The UK government has announced a 2% rise in income tax (NO FOLLOW) on rental property profits from April 2027, meaning landlords will pay more tax on the money they make from letting homes.
The Treasury maintains that aligning property income taxation more closely with earned income supports fiscal sustainability and tax equity.
This tax rise is part of wider Budget changes aimed at treating income from property more like income from work, but it has sparked concern among many in the housing sector. Property experts say this could tighten already narrow profit margins for landlords and ultimately affect both the rental market and tenants.
Industry bodies, like the National Residential Landlords Association, have warned that this extra tax could lead to landlords passing on costs to renters, potentially pushing up average rents by somewhere between £20 and £25 per month according to some estimates.
Rising costs for landlords already include things like reduced mortgage interest relief and increased regulation, so adding more tax can feel like another squeeze on returns.
London property expert Jessica Hall of J Property Management described the tax increase as “a backward step” for the private rented sector. She said: “From my point of view, I believe the 2 % hike to property-income tax is a backward step and for many landlords, especially smaller private landlords, it’s more than just a bit of extra tax; it could be the straw that finally breaks the camel’s back.”
Hall continued by pointing out that landlords have already faced years of rising mortgage rates, tighter rules on how interest can be offset against tax and extra regulatory costs. She said these pressures could force some landlords out of the market entirely.
Hall also warned that this shift isn’t just bad for landlords, it could make it harder for tenants to find homes. She suggested that if the available stock of rental properties shrinks because some owners sell up, this will reduce supply at a time when demand remains high, making it even tougher for renters. Hall said: “That isn’t just bad news for landlords, it could reduce the supply of available housing & force rents up at a time when many tenants are already under pressure.”
A poll of landlords shows many are already thinking about how to respond. In recent research, around 65 % of landlords planning to increase rents cited the upcoming tax rise as a key reason to do so. This was almost as many as those who pointed to general increases in property running costs.
Critics argue the tax increase could worsen the ongoing supply imbalance in the private rented sector. Around 2.4 million landlords, or about 6 % of UK taxpayers by 2029–30, will be affected by this change in tax rules, according to government forecasts. Those figures show the scale of how many individuals could see their returns reduced.
Opponents also warn that reducing the incentive to invest in rental property will make it harder to meet the long-term need for homes to let. Many households rely on the private rented sector because homeownership remains out of reach for a growing number of people. When tax and regulatory costs rise, some landlords may consider selling properties or placing them into company structures to manage their tax bills differently.
The government argues the tax changes are part of ensuring the tax system is fairer, but landlords, intermediaries and property professionals say that when costs rise and supply stays the same or falls, tenants could end up bearing the burden in the form of higher rents and less choice. The situation highlights the complex balancing act between raising revenue, supporting investment in housing supply and keeping rental prices affordable
