Low-yield landlords face property income tax squeeze

Landlords facing higher property income tax may have less room to absorb the increase in areas where estimated gross yields fall below 3%, research reveals.

Property management firm Rushbrook puts Derbyshire Dales at the bottom of the rankings for England and Wales, with a yield of 2.9%, which is less than half the England average.

The firm compared average house prices and monthly rents using UK House Price Index and Office for National Statistics figures for August.

Its analysis follows the Autumn Budget announcement of an additional two percentage point increase in property income tax rates.

Landlord tax pressure

Rushbrook’s managing director, Roma Sharma, said: “The government’s decision to increase property income tax rates adds another layer of financial pressure for landlords, but the impact will vary considerably depending on where they own property and the returns they are already achieving.

“Those operating in lower-yielding areas may find themselves with very little room to absorb further costs once mortgage payments, maintenance and other expenses are accounted for.”

She added: “While stronger yields provide a better starting point, they certainly don’t make landlords immune to the additional tax burden.

“With profitability coming under increasing pressure, effective property management is more important than ever.”

Lowest property yields

After Derbyshire Dales, Elmbridge and Waverley in Surrey share an estimated gross yield of 3.1% with Powys in Wales.

The Malvern Hills ranks fifth at 3.2%, followed by Uttlesford and the Forest of Dean, both at 3.3%.

East Devon, South Hams and Mole Valley complete the 10 lowest-yielding locations, each recording 3.4%.

Across England, the estimated average is 6%, based on a house price of £293,525 and monthly rent of £1,459, while Wales records 4.7%.

Highest property yields

Newcastle upon Tyne tops the rankings at 6.9%, more than double the estimated gross yield in the Derbyshire Dales.

Portsmouth follows at 6.7%, ahead of Tower Hamlets in London at 6.6%.

Nottingham, Manchester, Southampton and Bristol each record 6.4%, followed by Salford at 6.3%, with Blackpool and Lincoln completing the top 10 at 6.2%.

However, these gross figures measure rent against property values before costs, and Rushbrook says higher yields do not guarantee greater profitability.