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Retirees across London who rely on property to supplement their income face a growing tax squeeze following the Chancellor’s decision to increase property income tax rates in the Budget, according to an analysis by Rathbones, one of the UK’s leading wealth and asset management groups.
From April 2027, landlords will pay four percentage points more tax on property income than they do today, following 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.
Kensington and Chelsea landlords face the biggest potential hit in the capital. Based on the borough’s average monthly rent of £3,739 and assuming rental income rises by 2% a year, Rathbones calculates* the additional tax could amount to £1,795 in the first year, £19,652 over ten years and £57,485 over 25 years.
But the squeeze stretches across the capital. At the other end of the table, a landlord receiving the average rent in Bexley could still face an illustrative £23,677 in additional tax over 25 years. The cumulative hit exceeds £40,000 in seven boroughs, from £40,589 in Wandsworth to £57,485 in Kensington and Chelsea.
Nehal Desai, Senior Investment Director based in Rathbones' London office, says: “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, whilst 39% expect property to help fund retirement. Among those planning to use property, 42% expect to generate rental income.
Nehal Desai adds: “Many retirees built their financial plans when property looked like a very different proposition. For those relying on rent alongside pensions and savings, the important question now is not simply what their property is worth, but how much income it actually puts in their pocket after tax and costs. As the income left after tax and costs comes under pressure, some may need to rethink the role property plays in funding their retirement.”
Property an important part of the retirement jigsaw
Property plays a number of roles in later life. Among those expecting to use it to help fund retirement, 43% plan to downsize, while 42% expect to generate rental income. Meanwhile, 42% of respondents said tax planning and tax efficiency is an area where they most value financial advice.
Matthew Smith, Financial Planner based in Rathbones' London office, says: “Property has long played an important role in retirement planning, but the sums are changing. The lesson isn't necessarily to abandon property, but to avoid relying too heavily on any one source of retirement income. A mix of pensions, ISAs, investments and property can provide greater flexibility over where income is drawn from, particularly as people's needs and tax position change throughout retirement.”
The findings reinforce Rathbones' 2026 Don't Bet the House research, which warns against relying too heavily on property to fund retirement. The research found that weaker house-price growth, higher borrowing costs and an increasingly demanding tax and regulatory environment have fundamentally changed the investment case for bricks and mortar.
