Reeves’s landlord tax will ‘dry up’ housing supply and push up rents, expert warns
Rachel Reeves’ new landlord tax will cause the rental market to “dry up” and cause record high rents to rise further, a leading property market figure has said.
Simon Gammon, founder and chief executive of mortgage broker Knight Frank Finance, issued a stark warning to the Chancellor, saying the Budget decision to increase tax on landlords’ rental income by 2 per cent would be the “last straw” for many and force them to sell.
He said: “The nonsense is that the more properties that come on the market, the less rental properties there will be and so rents will continue to rise. That doesn’t help anyone.”
It comes after it was revealed that the Treasury had not carried out an impact assessment of how the new tax would affect rents or housing supply.
Over the past two years, average rents in the UK have increased significantly; 8 percent in 2023 and 9 percent in 2024. The highest increases were seen in London, where rents increased by 11.5 percent last year.
Mr Gammon described the way homeowners were being forced to sell as “like death by a thousand cuts”.
The sector was first hit in 2015 when George Osborne announced he would end mortgage tax relief. And now, new tenants’ rights legislation will come into force, restricting landlords’ ability to evict tenants and giving tenants the right to object to rent increases.
But Mr Gammon suggested the extra 2p in the pound paid in income tax on rent could mean it was no longer worth keeping their rental properties for many landlords.
He said: “People won’t go into the market or sell the rental properties they bought and that means there are fewer rental properties available. It’s nonsense.”
He predicted supply would “dry up” in the rental sector over the next two years. “I think this will only affect people when they get their tax bill,” he said. “So this will be 2026 or 2027.”
Mr Gammon said people often held on to their properties and rented them out so they could eventually pass them on to their children.
But he warned: “People think: ‘As long as I can break even, or if it only costs me a few hundred pounds a year, then I can somehow afford it.’ But now it will cost thousands of pounds for most homeowners and they will sell.”
Impact assessment of new homeowners tax IndependentIt did not take into account how the tax increase would affect rental supply or the cost of renting.
The assessment also included an equity assessment, stating that the Asian community would be disproportionately affected by the new tax because they make up 4.8 percent of homeowners compared to 2.8 percent of the population as a whole.
Mr Gammon’s warning echoes concerns raised by Ben Beadle, chief executive of the National Residential Landlords Association.
He said: “Despite claims to tackle cost of living pressures, the government is pursuing a policy that the Office for Budget Responsibility has made clear will increase rents.
“Almost 1 million new homes are due to be rented by 2031. But this Budget will saddle tenants with higher costs and do nothing to improve access to the homes people need.”
Nick Neale, director of Emoov, agreed, saying the tax would “almost certainly lead to higher rents” as landlords “will not be able to continue to absorb the increased costs” resulting from the legal changes.
He added: “We are already seeing many landlords selling due to increased regulations, so any reduction in income will only accelerate this trend. As more landlords leave the market, the supply of quality rental homes will fall, inevitably causing rents to rise further.”
The Tenants Reform Coalition (RRC), a leading alliance of major housing and tenant organisations, condemned the government’s refusal to increase the local housing allowance in the Budget but welcomed tax changes affecting landlords.
RRC director Tom Darling said: “Rising rents are a major cause of homelessness, driving tenants out of their homes or into poverty, and refusing to increase housing benefit means many families will be stuck in emergency homeless accommodation and unable to afford to move.”
He added: “We welcome tax changes such as mansion duty and increased taxes on property income. It’s right that those with the broadest shoulders (which in the UK usually means those who own more than one property) carry the greater burden. Landlords should be taxed at the same rate as their tenants who work to pay the rent.”
But Ben Twomey, chief executive of Generation Rent, questioned the claim that this would increase rents.
He said: “The tax system has been used fraudulently against tenants for too long. It is scandalous that landlords pay less tax on their income than their tenants. In particular, HMRC figures show that 59 per cent of landlords do not have a mortgage to pay.”
“Meanwhile, landlords with mortgages are already charging more than their tenants can handle, so they will struggle to charge them even higher.”
