Retirees across the South of England 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, analysis by Rathbones reveals.
Landlords will pay four percentage points more tax on property income from April next year compared to 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.
Based on average rents, Rathbones analysis shows that the four-percentage-point increase could mean £22,109 more tax over 25 years for landlords in the South East and £19,234 more in the South West, assuming rental income rises by 2% annually.
The South East faces the highest illustrative tax increase of any English region outside London, and a greater impact than the neighbouring East of England, where the equivalent 25-year figure is £19,956.
Rathbones explains that 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.
Rathbones head of the firm’s Guildford office Faye Church says: “The landlord squeeze is tightening from all directions and Southern England is particularly exposed.”
“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 across the South could find themselves paying more each month while having even less left over to save for a deposit.”
