The Chancellor has added another two points to tax on rental income, and the official forecaster says tenants could end up footing part of the bill.
LONDON, England (Big Smoke Broke) – If you rent a flat in this city, you have probably noticed that the person who owns it is not your friend, and that the Treasury is not yours either. The Chancellor’s first Budget has just raised tax on rental income again, and the government’s own forecasters think some of that cost could land on tenants.
The tax change in plain English
Chancellor John Healey announced a further two percentage point rise in tax on property income, on top of the two points that his predecessor Rachel Reeves announced a year earlier. Mortgage Solutions’ write-up of the change says that from April 2027 the rates on property and savings income become 24 percent for basic-rate, 44 percent for higher-rate and 49 percent for additional-rate taxpayers. It estimates the property part at around 400 million pounds a year on average from 2028-29.
The Treasury says the change touches 16 percent of income taxpayers and that half the money comes from the top 10 percent of households, as City AM’s Budget-day coverage reports. That is a perfectly respectable argument for a government short of money. The trouble is the next sentence.
What the official forecaster said
The Office for Budget Responsibility, which is not a campaign group, says the measure cuts private landlords’ returns and, together with earlier policies, could lead to what it called a “steady rise in rents”. According to City AM, the OBR sees two routes: fewer people becoming landlords, and existing ones passing costs on to tenants as some leave the market.
Landlord groups were predictably unhappy. City AM quotes the National Residential Landlords Association’s chief executive, Ben Beadle, saying the Chancellor has made life harder for renters, while a Martyn Gerrard estate agency boss, Greg Tsuman, called the policy “lunacy”. The Negotiator’s rundown of housing measures collects more of the same, including an accountancy partner who called the extra two points the final nail in the coffin for private investors. Those are interested parties, and you should read them that way. The OBR is the one without a rental portfolio.
Where London rents stand right now
Here is the awkward timing. The latest official figures suggest that London is not the fastest-rising rental market in the country. Property Investor Today’s summary of the ONS data says UK private rents rose 3.8 percent over the 12 months to September, to an average of 1,406 pounds a month, with London and the South East tied for the lowest growth at 3.5 percent. The North West topped the table at 5.7 percent.
That is not the same as cheap. A separate index, covered by ITV’s report on the Hamptons lettings index, put the average newly agreed London rent at 2,357 pounds a month, up 1.5 percent on a year earlier. The article labels that London figure as August data, so treat it as a snapshot. The same report says existing tenants who faced a rise saw an average of 5.6 percent across Britain, and that higher rents have so far mostly hit people who move home. If that gap closes, stayers will feel it next.
- ONS, 12 months to September: London 3.5 percent, UK 3.8 percent.
- Hamptons, new London lets: 2,357 pounds a month (August data).
- Existing tenants with a rise, Britain-wide: 5.6 percent on average.
The other Budget measures with a London accent
The Negotiator reports that stamp duty on second homes rises from 3 percent to 5 percent with immediate effect, and that the surcharge on homes worth 2 million pounds or more goes ahead, with first bills in 2028. Expect that one to be debated with some heat in the pricier postcodes.
For first-time buyers, a scheme called Your First Home is due in spring 2027, offering a 2.5 percent deposit backed by an equity loan, for new-build homes only. Income caps are 140,000 pounds inside London, and price caps are 650,000 pounds in inner London and 500,000 pounds in outer London. Zoopla’s Richard Donnell reckons it will have around half the impact of the old Help to Buy. Knight Frank’s London-focused reaction is more relaxed, describing a low-drama Budget that removed some uncertainty, though its lettings partner David Mumby says the landlord tax makes investing in London less attractive.
On household bills, Citizens Advice’s summary of the household measures lists a 100 pound energy payment for council tax bands A to D from January 2027, and an extension of the VAT break on electricity to July 2027. That helps, but it does not touch the rent.
Where I land
I have no great sympathy for anyone who treats a flat as a pension scheme, and I have even less for the idea that landlords will simply shrug and absorb a tax rise. Those two instincts pull in opposite directions, and the OBR has just told us which way the pull is likely to go. Governments choose their pain, and this one has chosen a pain with a delayed fuse. If you want your own Budget escape route, there is always English humor news at The London Prat, where I also write, or a Cockney rhyming slang explainer for describing your landlord without being sued. The British humor news archive is there too, and so is Bohiney Magazine, along with more of my London life and politics reporting at The London Prat.
Keep your rent receipts, read your tenancy renewal letter twice, and judge the Budget not by the speech but by the figure that appears next to your name in a year’s time.
SOURCE: https://bohiney.com/