Budget 2026: Tax raid on landlords ‘final nail in the coffin’ for rental sector

John Healey’s decision to hike tax on rental income is set to push up rents and deter new landlords from entering the sector, Britain’s fiscal watchdog has said. 

In his maiden Budget today, the Chancellor said that tax on property income will rise by a further two per cent, following the two per cent hike imposed by his predecessor, Rachel Reeves, last year. 

The Office for Budget Responsibility (OBR), which assesses the government’s spending plans, has told the Treasury that this tax raid will cause landlords to raise private rents, prompting estate agents to accuse the government of “lunacy”. 

The additional hike on income from property means that tax on rent will rise by four per cent from April next year. The Treasury claims this will affect only 16 per cent of income tax payers, with half of the revenue raised set to come from the top 10 per cent of households. 

But the OBR has issued a stark warning to the Chancellor that this tax hike will be the latest of a series of recent measures which have “reduced private landlord returns”. 

The fiscal watchdog said in its analysis of the Budget that this tax hike risks “leading to a steady rise in rents through two effects.

“First, potential landlords are less likely to enter the market, reducing long-run rental supply, which risks a steady long-term rise in rents if demand outstrips supply – which we think is more likely than not. 

“Second, landlords are likely to pass on more of these costs to renters in the long-run through a combination of some current landlords leaving, thereby giving more price setting power to remaining landlords, and greater long-run flexibility to raise rents.”

Landlords and estate agencies were quick to slam this tax hike, warning that it will deal the final blow to a sector which has already faced huge headwinds from Labour’s renters’ rights act. 

Final ‘nail in coffin’ for rental sector

Eliot Castle, chief executive of real estate firm Castle Property Group, said this raid will deliver “another nail in the coffin for a sector which has been targeted again and again”. 

“Every new cost either pushes rents up for tenants or forces another landlord to sell up and exit the market. Tenants pay the ultimate cost, as supply of rental properties decreases and rents increase as a result.”

Ben Beadle, chief executive of the National Residential Landlords Association, pointed out the government has committed to delivering more homes, as it lags behind housebuilding targets. 

Yet Healey “has today made life harder for renters right across the country,” he said.

Greg Tsuman, managing director at estate agency Martyn Gerrard, said: “Last year’s Autumn Budget dealt a severe blow to the sector, but it looks like the Government wants to finish it off.

“The OBR was already warning that the level of tax being imposed on landlords was likely to drive up rents and reduce rental property supply. This is lunacy and I fear that the Government is actively trying to dismantle the [sector].”

The further two per cent tax rise will also apply to income from savings. The rates will rise to 24 per cent for basic taxpayers, 44 per cent for higher rate taxpayers and 49 per cent for additional payers.

Robbie Hewitt, wealth planner at Brown Shipley, said: “This was unexpected and could prompt investors to take a fresh look at large cash holdings.”

“While it is important not to lose sight of the role cash plays in a portfolio, those holding significant sums may now be more inclined to consider alternatives, including UK gilts.”

But the Chancellor confirmed there will be “no change to tax on income from dividends and tax on income from employment”.

Reeves’ opted to increase dividend tax for basic and higher rate taxpayers by two percentage points last year, but left the additional rate unchanged. Advisers welcomed the continuity, arguing it gave investors a sense of stability amid a wider tax overhaul.

“Leaving dividend taxation unchanged provides a degree of certainty for investors and family business owners,” said Nick Mendoza, private client partner at Wedlake Bell.

Against a backdrop of wider tax changes, maintaining the existing position will at least make planning around investment income more predictable.”