Can UK Landlords survive the ongoing tax raid?

UK landlords have been at the receiving end of tax increases since 2021, when full mortgage interest relief was scrapped. This essentially means that landlords are now keeping less of their profits while also grappling with increased costs to maintain and run properties.

Just when things couldn’t be more bleak, Chancellor Rachel Reeves is looking at areas where she can tax landlords further, looking to use them to fill the gaps in the UK’s budget. In addition, Keir Starmer has also said that landlords don’t fall under his definition of ‘working people’, so they could be subject to more tax.

Could it get worse?

According to the Telegraph, the latest tax changes could be National Insurance on rental income, new income tax bands for landlords or VAT on property lettings.

Currently, National Insurance Contributions (NIC) are only made on ‘earned’ income, so landlords are exempt as rental income is viewed as investment income. For earned income, workers are charged 9% of their earnings up to £50k and 2% above this figure. If landlords were to make a National Insurance Contribution, for those making less than £50k, their post-tax earnings would be massively impacted. However, for earners in this tax band, they can claim some of their mortgage interest as a tax credit. For higher earners above £50k, an extra 2% tax on revenue could push them to sell up amid other financial pressure. Also, many landlords are based overseas and invest in the UK – they do not have national insurance numbers and paying national insurance may not make sense.

Although there is a chance that Labour could introduce new income tax bands for landlords, this is unlikely as it will be too large a shift in how income is taxed. Although this could be touted as a worst-case scenario, the administrative burden would prevent this from coming into practice.

When it comes to VAT on property lettings, if this were introduced, it would not impact most landlords, as this is only charged on earnings over £90k. However, if the threshold is lowered, the 20% cost of VAT would be passed on to renters. In addition to extra admin, this will also lead to rent increases.

Whichever changes are made by the government, landlords would be hit financially. As business owners, they will pass on this cost to renters or sell up. Either way, rents will rise as renters pay these admin costs or because there are fewer rental properties on the market.

Rather than tax those playing by the rules, the Labour government should focus on ensuring everyone is paying the correct tax. Those who are cheating the system and avoiding tax should be penalised.

Tips to bring down that bill:

Claim, claim, claim

Landlords looking to reduce their tax bill can claim running costs as expenses, including repairs, service charges, accountancy fees, and travel to and from the property. They can also claim their insurance costs back and certain services like the wages of cleaners and gardeners. Essentially, any cost incurred wholly and exclusively for the rental business can be claimed. It’s very important that landlords keep track of these expenses!

Many landlords are selling their properties and are subject to Capital Gains Tax (CGT) if that property is not their main residence. However, CGT can be reduced by claiming on renovations and capital improvements made to the property, i.e. a renovated kitchen. Costs directly related to the sale of the company can be deducted like legal fees, estate agent fees, Stamp Duty and the cost of capital improvements (beyond standard maintenance). Some landlords can also claim Private Residence Relief (PRR) if it was the main property for a period of time too.

Although the odds are stacked against landlords, taking advantage of deductions can drastically reduce a tax bill when the time comes.

Owning property through a limited company

If a landlord is already paying a higher rate of tax, they may opt to purchase further investment properties through a limited company to pay corporation tax. Limited companies pay between 19-25% whereas high earners can pay up to 45% so owning a limited company can be a more viable option.

Mortgage interest is also fully allowable through a Limited Company, providing full tax relief and more flexibility with drawing income down from the company.

Get tax advice

If a landlord is looking to grow their property business or has a complex tax situation, it is always a good idea to get third-party advice. This can ensure that landlords are getting the most from their portfolio through tax efficiency and can help to plan for the future for issues like inheritance.

Reduce landlord accountancy spend

 Although many accountants are now using limited company structures to save money, a large chunk of these savings are going to accountants who charge large fees to business owners. Rather than going the traditional accountancy route, many landlords should look at more cost-effective alternatives to conserve their profits.

What next?

And as if landlords thought they might be free from change for a little while, more change is afoot. From April 2026, landlords making more than £50,000 a year will have to file quarterly digital updates to HMRC. From 2027, this will apply to landlords earning more than £30,000.

To get ahead, landlords should adopt digital accounting sooner rather than later, getting to grips with systems to not be caught out.

Eamon Shahir, Founder Taxd