Zagdim reported last week that UK house prices had posted their biggest annual fall in three years, with landlords reporting rental yields climbing toward 9%. New analysis from the Intermediary Mortgage Lenders Association (IMLA) shows what is driving landlords to reassess: the October Budget added a further two percentage points to tax on rental income, taking the basic, higher and additional rates to 24%, 44% and 49% respectively from the 2027/28 tax year — on top of an increase introduced the previous year. The rise applies only to individual landlords, not to rental profits earned through limited companies, which are taxed under Corporation Tax instead.
For landlords with mortgages, the effect compounds with an existing rule that no longer allows full deduction of mortgage interest from taxable rental income, replaced instead by a basic-rate tax credit. IMLA’s modelling shows a landlord with a £250,000 property and a £150,000 mortgage could currently make an annual rental profit of £4,365 before tax. From 2027/28, a higher-rate taxpayer could pay tax equivalent to roughly 74% of that profit, rising to about 86% for an additional-rate taxpayer earning over £130,000. For landlords earning between £100,000 and £125,140 — where the personal allowance is progressively withdrawn — IMLA’s example shows a landlord on a £100,000 salary could end up paying tax equivalent to 124% of their rental profit, effectively losing money on the property.
IMLA stopped short of predicting a wave of sales, noting that decisions will also depend on mortgage terms, local rental yields, house-price expectations and the Stamp Duty and Capital Gains Tax costs of restructuring ownership — some landlords may instead shift toward owning through limited companies, where the tax treatment is more favourable, though moving existing properties into a company structure can itself trigger Stamp Duty and CGT bills. Individual landlords still accounted for 81% of tenancies in the 2024 English Private Landlord Survey, even as the number of mortgaged buy-to-let properties fell by 157,000 between November 2022 and August 2026.
The tax squeeze is landing unevenly across the country. Separate data from Savills, reported by The Times, shows the number of buyers borrowing at least £500,000 rose 16% in the north of England between 2021 and 2026, while the figure fell 2% in London and the south-east over the same period — a shift tied to regional house-price growth and loosened affordability criteria. Stamp duty itself is a major driver of the north-south divide: Zoopla analysis found fewer than one in ten first-time buyers in northern England paid stamp duty land tax in the first half of 2026, compared with almost eight in ten in London, where the average bill was £8,750.
References
Mortgage Strategy – Landlords Urged to Rethink Investments After Budget Tax Hikes: IMLA / Mortgage Introducer – Stamp Duty, Parents and Overpricing: Inside the North-South Mortgage Divide
