrete facts of the Budget statement.  

Our team is poised to analyse every detail and will provide a comprehensive breakdown of what the announcements mean for you and your business as soon as the dust settles. 

To Listen to Paul Johnson's interview on Listen Up Landords click below.