Income producing options for landlords exiting the rental market

The rental property landscape is rapidly changing; with this, so are attitudes towards owning a rental property as an income-producing asset.

Recent surveys show a growing trend of landlords planning to reduce their portfolios or exit the sector entirely. With the principal provisions of the Renters’ Rights Act 2025 having come into force on 1 May 2026 and a two-percentage-point rise in property income tax rates from April 2027, many landlords are reconsidering whether their properties will continue to deliver reliable, long-term income. These changes introduce uncertainty, potential additional costs and squeeze rental income yields.

For those choosing to sell, it should not be the case that the property's income is sacrificed; rather, the key question is: how can it be replaced? Sale proceeds can be deployed in several financial solutions that can provide stable, tax-efficient income while also giving the benefit of reducing property-related risk and administrative burdens.

Here we outlined some income-orientated options that may suit individuals transitioning away from the rental property market.

Onshore and Offshore Investment Bonds

Investment bonds remain one of the most flexible and widely used solutions for generating tax‑efficient income, particularly for those who have already maximised their pension and ISA allowances.

As a very brief summary, onshore bonds are taxed within the insurance provider, with gains typically treated as basic-rate tax paid (see more on onshore bonds). Offshore bonds instead benefit from ‘gross roll-up’, meaning returns accrue without annual UK tax deductions.

The investor instead pays tax only at a chargeable event (i.e., when money is withdrawn from the bond causing a gain that may be assessed for income tax) (more information on offshore bonds).

A key feature of both structures is the ability to draw 5% of the original investment each year for 20 years without an immediate tax liability. These withdrawals are treated as a return of capital, allowing the bondholder to create a controlled income stream. It is important to note that this defers rather than eliminates any tax liability.

Cumulative withdrawals in excess of the 5% allowance, or the full surrender of the bond, will give rise to a chargeable event gain which may be subject to income tax at that point.

As an example, if we take the average house price in the UK of approximately £300,000 (as of February 2026) and invest this into a bond, £15,000 per year could be withdrawn for 20 years without triggering immediate income tax. It is worth noting that certain fees can reduce this facility, so you will need to be aware of this as part of income planning.

Trusts

Owning property can come with inheritance tax (IHT) implications, but there are other mechanisms available that can offer the ability to generate an income whilst offering IHT benefits. Trusts built around investment bonds can provide a combination of income and IHT advantages.

Discounted Gift Trusts (DGT)

A DGT involves gifting capital into Trust with the condition that the Trust pays a fixed income back to you for life. Because the gift includes a retained right to income, its value for IHT purposes is discounted, offering an immediate reduction in your estate. After seven years, the full value of the gift falls outside of the estate.

The gift into Trust is irrevocable, once made, the capital cannot be reclaimed and the level of discount applied will depend on the settlor's age and health at outset.

This structure suits those who are comfortable with giving up access to capital, but in return secure a lifelong fixed income. Find out more information in our insight on Discounted Gift Trusts.

Loan Trusts

A Loan Trust allows you to lend capital, rather than gift it, to a Trust. The settlor retains the right to request repayment of the outstanding loan and can use the bond's 5% withdrawal facility to receive regular payments without triggering an immediate tax liability.

The outstanding loan remains an asset of the settlor's estate, but because the settlor cannot benefit from investment growth within the Trust, that growth accumulates outside the estate from the outset.

Over time, as the loan is repaid, the estate value reduces accordingly. This structure is well-suited to those who want to begin estate planning whilst retaining access to their capital. Read more on Loan Trusts.

Purchased Life Annuities (PLA)

PLA’s allow you to convert a lump sum into a guaranteed income stream, typically payable for life. Rising gilt yields have improved annuity rates (see our insight on renewed interest annuities), making annuity purchases a competitive alternative to rental yields without the implications of letting a property.

The amount of income secured will depend on many factors, including age and health. It is worth noting that, in most cases, the income stream ceases on death or is reduced where a spouse's or dependent’s benefit has been included, meaning capital is not typically returned to the estate.

This option is therefore most suited to those seeking certainty and simplicity.

Venture Capital Trusts (VCTs)

Do not invest unless you are prepared to lose all the money you invest. This is a high-risk investment, and you are unlikely to be protected if something goes wrong.

VCTs were put in place to encourage investment into smaller UK companies aiming for capital growth. As a result of investing in early-stage companies, they are considered high-risk investments but offer some attractive tax incentives.

This relief currently stands at 20% for investments made after 6 April 2026.
Shares must be held for five years to retain this benefit.
Dividends are tax-free.
When you dispose of a VCT, any gain generated is exempt from capital gains tax.

Many established VCTs typically target a dividend of 5p per share each year, although this is not guaranteed and is dependent on performance.

For suitable investors, VCTs can compliment a wider income strategy by providing tax-free payments and diversification beyond traditional assets.

Other options

Pensions

Reinvesting sale proceeds into a pension (subject to allowance limits) provides tax relief and the potential for flexible income as follows:

Under a pension commencement lump sum (PCLS), the 25% tax-free cash is taken as a single lump sum (up to the Lump Sum Allowance of £268,275), and subsequent drawdown withdrawals are fully taxable.
Under an uncrystallised funds pension lump sum (UFPLS), each withdrawal is 25% tax-free and 75% taxable.

ISAs & GIAs

The ISA allowance is currently set at £20,000 for the 2026-27 tax year, and, if funded over a long period, a significant pot can be accumulated. Withdrawals are tax-free, meaning ISAs can play an important role in income generation.

Investing in a General Investment Account (GIA) alongside an ISA can also be beneficial in that it can produce natural income in the form of interest and dividends, though these will be subject to income tax (GIAs do not have the same tax benefits as an ISA).

You can also realise £3,000 in capital gains without generating a tax liability, which can add another income stream. Funds held in the GIA can be transferred across to the ISA each year, increasing the tax efficiency of the overall portfolio.

The above is based on current legislation. It is worth being aware that from the 2027/28 tax year, whilst the overall allowance will remain at £20,000, the Cash ISA allowance for those under 65 is set to be limited to £12,000 per tax year (the overall £20,000 annual allowance remains, but the remainder must be directed into investment-type ISAs).

Those aged 65 and over will retain the full £20,000 cash ISA allowance. This makes the current and 2026/27 tax years a valuable window for those looking to maximise cash ISA contributions.

Cash and gilts

When interest rates are high, cash products and gilts can offer simple, low-risk income streams.

Summary

The decision to sell an asset that has produced a dependable income stream can be a difficult one. However, a combination of legislative changes and rising tax on rental income means that many landlords are considering their options. Importantly, selling does not mean sacrificing income.

As highlighted in this article, there are several options available for sale proceeds to be re-deployed into structures that can offer tax-efficient, flexible and arguably more predictable income than property.

The best option will most certainly be dependent on your own individual circumstances, and there is no ‘one size fits all’ solution. As tax rules and legislation continue to evolve, professional advice is crucial.

Taking time to reassess your income needs, risk appetite and estate priorities will ensure that the proceeds from a property sale are restructured in a way that works best for you.

The value of investments and the income from them can fall as well as rise. You may get back less than you invest. Tax treatment depends on individual circumstances and may be subject to change. This article is for information purposes only and does not constitute personal financial advice.