Individual landlords face higher tax rates on rental income following the Autumn Budget, with effective rates reaching up to 124% of rental profit for some earners, according to analysis from the Intermediary Mortgage Lenders Association (IMLA).
The Budget’s two percentage point increase in tax on rental income, combined with last year’s rise, will take the basic, higher and additional rates on rental income to 24%, 44% and 49% respectively from the 2027/28 tax year. The increases apply only to individual landlords holding properties in their own names, not to properties held through limited companies, which remain subject to Corporation Tax.
Tax burden analysis
IMLA examined a £250,000 property with a £150,000 mortgage generating annual rental profit of £4,365 before tax. A higher-rate taxpayer below the personal allowance withdrawal threshold would pay approximately 74% of that profit in tax from 2027/28, while an additional-rate taxpayer earning more than £130,000 would pay approximately 86%.
For landlords with income between £100,000 and £125,140, where the personal allowance is progressively withdrawn, the effective rate can exceed 100%. In IMLA’s example of a landlord earning a £100,000 salary, the tax attributable to rental income would reach approximately 124% of rental profit in 2027/28.
Market implications
The trade body emphasised that reduced rental income does not automatically translate to property sales. Landlord decisions will reflect borrowing levels, local rental yields, house price growth expectations, investment timescales and tax liabilities associated with property disposal.
The changes widen the tax treatment gap between individual and corporate ownership, potentially accelerating the trend towards landlords purchasing properties through limited companies. Some may consider transferring existing holdings into a company structure, though this incurs stamp duty and potential Capital Gains Tax liabilities. Others may sell properties held individually and repurchase through corporate structures.
Individual landlords accounted for 81% of tenancies in the English Private Landlord Survey 2024. The number of mortgaged buy-to-let properties fell by 157,000 between November 2022 and August 2026.
Industry response
Kate Davies, Executive Director of IMLA, said: “Landlords will respond differently to these changes, depending on their financial circumstances and what they want from their investment. Some will continue to see a strong case for holding property over the long term, particularly where they anticipate capital growth. Others may decide that lower rental income, alongside their wider costs and commitments, changes that calculation.”
Davies noted that company ownership can suit investment strategies, particularly for those planning to pass properties to children, but existing landlords must consider restructuring or selling costs.
“For tenants, the concern is whether enough suitable homes remain available where they need them and at rents they can afford,” Davies said. “Investment by both individual and corporate landlords contributes to that supply.”
The impact on rental supply will depend on individual landlord decisions. Properties sold by private landlords may be acquired by other landlords adding to corporate portfolios, though the net effect on available rental stock remains uncertain.
