The government has claimed that “it’s not fair” landlords pay less in tax than their tenants, arguing that the wealthiest should contribute the most.

In a debate in the House of Lords, a Labour peer said government reforms are intended to make the tax system “fairer.”

The Autumn Budget increased tax rates on dividends, property, and savings income by 2 percentage points for landlords.

It is not fair

Lord Livermore, financial secretary to the treasury, said: “While we are asking everyone to make a contribution, we are keeping that contribution as low as possible through reforms to our tax system to make it fairer and to ensure that the wealthiest contribute the most. That includes increasing taxes on property, dividend and savings income to narrow the gap between tax paid on work and tax paid on income from assets.

“Currently, a landlord with an income of £25,000 will pay nearly £1,200 less in tax than their tenant with the same salary because no national insurance is charged on property, dividend or savings income. That is not fair.

“That is why this Finance bill increases the basic and higher rate of tax on property, savings and dividend income by 2 percentage points, and the additional rate of tax on property and savings income by 2 percentage points.

“Around two-thirds of the revenue from these increases are expected to come from the top 20% of households.”

Restrict PRS supply

The Finance Bill 2026, included a proposed Conservative clause requiring the government to publish an assessment within six months of the impact of the new property income tax.

This clause was not agreed to, but could potentially be reinstated later in the parliamentary process.

As previously reported by Property118, MPs have also clashed over the property income tax hike, claiming it will harm tenants.

Shadow Financial Secretary Gareth Davies said: “This new tax does not just hit landlords, though, it hits renters, too. The British Property Federation and the Office for Budgetary Responsibility have both warned that this measure could restrict the supply of private rental properties, adding pressure to an already strained market.

“The Royal Institution of Chartered Surveyors and the National Residential Landlords Association (NRLA) both say that rents will rise faster as a direct result.”

Section 24

In addition, the government’s argument on “fairness” becomes harder to sustain when viewed alongside Section 24.

Section 24 fundamentally changed how landlords are taxed by restricting mortgage interest relief. Rental income is now taxed on turnover rather than true profit for many landlords. It is not how other businesses are taxed.

A landlord can be making little or no real profit once finance costs are taken into account, yet still face a significant tax bill based on gross income. In some cases, this results in effective tax rates far exceeding standard income tax bands. This creates a clear imbalance.

While the government argues that property income should be taxed more like earned income, it continues to deny landlords the basic ability to deduct a core business cost in full.

No other mainstream business is taxed in this way.

In effect, landlords are being taxed on income they have not actually received, while also facing increasing regulatory and financial pressures.

If fairness is the objective, then the tax system should reflect real profits, not theoretical ones.

As it stands, Section 24 remains one of the clearest examples of how the current system departs from the principle of fair and consistent taxation.