Wealth manager Rathbones says retirees who rely on property to supplement their income face a growing squeeze from landlord tax changes, following the chancellor’s decision to raise property income tax rates in the Budget.
From April 2027, landlords will pay four percentage points more tax on property income than they do today, after increases announced across the past two Budgets. Rates will rise from 20% to 24% for basic-rate taxpayers, 40% to 44% for higher-rate taxpayers and 45% to 49% for additional-rate taxpayers.
New Rathbones calculations show how the cost could build. Based on today’s average London rent and assuming rental income rises by 2% a year, the increase could mean £1,122 more tax in the first year, £12,288 more over ten years and almost £36,000 more over 25 years. The figures are illustrative and exclude the £1,000 property allowance, allowable expenses and other reliefs.
“The landlord squeeze is tightening from all directions and, for some, the sums simply no longer stack up,” said Charlie Newsome, senior investment director at Rathbones.
“With more than 150 pieces of lettings legislation estimated to navigate alongside rising tax and costs, being a landlord has become increasingly demanding. We’re hearing from clients considering cutting their portfolios or selling up altogether.
“But today’s landlord squeeze risks becoming tomorrow’s renter squeeze. If landlords sell up or feed higher costs through into rents, aspiring homeowners could find themselves paying more each month while having even less left over to save for a deposit.”
The change could be particularly significant for small private landlords who rely on property income in retirement. Government research found almost a third (31%) of private landlords surveyed in England were small-scale retired landlords, typically owning one or two properties and viewing their portfolios as investments to supplement retirement funds.
That chimes with Rathbones’ New Retirement Reality research, which found one in ten current retirees already receive rental income from property, while 39% expect property to help fund retirement. Among those planning to use property, 42% expect to generate rental income. Savanta surveyed 2,036 UK adults with at least £250,000 in investable assets for the research.
“For a generation of retirees, bricks and mortar have become an important part of the retirement income mix,” Newsome added. “Some invested in buy-to-let during their working lives, while others acquired property through inheritance and use the rental income to supplement pensions and savings.
“Owning an additional property can make someone look asset-rich on paper, but that doesn’t necessarily mean they’re cash-rich in retirement. For some, rent helps bridge the gap between pension income and everyday spending, so a higher tax take could be felt well beyond the wealthiest landlords.”
Landlord tax changes: the regional picture
Using average private rents across English regions and assuming rental income grows by 2% a year, Rathbones’ analysis puts the first-year impact between around £380 in the North East and £1,122 in London. Over 25 years, the cumulative cost runs from more than £12,000 in the North East to almost £36,000 in London.
“The impact won’t be confined to traditional buy-to-let landlords,” said Michele Rogers, head of Rathbones’ Exeter office. “That’s particularly relevant in the South West, which has the highest concentration of holiday homes of any English region, with hotspots including Cornwall and South Hams in Devon.
“But squeezing landlords doesn’t automatically mean more homes changing hands. We’re dealing with reluctant landlords who would happily sell but are struggling to find buyers. Higher taxes can increase the incentive to sell, but they can’t create the demand needed to complete a sale.”
Property in the retirement mix
Property is playing an increasingly broad role in retirement planning. Of those expecting to use property to fund retirement, 43% plan to downsize. For later-life care, 35% expect to use a property sale and 18% equity release on their main home.
Regular income is also a priority, with 38% focused on generating enough to maintain their desired lifestyle and 33% on covering essential outgoings. Tax planning and tax efficiency top the list of areas where people most value financial advice, cited by 42%.
“Property can be an income stream, a source of capital and a later-life safety net all rolled into one,” said Ed Wood, financial planning director at Rathbones. “But retirees shouldn’t look at it in isolation. As its tax treatment becomes less favourable, understanding how property sits alongside pensions, ISAs and investments, and which assets are best placed to provide income at different stages of retirement, becomes increasingly important.”
