UK rental squeeze

Wider economic conditions continue to weigh heavily on the rental market.

• Rising oil prices are feeding into construction, repair and maintenance costs, while inflation remains persistent and continues to erode real returns.
• Interest rates also look unlikely to fall materially in the short term and may yet increase again, keeping borrowing costs elevated. Combined with slower-than-expected government housebuilding, these factors continue to constrain supply and reinforce pressure on rents in many regions.

Regulatory change remains a key concern for landlords. The Renter’s Reform Bill, including the removal of section 21 evictions and fixed-term tenancies, has introduced uncertainty around income security and tenant management, prompting some landlords to reassess their exposure to the sector. 

Selective licensing schemes also remain highly relevant. These local authority requirements for landlords to obtain a licence before renting out properties increase both cost and complexity, with potentially serious consequences for non-compliance, including criminal sanctions in some cases.  

Energy efficiency requirements add further pressure, particularly for older properties where achieving higher EPC ratings may require significant capital investment. 

Increased income tax rates apply from April 2027; rental income will be taxed at rates 2 percentage points higher across all bands. This continues the trend of tightening the tax treatment of personally held rental portfolios. For those with companies, those taking profits from companies have already seen the income tax rate increase by 2% from April 2026.

Tax Reporting for income tax changed for larger landlords, with the introduction of MTD for income tax from April 2026.  This requires quarterly reporting to HMRC as well as a requirement to complete digital records.  

SDLT surcharges continue to act as a barrier to entry, increasing acquisition costs and dampening transaction activity, especially for smaller investors. 

Despite these challenges, the outlook is not uniformly negative. Strong rental demand continues to support rental values in many areas, helping to offset rising costs.

In a more constrained environment, tax planning is no longer optional. Reviewing ownership and financing structures, as well as the timing of disposals and reinvestment, can have a meaningful impact on cash flow and long-term outcomes.

For some landlords, incorporation or group structures may improve flexibility and after-tax returns. For others, aligning property decisions with wider family and wealth objectives can unlock efficiencies that are not immediately apparent from an income tax perspective alone.

Since April 2023, we have had the main rate of corporation tax at 25% (19% for small profits). That rate is expected to remain in place to keep stability in the corporate tax regime.  

Mortgage interest costs remain fully deductible for landlords holding property through a company.

Capital Gains Tax

Rates (24%) are still low compared to income tax rates (up to 45%). Disposing of properties in the UK, despite the slower market, is still an efficient way to extract value. 

Properties can be gifted to individuals (deemed to be a market-value disposal) but can be effective from an Inheritance Tax (IHT) perspective, subject to the potentially exempt transfer (PET) provision. 

Family Investment Company (FIC)

We are still seeing a number of landlords using a new corporate vehicle to pass on wealth to the next generation, which can be efficient from both an income tax and IHT perspective. Read our guide to Family Investment Companies.

Succession and Inheritance Tax planning

Increasingly, property investors are focusing on long-term wealth preservation rather than short-term performance. Succession and inheritance tax (IHT) planning is becoming central where residential property represents a significant proportion of family wealth.

Early planning can help manage future IHT exposure, support the gradual transfer of wealth to the next generation and provide clarity for families, while retaining appropriate levels of control. Family investment companies continue to feature as part of a broader, joined-up approach to property, tax and succession planning.

With continued uncertainty and further change on the horizon, now is an opportune time for landlords to review their position. Our team advises UK and overseas investors on how best to invest in, hold and ultimately pass on UK residential property.

If you have any questions about the topics raised in this article or to discuss your individual circumstances, please get in touch with your usual Crowe UK contact.