One of the main findings of the 2025 Landlords research commissioned by HMRC is that one in three UK Landlords will probably reduce the size of their property portfolio over the next five years.
Among those respondents who intend to sell rather than buy at least one property in the immediate future, 59% cited ‘tax rule changes’ as their key reason.
Having recently considered a buy-to-let opportunity myself, these findings do not surprise me: I ruled out investing in the rental property market primarily because of the excessive tax costs I would face. Ten years ago, when the taxation burden was much lower, I would have instead decided to invest.
To explain how I reached this conclusion I will compare the two main tax costs (stamp duty land tax and income tax) an individual incurs now as opposed to ten years ago when buying and renting out the average residential property in England, which as of December 2025 has a price tag of £293,000. For simplicity I have also used that price in the 2016 calculations, rather than seeking to rebase all the figures.
I will then show how the overall cash flow position of someone investing in 2026 could still be negative even after several years of receiving rental income.
Let’s start by comparing the stamp duty land tax (SDLT) payable now versus ten years ago.
In January 2016, the total SDLT due on a buy-to-let property with a purchase price of £293,000 was £4,650. If a property worth the same is now purchased by an individual who already owns another and does not replace their main residence, the total SDLT due will be £19,300. (The same SDLT amount (£19,300) would be payable by a company, if the chargeable interest acquired is not subject to a lease with more than 21 years to run on the date of purchase.)
It is also worth pointing out that should the same individual be non-UK resident, the SDLT would increase to £25,160 because of the application of the additional 2% surcharge for non-residents.
2016 SDLT calculation
| Purchase price bands (£) | Percentage rate (%) | SDLT due (£) |
| Up to 125,000 | 0 | 0 |
| Above 125,000 and up to 250,000 | 2 | 2,500 |
| Above 250,000 and up to 925,000 | 5 | 2,150 |
2026 SDLT calculation for UK residents who already own a property and do not replace their main residence
| Purchase price bands (£) | Percentage rate (%) | SDLT due (£) |
| Up to 125,000 | 5 | 6,250 |
| Above 125,000 and up to 250,000 | 7 | 8,750 |
| Above 250,000 and up to 925,000 | 10 | 4,300 |
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The surge in SDLT payable alone clearly highlights why a substantial number of landlords in the United Kingdom (93% of whom own a property as individuals as opposed to through a company) do not intend to invest in the buy-to-let market anymore, but it is the analysis of the changes in relation to income tax that explain why many landlords are currently considering a complete or partial divestment.
A few assumptions before crunching the numbers:
- the property in our scenario will yield the average, monthly rent payable in England (which is now £1,424 according to the Office for National Statistics) for the next five years;
- the landlord has a five-year fixed mortgage on this property and pays in mortgage interest half of their monthly rental income (£712).
- the landlord is already a higher rate taxpayer living in England whose only other source of income comes from their employment;
- no other allowable or disallowable expenses are considered;
- for comparison purposes the same figures and assumptions are used for the 2016 income tax calculation.
As the calculations below demonstrate, the restrictions on the deductibility of mortgage interest which was gradually phased in from April 2017 had the effect of substantially reducing the after-tax property profits as landlords are no longer able to deduct their finance costs from their property income to determine their taxable profits. They instead receive a basic rate reduction from their income tax liability for their finance costs.
Buy-to-let property purchased in 2016
| Income tax calculation | 2016–17 | 2017–18 (*) | 2018–19 (**) | 2019–20 (***) | 2020–21 (****) |
| Rental income | £17,088 | £17,088 | £17,088 | £17,088 | £17,088 |
| Deductible mortgage interest | (£8,544) | (£6,408) | (£4,272) | (£2,136) | – |
| Taxable rental income | £8,544 | £10,680 | £12,816 | £14,952 | £17,088 |
| Income tax payable (40%) | (£3,418) | (£4,272) | (£5,126) | (£5,981) | (£6,835) |
| Tax credits | – | £427 | £854 | £1,282 | £1,709 |
| Net income tax payable | (£3,418) | (£3,845) | (£4,272) | (£4,699) | (£5,126) |
*Deductible mortgage interest capped at 75%, tax credit is 20% of 25% of mortgage interest.
**Deductible mortgage interest capped at 50%, tax credit is 20% of 50% of mortgage interest.
***Deductible mortgage interest capped at 25%, tax credit is 20% of 75% of mortgage interest.
****No deductible mortgage interest, tax credit is 20% of mortgage interest.
Buy-to-let property purchased in 2026
| Income tax calculation | 2026–27 | 2027–28 | 2028–29 | 2029–30 | 2030–31 |
| Rental income | £17,088 | £17,088 | £17,088 | £17,088 | £17,088 |
| Deductible mortgage interest | – | – | – | – | – |
| Taxable rental income | £17,088 | £17,088 | £17,088 | £17,088 | £17,088 |
| Income tax payable (40%) (*) | (£6,835) | (£7,177) | (£7,177) | (£7,177) | (£7,177) |
| Tax credits (**) | £1,709 | £1,880 | £1,880 | £1,880 | £1,880 |
| Net income tax payable | (£5,126) | (£5,297) | (£5,297) | (£5,297) | (£5,297) |
*The income tax rate applicable in 2026–27 is 40%, from 2027–28 it is £42%.
**The tax credit rate applicable in 2026–27 is 20%, from 2027–28 it is 22%.
Same property, same rent, same mortgage, very different income taxes payable: from £3,418 in 2016–17 to £5,126 now, with an increase to £5,297 to be factored in for future years because of the additional 2% to be added to all income tax rates for landlords from April 2027.
Of course, a possible escape route to the restrictions on the deductibility of mortgage interest is the incorporation of the rental property business. However, as recently explained by Caroline Foulger in her article Will 2% property income tax rise be last straw for residential landlords? ( Tax Weekly, Issue 202, 28 January 2026), there are many additional considerations and costs to consider when investing in one or more residential properties through a company, including the fact that finance costs are usually higher for limited companies.
Finally – as the table below shows – the substantial SDLT and income tax increases faced (and to be faced) by individual landlords in recent and future years may well result in a negative cash flow position when buying the average-price property in England, even after five years of regular rental income and without taking into account any non-finance cash outflows.
Cash flow analysis for a UK resident, higher rate taxpayer after five years (excluding non-finance costs)
| Property price of £293,000 | Bought in 2016 | Bought in 2026 |
| Rental income | £85,440 | £85,440 |
| Finance costs | (£42,720) | (£42,720) |
| SDLT | (£4,650) | (£19,300) |
| Income tax | (£21,360) | (£26,314) |
| Net cash flow position | £16,710 | (£2,894) |
It follows that buy-to-let investors purchasing a property as UK resident individuals will now only end up with healthy rental profits and positive cash flows in the following circumstances:
- if their purchase will not result in them owning two or more properties, as they will not pay the higher rates of SDLT;
- if they are basic rate taxpayers, as the restrictions on the deductibility of mortgage interest is unlikely to increase their income tax bill because they would receive the basic rate reduction from their income tax liability for their finance costs (unless their property business profits or adjusted total income are lower than their finance costs); and
- if they are higher or additional rate taxpayers, when they are not highly geared.
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Document downloaded on 04-03-2026 from Croner-i Navigate, the UK’s leading online research service for tax, audit and accounting professionals. Find out more at www.croneri.co.uk or call 0800 231 5199.
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