The squeeze on landlords: rising taxes, new rules and shrinking returns

The announcements made by the Chancellor in the November 2025 Budget were a further blow for landlords. Recent years have seen an erosion of profitability due to a raft of changes which promise to reshape the private rental sector. 

One of the most pressing issues for landlords has been the steady increase in taxation on rental income and profits. The Budget in November 2025 introduced a further 2% rise in income tax rates on rental profits from April 2027, together with the new Mansion Tax on properties valued at over £2 million from 2028. 

These changes follow earlier reforms such as the restriction of mortgage interest tax relief, an increase in Capital Gains Tax rates when you sell the property, together with additional Stamp Duty Land Tax when you acquire the property. 

For many, these upcoming rises in income tax rates from April 2027 will mean even higher tax bills when profit margins are already slim. 

The increase in the Stamp Duty Land Tax (SDLT) surcharge on the purchase of second homes, which increased from 3% to 5% in the October 2024 Budget, has made acquiring property more expensive. This has discouraged investment and pushed some landlords to sell, rather than grow their holdings. 

A further looming challenge is Making Tax Digital for Income Tax. This is set to become mandatory for landlords with qualifying income over £50,000 in April 2026. Those landlords that need to comply with the new regime will be required to maintain digital records and submit quarterly updates to HMRC. This will further increase administrative burdens and compliance costs. 

Beyond taxation, landlords have also been hit hard by legislative reforms aimed at strengthening tenant rights. The Renters’ Rights Act 2025 – which comes into force in May 2026 - represents the most significant overhaul of rental law since the Housing Act 1988. 

Key changes include the abolition of Section 21 no-fault evictions, automatic conversion of assured shorthold tenancies into rolling periodic contracts, and pet ownership rights. These reforms - while designed to protect tenants - have left many landlords feeling control over their own assets has been diminished. 

The cumulative effect of tax hikes and legislation has been profound. Surveys show that landlords with large property portfolios are increasingly selling off properties while smaller landlords - who make up the majority of the sector - are struggling to maintain profitability. Anecdotally, these smaller landlords are talking about their desire to leave the sector. Retired landlords, often reliant on rental income for their retirement needs, are particularly vulnerable.

The changes detailed above are all part of a continuing journey which is still playing out. However, if the supply of the rental properties dries up due to landlords leaving the sector, we are likely to see rents increase as demand outstrips supply. We will then be in the ironic position where changes designed to protect tenants have the opposite impact.