Editor's note: This brief was summarised by The Property AI Team from a report by The Negotiator. Read the original article for full details.
IMLA: Budget Tax Gap May Push Landlords to Reassess Rental Returns
Higher taxes on rental income may prompt landlords to reassess the balance between income, potential capital growth and the costs of changing their investments, according to a new report from the Intermediary Mortgage Lenders Association (IMLA). The report examines how the Autumn Budget's further two percentage point increase in tax on rental income will affect individual landlords holding properties in their own names.
Combined with the increase announced last year, this takes the basic, higher and additional rates on rental income to 24%, 44% and 49% respectively from the 2027/28 tax year. These increases do not apply to rental profits generated by properties held through limited companies, which are subject to Corporation Tax instead.
IMLA looked at an illustrative example of a £250,000 property with a £150,000 mortgage that produces 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 For a landlord whose income falls between £100,000 and £125,140, where the personal allowance is progressively withdrawn, the effective rate can exceed 100%. In the report's example of a landlord earning a £100,000 salary, the tax attributable to the rental income would reach approximately 124% of rental profit in the tax year 2027/28.
IMLA emphasises that reduced rental income does not automatically mean landlords will sell up. Decisions will also reflect borrowing levels, local rental yields, expectations for house price growth, investment timescales and the tax liabilities associated with disposing of a property.
The changes further widen the difference in tax treatment between individual and corporate ownership and may accelerate the established trend towards landlords buying properties through limited companies. More landlords may consider transferring existing holdings into a company, although they cannot do this without incurring stamp duty and potential Capital Gains Tax liabilities. Some may therefore decide to sell a property held in their own name and buy another, which is then held via a company structure.
The implications for tenants will depend on how these individual decisions affect the supply of homes available to rent. The report notes that individual landlords accounted for 81% of tenancies in the English Private Landlord Survey 2024. It also highlights a fall of 157,000 in the number of mortgaged buy-to-let properties between November 2022 and August 2026. In some cases properties sold by private landlords may be bought up by other landlords, who will add them to a corporate portfolio.
Kate Davies, Executive Director of IMLA, says landlords will respond differently depending on their financial circumstances and what they want from their investment. She says some will continue to see a strong case for holding property over the long term, particularly where they anticipate capital growth, while others may decide that lower rental income, alongside wider costs and commitments, changes that calculation. She adds that company ownership can offer a suitable structure for investment, including for those planning to pass investment properties down to their children, but existing landlords also have to consider the costs of restructuring or selling. For tenants, she says the concern is whether enough suitable homes remain available where they need them and at rents they can afford.
Source: The Negotiator