The latest budget tax rise announced in the Autumn Statement has intensified concerns across the private rented sector, with new analysis suggesting it could accelerate landlord sell-offs and place further upward pressure on rents. While the government says the measures are designed to support economic stability and ease inflation, industry experts warn the changes may have unintended consequences for tenants and housing supply…

Research from Knight Frank indicates that Chancellor Rachel Reeves’ decision to increase tax on rental income by two percentage points is likely to reduce already-tight landlord margins. As costs rise, many landlords may reassess whether remaining in the sector is financially viable, particularly smaller investors with one or two properties.

Why the budget tax rise matters for landlords

Tom Bill, Head of UK Residential Research at Knight Frank, says higher taxation has a direct impact on supply. He explains that as returns are eroded, some landlords will choose to sell, reducing the number of homes available to rent. When supply falls but demand remains strong, rents typically increase.

This view aligns with warnings from the Office for Budget Responsibility, which has previously noted that continued pressure on landlord returns is likely to reduce rental supply over the long term. The OBR has also cautioned that this imbalance risks sustained rent increases if demand continues to outstrip available homes.

Knight Frank’s data already shows upward pressure on rents, particularly in London. Average rental values in prime central London rose by 1.8% in the year to November, while prime outer London recorded a 2.2% increase over the same period. These figures reflect a market where tenants are competing for a shrinking pool of rental properties.

Gary Hall, Head of Lettings at Knight Frank, believes the issue is not regulation alone, but the cumulative effect of rising costs. He notes that while many landlords are adapting to reforms such as the Renters’ Rights Act, the budget tax rise adds further strain to finances that are already under pressure. When an asset no longer delivers a reasonable return, selling becomes a rational decision.

Long-term impacts on rents and investment

The wider market context makes these concerns more acute. According to Knight Frank, average rents in prime central London have risen by around 35% since November 2019, compared with growth of just 2% in the previous six years. In prime outer London, rents increased by 33% over the same period, versus 8% in the six years before the pandemic.

Other reputable industry bodies have echoed similar warnings. The National Residential Landlords Association has repeatedly highlighted that higher taxes and compliance costs discourage investment, while organisations such as Savills have pointed to reduced landlord numbers as a key driver of rental growth nationally.

Some landlords are now exploring incorporation as a way to manage tax liabilities more effectively. However, this option is not suitable for everyone and often involves additional legal and administrative costs. For many, exiting the market remains the simpler choice, particularly as uncertainty continues following the budget tax rise.

Ultimately, while rental yields have improved in some areas due to rising rents and softer house prices, analysts warn that relying on rent increases to offset higher taxes is unsustainable. If the budget tax rise leads to a prolonged reduction in supply, tenants are likely to feel the impact most, through higher costs and fewer choices in an already competitive market.

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