Buy-to-Let After the Budget: How Higher Rental Taxes Could Affect Landlord Returns

Higher taxes will make buy-to-let returns thinner from April 2027, but the extra bill is only one part of the decision. Landlords also need to weigh borrowing, upkeep, new responsibilities and the costs of selling or changing how they own a property. The figures suggest the Budget could prompt a closer look at each property’s finances rather than an automatic rush for the exit.

What changes in April 2027

The Budget adds two percentage points to planned increases in tax rates on rental income. The earlier plan, announced in the 2025 Budget, was to lift the rates by two points from April 2027. The later increase means the rates will be 24% for basic-rate taxpayers, 44% for higher-rate taxpayers and 49% for additional-rate taxpayers. The changes also apply to tax on savings interest.

The increase comes after landlords have faced restrictions on mortgage interest relief, additional stamp duty charges and energy-efficiency requirements for rented homes. New responsibilities under the Renters’ Rights Act are adding to the pressure. Chris Norris, chief policy officer at the National Residential Landlords Association, says some landlords were already questioning whether they could afford to stay in the sector. He warns that further exits could reduce rental supply and put upward pressure on rents.

What the figures mean for a mortgaged property

Connells Group’s example uses average annual rent of £16,478 and expenses of £5,108. With an assumed mortgage rate of 5.25% and yearly mortgage payments of £7,875, its calculation leaves £3,495 in annual profit before tax. The example includes a 20% mortgage interest tax credit.

For a basic-rate taxpayer, the estimated tax bill rises from £699 to £839 a year. After tax, the landlord keeps £2,656 instead of £2,796. For a higher-rate taxpayer, the bill increases from £2,973 to £3,113, reducing the amount kept from £522 to £382. In both cases, the annual difference is £140.

That change may appear modest on its own. Connells Group research director Aneisha Beveridge says the wider pressures matter: borrowing, maintenance and other costs have already squeezed returns. She also points to a growing difference between landlords who own properties personally and those who use limited companies, where rental profits are subject to corporation tax rather than the higher personal rates. Setting up or moving properties into a company can involve upfront tax costs, so it won’t suit everyone.

The example is sensitive to a landlord’s actual rent, expenses, mortgage and tax band. It shows why a property that produces a small surplus can feel the change more sharply than one with more room in its budget. A £140 reduction takes a noticeable share of the £522 annual profit shown for the higher-rate taxpayer.

Mortgage-free landlords face a larger example bill

A separate Boydens example looks at a mortgage-free property renting for £1,200 a month, or £14,400 a year. After £2,400 in allowable running expenses, the taxable rental profit is £12,000.

At the basic rate, the landlord’s tax rises from £2,400 to £2,880, leaving £9,120 rather than £9,600. At the higher rate, tax goes from £4,800 to £5,280, reducing the amount retained from £7,200 to £6,720. Each landlord pays £480 more a year under the new rates, assuming rent and expenses stay the same. For the higher-rate taxpayer, that represents a profit reduction of about 6.7%.

These are worked examples, not forecasts for every rental property. Actual results depend on costs, rent and the landlord’s circumstances. The key comparison is what remains after expenses and tax, and whether that amount still justifies the time and money committed.

Selling or changing ownership has its own costs

Some landlords may decide to sell, while others may pause plans to expand or reconsider which properties they own. Boydens managing director Philip Boyden says another tax increase becomes part of that calculation: a property needs to justify the commitment. Rents rose by 3.8% to an average of £1,406 in the 12 months to September 2026, according to the latest Office for National Statistics data; the increase was unchanged from August. That recent figure gives context, but it doesn’t guarantee future rent growth.

Research by Property118 found that two-thirds of landlords intend to sell properties or leave the rental market over the next three years. Yet selling isn’t a friction-free response to lower returns. The Renters’ Rights Act brings longer notice periods of four months and limits re-letting if a sale falls through, which may make some landlords more cautious about starting the process. A sale can also mean capital gains tax on any profit, and there’s no guarantee of achieving the hoped-for price in a buyers’ market.

Some landlords have moved, or are considering moving, their portfolios into company ownership so rental profits are taxed through corporation tax. Beveridge cautions that transferring existing properties can bring upfront tax costs. That makes the option worth assessing property by property, rather than treating it as a simple way to avoid higher personal rates.

Make the decision property by property

Landlords also face the annual registration fee for each property and expected Ombudsman membership under the new rules. Norris says removing relief for legitimate business costs has also weakened viability, while borrowing costs have added around £1,100 a year to a typical new buy-to-let mortgage. He estimates that mandated energy-efficiency upgrades could cost many landlords up to £10,000 per property. These costs can change the picture substantially, though the amount will vary from one home to another.

Roxton Wealth practice principal Nouran Moustafa expects different responses: some landlords will absorb the added costs, some will reconsider expansion and others will sell. Her broader point is practical: making private renting less attractive to investors doesn’t automatically make it more affordable for tenants. For landlords, the next useful step is to recalculate each property’s income after tax, finance and running costs, then compare that return with the commitment and risks involved. Buy-to-let may still work for some, but the rent alone doesn’t tell the whole story.