Budget 2025 Tax Hike to hit Landlords and Tenants

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

Yesterday’s budget was received with some concern as landlords were hit with increased rates of income tax under plans announced by Chancellor Rachel Reeves.

For those of you not yet aware, Rachael Reeves announced that 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 won't help landlords who have been hit hard with anti-landlord tax hikes in the past. 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 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 landlords are selling up. 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. 

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 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.

Budget package deeply regressive for private renters

The Budget will hit low-income renters hardest as they face a combination of rent increases and frozen housing benefit rates. This comes despite the Chancellor arguing that she was tackling the cost of living.

The Office for Budget Responsibility has made clear that increasing income tax in property income will result in higher rents.  An initial analysis by the National Residential Landlords Association (NRLA) suggests this could see rents rise by £20-25 per month on a typical private rental property, rising to more than £40 per month in London. Alongside this, 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.

Government data has previously shown that, as of August this year, 53 per cent of this group had a gap between their housing benefit payment and their monthly rents. This is set to rise as a result of higher taxes leading to higher rents.

Just last week, the Institute for Fiscal Studies warned that the ongoing freezing on housing benefit rates was widening disparities for low-income renters. An unprecedented coalition of 40 organisations representing landlords, tenants, homeless charities, advice services and local authorities have also called for housing benefit rates to be unfrozen.

Ben Beadle, Chief Executive of the National Residential Landlords Association, said:

“It beggars belief that the Government thinks it is helping renters. 

“Piling on further tax rises that will drive up rents, whilst keeping housing benefit rates frozen, is a one-way street to hitting low-income tenants the hardest.

“This can only be described as a deeply regressive package that will make life more difficult for renters across the country.” 

The tax speculation that didn’t materialise from the Autumn Budget

National Insurance on Rental Income

Currently, rental income for most landlords is exempt from NI. There was speculation to introduce a charge, aligned with self-employed Class 4 NICs, this would have represented a significant new tax burden. However, Rachel Reeves chose instead to raise the basic, higher and additional rates to 2% and not make any changes to NIC's for landlords with buy-to-let properties.

Capital Gains Tax (CGT) Changes and Investment Incentives

Currently, the Annual CGT Allowance is £3,000 for the current tax year and basic Tax Rates 18% for basic rate taxpayers and 28% for higher tax rate taxpayers. There was speculation that Tax Rates would increase or the allowances reduced further, but neither happened.

CGT allowance for selling your buy-to-let property has taken a huge hit over the years. Back in 2019, the allowance was £12, 000 the basic rate and higher rates remained the same. These recent changes in CGT, amongst other anti-landlord tax hikes and legislation, disincentivise investment and further squeeze those of us still providing homes.

Overall this budget isn't good news for the private rental sector

Increasing income tax for landlords 2% in all tax bands will lead to inevitable increased costs and potentially reduce the supply of rental properties in Wandsworth. This could result in higher rents for tenants if demand outstrips supply. 

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