Reeves warned that ‘punitive’ tax hikes on landlords will choke rental sector
Property experts have warned that higher taxes on landlords’ rental incomes will have ‘severe’ unintended consequences for the rental sector and the broader housing market.
The Chancellor is reportedly examining proposals for applying national insurance (NI) to rental income in the hope of raising £2bn.
Officials are drawing up options for tax rises in an attempt to avoid breaking the “red lines” set by Reeves before the general election, where she promised to not raise taxes for ‘working people’, according to The Times.
Tom Bill, head of UK residential research at Knight Frank, said that while the move “won’t lose the government many votes”, it will “invariably end up hurting tenants”.
“With landlords already selling up ahead of the Renters’ Rights Bill and tougher green regulations, another disincentive would reduce supply further and put upwards pressure on rents.”
“Those that stay may pass on the extra costs in other ways. Governments need to fully appreciate that when you tax an activity, you get less of it,” he said.
Private, smaller landlords – i.e. those who do not funnel their activity through a corporate structure – are under pressure from all sides: inflation, high interest rates and new regulations all impact small landlords more than larger ones.
‘Political point-scoring rather than sound housing policy’
Multiple experts said that as smaller landlords get ever-more squeezed, they will pull up stakes or restructure.
“We’re already seeing supply pressures in many areas, pushing costs onto tenants. A policy with such serious unintended consequences deserves more scrutiny,” Marc von Grundherr, director at Benham & Reeves, said.
According to Savills, up to one million additional homes will be required to accommodate growing rental demand by 2031, particularly from young families, across England and Wales.
“Further punitive tax hikes on the rental sector will lead only to rents going up, hitting the very households the government wants to protect,” Ben Beadle, chief executive of the National Residential Landlords Association (NRLA), said.
Sam Humphreys, Head of M&A at Dwelly, said: “The reality is that many landlords already operate on fine margins, and measures like this could be the tipping point that drives them out of the sector altogether.
“Once stock is lost, it is incredibly difficult to rebuild, and the people who pay the price are tenants facing rising rents and fewer housing choices.
“If the government wants to improve affordability, it should be working to increase supply – not choking it further with punitive taxation,” Humphreys added.
Rents will ‘invariably’ rise
Earlier this year, a Handelsbanken survey found that around a third of small landlords were already planning to leave the sector, with 88 per cent of private landlords reporting no confidence in the current private rental sector.
If landlords do leave the sector because of the introduction of NI, the imbalance between supply and demand will “invariably” push rents higher, Shaun Moore, tax and financial planning expert at Quilter, said.
“Similarly, the addition of NI would almost certainly be passed on to renters through higher rents, compounding the problem,” he said.
Moore added that the practice of holding properties within a limited company structure will “skyrocket” as landlords look for ways to mitigate the impact of these changes.
“Ironically, this could mean the government’s expected revenue boost is far smaller than anticipated, while the unintended consequences for renters and the broader housing market could be severe.”