Chancellor Rachel Reeves is facing mounting calls from Labour MPs to impose new taxes on landlords, aiming to address a looming budget deficit without breaking the party’s promise to avoid tax hikes on ‘working people’.
The news comes as a survey carried out by the National Residential Landlords Association found that 83% of landlords are worried about a hike in Capital Gains Tax when selling a rental property.
The Prime Minister, Keir Starmer, has already claimed that landlords do not qualify as working people, paving the way for potential fiscal measures targeting rental income.
Nick Williams, a former Downing Street aide, has emphasised the need for tax revenue, and says in The Times that "taxes would have to go up" to close the financial gap.
The Times also says that Labour MPs are advocating for higher taxes on rental earnings, a move that could reshape the UK’s private rented sector.
The National Residential Landlords Association, Chris Norris, pointed out to the Daily Telegraph that landlords already pay income tax on rental income. He said "further taxes would ‘increase complexity’ and deter investment in the PRS – which could deepen the housing crisis. Rumours concerning the imposition of a ‘rental income tax’ are misleading as they suggest that such income is not already taxed just like all other personal and business income. Since 2015, landlords have faced a series of punitive tax and regulatory changes, such as the removal of mortgage interest relief and the introduction and subsequent hiking of the stamp duty levy on additional properties.”
He warns that investment has already been hit, and landlords have left the PRS due to financial pressure – leading to less choice and higher rents for tenants.
The Telegraph has looked at what the potential tax options are for Ms Reeves and one proposal involves requiring landlords to pay National Insurance on rental profits.
That would, supporters say, align their contributions with those of self-employed workers.
Robert Salter of Blick Rothenberg explained that landlords could face rates of 6% on profits between £12,570 and £50,270, and 2% on higher amounts.
However, Ian Cook, a financial planner at Quilter, points to complications, as many landlords, with a median age of 58, are near or past the state pension age, when National Insurance typically ends.
This could necessitate a complex two-tier system, he said.
Alternatively, Mr Cook suggests establishing a distinct tax band for rental income.
Currently, landlords benefit from a £1,000 tax-free property allowance, with additional income taxed at standard rates.
For instance, a landlord earning £45,000 from employment and £8,000 from rentals faces a mix of 20% and 40% tax rates on the latter.
Mr Cook says "that couples often minimise tax by allocating income to a non-working partner’s personal allowance".
A dedicated rental tax band could curb such strategies and boost Treasury revenue.
Another option is applying VAT to residential lettings, following the precedent set by furnished holiday lets.
Mr Salter warns, however, that a 20% VAT rate would likely increase rents, as landlords pass costs to tenants. He told the Telegraph: “introducing VAT on regular residential property lettings would clearly result in significant rental property inflation.”
The Resolution Foundation has previously supported aligning rental income taxation with other income types, proposing a new National Insurance class.
Meanwhile, a survey by the National Residential Landlords Association (NRLA) reveals that 83% of 882 landlords are most concerned about a potential increase in Capital Gains Tax (CGT) on rental property sales.
It found that 61% are ‘very concerned’ and 22% ‘slightly concerned’.
The NRLA says the survey highlights growing anxiety among landlords, with 53% very concerned about the Renters’ Rights Bill and 35% slightly concerned.
The organisation’s chief executive, Ben Beadle, said “these figures lay bare the fragility of investor confidence, with many feeling anxious about the overall direction of government policy as regards tax, rental reform and energy efficiency. We have a tax system which disincentivises investment, and a punitive Capital Gains Tax hike on the sale of rental properties is likely to exacerbate the situation.”
Confidence in the Buy to Let Market at All Time Low
Just 3% of property professionals are most confident in the prospects of buy-to-let this year, suggesting many regard the current environment to be hostile towards investors.
Instead, half (50%) have most confidence in the first-time buyer sector, followed by new build (18%).
The webinar poll was conducted by Countrywide Surveying Services, a provider of valuation panel management and property risk services.
Matthew Cumber, managing director at Countrywide Surveying Services, said “these insights paint a picture of a market that is still navigating economic pressures and grappling with fundamental issues but is starting to see signs of stabilisation and resilience. It’s encouraging to see such strong confidence emerging towards first-time buyers and new build, but the message from the industry is clear in that affordability and housing supply must be prioritised if we want to see sustainable growth. Our role is to continue supporting informed decisions and facilitating honest conversations across the sector, and we’re proud that our webinar series is helping to lead that dialogue and shape the right conversations across the industry.”
Affordability is viewed as the biggest concern (38%), followed by continuing to reduce interest rates (38%) and a establishing a Help to Buy replacement (11%).
Professionals are cynical about the Labour government’s housebuilding ambitions, which include producing 1.5 million new homes over the course of the parliament.
When asked whether they believed the government would hit its targets in 2025, 74% of respondents said no, compared to just 26% who said yes.