2.2 million tax payers affected

We know that in 2023-24 some 2,863,000 individuals or partnerships declared property income on their tax return. Collectively they declared gross income of £55.53bn and deductible expenses of £29.08bn. That means their net income was £26.45bn before tax, at an average of £9,243.

And based on previous years’ data, we estimate that, of the 2,863,000 who declared property income in 2023-24, about 2,213,000 were taxpayers. By our calculations, if they are paying tax at the higher rate, they would see their “effective tax rate” go from 46.8% to 48.8%, given existing restrictions on the tax relief available to them.

Unevenly distributed

However, based on data from HMRC, that increased tax burden would be unevenly distributed across this group. The greatest pressure is likely to be felt by landlords that generate less than £10,000 gross rental income per year. We estimate that the average net rental income for those in this group would fall to just over £2,300 once the tax change is introduced. 

With profitability becoming increasingly marginal, coupled with the strengthened regulation of the sector that will limit the potential for in-tenancy rental growth, we could see an increasing number of these small-scale landlords assessing their positions. New entrants, meanwhile, may put greater emphasis on structuring their lettings investments efficiently.

Further information

Contact Lucian Cook