Landlords could face tax bills exceeding their annual rental profits following the latest Budget changes, with new analysis suggesting some investors could pay an effective tax rate of 124%.
The Intermediary Mortgage Lenders Association (IMLA) has warned that higher taxes on rental income could prompt more landlords to reconsider their investments, sell properties or move towards limited company ownership. Its latest report examines the impact of the October 2026 Budget, which introduced a further two percentage point increase in income tax on rental profits.
Combined with increases announced last year, the changes will push the basic, higher and additional rates on rental income to 24%, 44% and 49% respectively from the 2027/28 tax year. The increases apply to landlords who own properties personally, rather than through limited companies, which pay Corporation Tax on their profits.
Landlords face effective tax rates of up to 124%
IMLA's analysis highlights the impact on mortgaged landlords, who can no longer deduct mortgage interest in full when calculating taxable income. Instead, they receive a basic-rate tax credit. The report models a landlord with a £250,000 property and a £150,000 interest-only mortgage.
Based on annual rental income of £14,500, operating costs of £3,625 and mortgage interest of £6,510, the property generates £4,365 in annual profit before tax. However, under the new tax arrangements, a higher-rate taxpayer below the personal allowance withdrawal threshold would pay approximately 74% of that profit in tax. For an additional-rate taxpayer earning more than £130,000, the effective rate would rise to around 86%.
The position is even more severe for landlords caught by the withdrawal of the personal allowance. IMLA calculates that a landlord earning a £100,000 salary could face a tax bill equivalent to approximately 124% of their rental profit in 2027/28. In that example, the tax attributable to the rental income would exceed the property's annual profit before tax.
Will higher taxes force landlords to sell?
Despite the figures, IMLA cautions against assuming that higher taxation will automatically trigger a wave of landlord sales. Investment decisions will also depend on mortgage debt, rental yields, expectations for house price growth and the costs of selling or restructuring property portfolios.
However, the report suggests the widening tax gap between personal and corporate ownership could accelerate the shift towards limited company buy-to-let investment. Landlords who hold properties through companies are subject to Corporation Tax rather than the higher personal income tax rates on rental profits.
Transferring an existing property into a company is not necessarily straightforward, however. Landlords could face Stamp Duty Land Tax and Capital Gains Tax liabilities. Some investors may instead choose to sell personally owned properties and purchase replacements through a company.
Buy-to-let mortgage numbers fall by 157,000
The report also raises questions about the potential impact on rental housing supply. Individual landlords accounted for 81% of tenancies recorded in the English Private Landlord Survey 2024. Meanwhile, the number of mortgaged buy-to-let properties fell by 157,000 between November 2022 and August 2026.
IMLA stresses that this does not necessarily represent an equivalent reduction in the number of privately rented homes. Properties sold by individual landlords may be acquired by other investors, including those operating through limited companies. The consequences for tenants will depend on whether properties remain available to rent and whether investment continues in areas where demand is strongest.
'Landlords will respond differently'
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.
"Company ownership can offer a suitable structure for investment, including for those planning to pass their investment properties down to their children, but existing landlords also have to consider the costs of restructuring or selling. Understanding those choices is essential to assessing how the Private Rented Sector will develop.
"For tenants, the concern is whether enough suitable homes remain available where they need them and at rents they can afford. Investment by both individual and corporate landlords contributes to that supply. Policy needs to support a sustainable rental market which recognises the range of households who rely on it, including those for whom homeownership is currently – and is likely to remain – out of reach."
