|
Retirees 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.
New Rathbones calculations illustrate how that squeeze could build over time. Based on today’s average London rent, the four-percentage-point increase could mean almost £36,000 more tax over a 25-year retirement, £12,288 more over ten years and £1,122 more in the first year, assuming rental income rises by 2% annually.*
Charlie Newsome, Senior Investment Director at Rathbones, says: “The landlord squeeze is tightening from all directions and, for some, the sums simply no longer stack up. 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.
Charlie Newsome adds: “For a generation of retirees, bricks and mortar have become an important part of the retirement income mix. 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.”
Property tax squeeze: the regional picture
Using average private rents across English regions and assuming rental income grows by 2% a year, Rathbones' analysis shows the illustrative first-year impact ranges from around £380 in the North East to £1,122 in London.
Over 25 years, the cumulative impact ranges from more than £12,000 in the North East to almost £36,000 in London.
Michele Rogers, Head of Rathbones’ Exeter office, says: “The impact won't be confined to traditional buy-to-let landlords. 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 an important part of the retirement jigsaw
Property is playing an increasingly broad role in retirement planning. Of those expecting to use property to fund retirement, 43% plan to downsize. Looking specifically at 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% to cover essential outgoings. Against this backdrop, tax planning and tax efficiency tops the list of areas where people most value financial advice, cited by 42%.
Ed Wood, Financial Planning Director at Rathbones, says: “Property can be an income stream, a source of capital and a later-life safety net all rolled into one. 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.”
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.
