Property Tax Increase to "Land Heavily" on Landlords

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The 2025 budget amounts to another raid on the rental sector that raises costs for landlords.

Rates on landlords' property income, savings income and dividend income will rise by two percentage points over the forecast period.

This is according to Office for Budget Responsibility documents, released alongside Wednesday's budget.

"Landlords may have avoided a National Insurance surcharge, but the two percent increase in property income tax will still land heavily with those operating within the rental sector," says Sián Hemming-Metcalfe, Operations Director at Inventory Base.

Specialists say the rise in property income tax will directly affect landlords operating outside company structures.

However, those landlords operating within company structures will also be hit as the budget announced a 2 percentage point increase in dividend tax rates.

The raft of tax rises will therefore reduce net rental returns at a time when the sector is already facing increased regulatory and operational pressures.

"The rise in property income and dividends tax presents all types of landlords with yet another obstacle to adapt to at a time when they are already absorbing significant operational changes under the Renter’s Rights Act," says Sam Humphreys, Head of M&A at Dwelly.

These changes are expected to place particular pressure on smaller landlords and private investors, potentially reducing participation in the sector and affecting the supply of available rental stock.

"Smaller individual landlords are already working through one of the biggest operational shifts the sector has seen in years as the Renter’s Rights Act beds in. Many are investing in upgraded processes, property standards and compliance systems, and this extra tax cost arrives precisely when their outgoings are rising rather than falling," says Hemming-Metcalfe.

She explains that amateur and accidental landlords who rely on rental income as part of their household finances are far more exposed.

This bracket tends "to act conservatively when the rules keep shifting, and they are often the first to reduce investment or withdraw from the sector entirely."

Humphreys says that despite the tax increases, the rental sector remains profitable, but the margin for error is "undoubtedly narrowing".

However, smaller individual landlords now face a more complex environment where every regulatory and financial shift has a meaningful impact on day-to-day decision-making.

"The rental market is evolving quickly and remains a fundamentally strong asset class, but support and clarity are becoming more essential with each policy adjustment. Ensuring landlords have access to the right advice will be key to maintaining confidence and performance in the years ahead," says Humphreys.