Tax changes will squeeze landlords’ ‘property pensions’
The additional tax liabilities landlords face after the Chancellor’s decision to increase property income tax rates in the Budget could have a major impact on those relying on property to fund their retirement, according to analysis by Rathbones.
It estimates that, based on today’s average London rent, the four-percentage-point increase, which will apply from April 2027, could cost landlords almost £36,000 more in tax over 25 years, £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, said: “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.”
‘An important part of the retirement income mix’
While 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, similar research from Rathbones 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.
Newsome added: “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.”
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.
Ed Wood, financial planning director at Rathbones, said: “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.”
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