There’s been a furious response to the government’s tax grab on landlords, announced in yesterday’s Budget.
Chancellor Rachel Reeves announced that from April 2027, a 2% increase will be imposed on basic, higher and additional rates of property income tax, increasing them to 22%, 42% and 47% respectively.
This is estimated to yield £0.5 billion a year on average from 2028-29. The Office for Budget Responsibility says: “The costing incorporates a small negative impact as a result of the pass-through of the tax increasing rents and property tax receipts, which is more than offset by a reduction in house prices reducing other receipts.”
The industry has responded angrily.
Ben Beadle, Chief Executive of the National Residential Landlords Association, says: “Despite claims of tackling cost of living pressures, the Government is pursuing a policy that the Office Budget Responsibility has made clear will drive up rents. Almost one million new homes to rent are needed by 2031. But this Budget will clobber tenants with higher costs while doing nothing to improve access to the homes people need.”
Colleen Babcock, Rightmove’s property expert, comments: “Landlords might look like an easy target, but rental market taxation is usually detrimental to tenants looking to rent a home. The simple fact is that in order to provide tenants with much needed homes landlord investors need to be able to make the sums add up. Changes to mortgage interest relief, higher buy-to-let mortgage rates, the cost of compliance changes, and stamp duty increases have only made that harder. While UK Finance data suggests that despite challenges, more landlords are investing in new purchases and remortgaging than last year, today’s news will make it even harder for some landlords to make investments viable.”
Sarah Bush, Head of Residential at lettings agency Cheffins, says: “Reeves’ new levy for landlords is yet another hammer blow to the private rented sector. Having already endured repeated tax hikes, looming EPC requirements, and the now-legislated Renters’ Rights Act, and this latest measure introduces yet another obstacle for landlords to overcome. What the government seems to overlook is that not all landlords are the multi-property owning, profit-driven investors who have tarnished the sector’s reputation. Many are small-scale or accidental landlords, individuals who chose to invest in property rather than savings accounts during times of strong capital growth and steady rental returns … The government now needs to give the private rented sector a break.”
Andrew Lloyd, Managing Director at property data firm Search Acumen: “For landlords, some will be hit twice in today’s Budget if stung by a council tax surcharge and an increase in property income tax. Some will have no choice but to exit the market entirely, reducing supply of the already squeezed private rental sector. Rents have increased nationally by about 36% since 2020, a figure that sits well above wage growth and has tightened the screws on the cost-of-living crisis. What’s more, the scarcity of rental homes will add further pressures to social care and social housing supply, with a housebuilding sector currently in turmoil.”
The other major announcement in the Budget concerned a mansion tax – a surcharge of £2,500 additional council tax per year for homes valued about £2m rising to an annual £7,500 on homes valued at £5m or more.
Zara Bray, mortgage expert at Quilter says: “Although the number of affected properties is relatively small, they are heavily concentrated in London and the South East, where prices have long run ahead of local earnings. The levy relies on property value as a proxy for ability to pay, even though a rising valuation does not guarantee liquidity. Many households in properties above £2 million have seen their home values increase sharply over time without a corresponding rise in income. Treating the property alone as evidence of financial capacity risks placing considerable pressure on those whose wealth is tied up in housing rather than accessible funds.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman: “Mansion tax change seems more political than anything bearing in mind the relatively little additional revenue to be raised and the likely deferred payment date. As a result, the impact on housing market activity will probably be minimal at worst.
“However, I wish the Government luck trying to re-value all those properties and dealing with the arguments around the ‘pinch points’. As a result, the cost of the exercise could turn out to be higher than the extra sums making their way into Treasury coffers. As is often the case when attempting to analyse the Chancellor’s words on these occasions – it’s just as important what she says as what she doesn’t say.”
Nick Leeming, Chairman of Jackson-Stops: “What concerns me is the greater economic consequences beyond the Chancellors tax grab, leaving £2m homeowners who are mortgaged having the potential to slip into negative equity as prices realign. We know house prices in London and the South East reflect decades of inflationary growth and chronic undersupply, where as a result, asset-rich and cash-poor homeowners will be disproportionately affected.
“A £2m threshold is arguably too low for these regions where a single blanket threshold fails to recognise regional nuances. What we would rather have seen for council tax is a complete rebanding with greater laddering to avoid cliff-edge rates and continued fiscal drag.
“Few dispute that revaluation is necessary from outdated 1991 values, but a piecemeal approach risks embedding existing imbalances. As it stands, questions will be raised about valuation accuracy, how homes are assessed, and whether this could spark legal challenges. Taking the time to get the revaluation process correct before the 2028 implementation deadline will be absolutely key to its success, where one legal challenge may open the floods gates to others.”
Lucian Cook, Savills head of Residential Research: “After what must have been the most prolonged exercise in kite flying in the run up to a Budget, the introduction of an annual tax surcharge for properties worth over £2m, at levels somewhat lower than many will have feared, is probably the least worst outcome for owners of prime property.
“However unwelcome any tax increase, the certainty which this provides will allow buyers and sellers to formulate plans which have been put on hold over recent months. This is likely to underpin a short term pick up in market activity, especially given the breathing space offered by a delay in implementation whilst the valuation exercise is conducted.
“Over the longer term the measures are likely to act as slightly greater incentive for older home owners to downsize and, in some cases, heavily mortgaged owners of high value homes to move to a less valuable property pushing some demand out of London into the commuter zone. However, this impact will be tempered by an ability to defer any charges until sale or death which should prevent a rush of stock coming to the market.
“In the more domestic markets, it will temper the size of mortgage those using debt to fund a purchase would otherwise be able to secure. But in reality this will be more dependent on the pace and scale of future interest rate cuts.
“At the very top of the market the policies themselves are not big enough to warrant a change in the demand supply dynamic of the central London market. All of this, combined with the fact that some of the risk at the top end of the market has already been priced in, is likely to mean that, overall, any further impact on prices is relatively modest, although it is likely to be a further drag on the recovery of the prime market.
“However, it is likely to have a disproportionate impact on second home markets which are already dealing with an increased stamp duty surcharge and the doubling of council tax in most cases.”
Tom Bill, head of UK residential research at Knight Frank: “Until the revaluations take place, buyers and sellers face years of uncertainty, especially around the £2m threshold. Even once completed, new valuations can be challenged, which would prolong the limbo.
“The policy may also raise less than expected, especially because it is deferrable. If opposition parties say they would scrap it, many homeowners will look at the opinion polls and wait it out. When you factor in the cost of carrying out the valuation and the potential lost stamp duty revenue from a stickier market, the sums raised could look like a rounding error for the Treasury.
“More properties will inevitably get dragged into the mansion tax net, which means the proportion of terraced houses, flats and semi-detached homes will grow over the years, particularly in the capital. The term ‘mansion tax’ will increasingly feel like a misnomer.
“Overall, it feels like politics has trumped economics. One the one hand, the policy is designed to keep backbenchers happy and ensure the near-term survival of the Chancellor and Prime Minister. On the other, it throws a spanner into the works of the housing market for not much money in return, which is important in the context of a Budget where spending is front-loaded. The UK already pays the highest percentage of property taxes among OECD countries.”
This article is taken from Landlord Today