Warning Reeves’s landlord tax will push up rents and ‘dry up’ housing supply

Rachel Reeves’s new landlord tax will cause the rental market to “dry up” and push record-high rents even higher, a leading figure in the property market has said.

In a stark warning to the chancellor, Simon Gammon, the founder and managing director of mortgage brokers Knight Frank Finance, said her Budget decision to hike tax on landlords’ rental income by 2 per cent will be the “last straw” for many, forcing them to sell up.

He said: “The nonsense is that the more properties that come to the market, the less they will be available for rental, and therefore the rents will continue to go up. Which doesn’t help anybody.”

It comes after it emerged that the Treasury failed to conduct an impact assessment in respect of how the new levy would affect rents or housing supply.

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In the past two years, average rents in the UK have risen substantially – by 8 per cent in 2023 and 9 per cent in 2024. The highest rises were seen in London, where rents went up by 11.5 per cent last year.

Mr Gammon described the way landlords are being forced to sell up as “like death by a thousand cuts”.

The sector was first hit in 2015, when George Osborne announced he was bringing an end to mortgage tax relief. And now, new renters’ rights legislation is set to come into effect, restricting landlords’ ability to evict tenants and giving tenants a right to appeal against rent increases.

But Mr Gammon suggested that the extra 2p in the pound paid as income tax from rent may mean that, for many landlords, it will no longer seem worth holding on to their rental properties.

He said: “People are just not going to go into the market, or going to sell their buy-to-let, and that means there's less rental properties. It’s a nonsense.”

He estimated that “there will be a drying-up” of supply in the rental sector over the next two years. “I think it will really only hit people when they get their tax bills,” he said. “So that will be 2026 or 2027.”

Mr Gammon said that people often hold on to properties and rent them out so that they can eventually pass them on to their children.

But he warned: “People think, ‘As long as I’m breaking even, or it’s only costing me a few hundred pounds a year in costs, then I can kind of stomach it.’ But now it’s going to be thousands of pounds for most landlords, and they will sell.”

The impact assessment for the new landlord tax, seen by The Independent, failed to consider how the tax rise would affect rental supply or the cost of renting.

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The assessment did include an equality assessment, which noted that the Asian community would be disproportionately hit by the new tax because they make up 4.8 per cent of landlords, compared with 2.8 per cent 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 of tackling cost-of-living pressures, the government is pursuing a policy that the Office for Budget Responsibility has made clear will drive up rents.

“Almost 1 million new homes to rent are needed by 2031. But this Budget will clobber tenants with higher costs while doing nothing to improve access to the homes people need.”

And Nick Neale, director at Emoov, agreed, saying that the tax “will almost certainly lead to higher rents” because landlords can “no longer continue absorbing rising costs” resulting from the legislative changes.

He added: “We’re already seeing many landlords selling up due to increased regulation, so any further reduction in income will only accelerate this trend. With more landlords exiting the market, the supply of good-quality rental homes will fall – inevitably driving rents even higher.”

The Renters’ Reform Coalition (RRC), a leading alliance of major housing and renter organisations, condemned the government’s refusal to increase local housing allowance in the Budget, but welcomed the tax changes affecting landlords.

Tom Darling, director at the RRC, said: “Soaring rents are a major cause of homelessness, driving renters out of their homes or into poverty, and refusing to increase housing allowance means many families will remain trapped in emergency homelessness accommodation, unable to afford to move.”

He added: “We welcome tax changes like the mansion tax and increasing taxes on property income. It’s only right that those with the broadest shoulders – which in England usually means those who own multiple properties – should bear more of the load. 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 it would force rents up.

He said: “For too long, the tax system has been rigged against renters. It’s scandalous that landlords pay less tax on their incomes than their tenants. Especially as HMRC figures show that 59 per cent of landlords don’t have a mortgage to pay.

“Meanwhile, landlords with mortgages are already charging as much as their tenants can bear, so will struggle to push them any higher.”