IMLA report reveals likely impact on investors 

Landlords are likely to reassess the balance between income, potential capital growth and the costs of changing their investments in response to higher taxes on rental income, according to a new report from the Intermediary Mortgage Lenders Association (IMLA).

Its report, titled The October 2026 Budget: Impact on the housing and mortgage markets, examines how the Budget’s further two-percentage-point increase in tax on rental income will affect individual landlords holding properties in their own names.

The increase, combined with the same increase announced in the previous budget, takes the basic, higher and additional rates on rental income to 24%, 44% and 49% respectively from the 2027/28 tax year. The increases do not apply to rental profits generated by properties held through limited companies, which are subject to Corporation Tax.

Landlords with mortgages also face higher costs since the effective tax rate on rental profits can be considerably higher because mortgage interest is no longer deducted in full when calculating taxable income after it was replaced with a basic-rate tax credit.

IMLA highlights the example of a £250,000 property with a £150,000 mortgage which produces annual rental profit of £4,365 before tax. A higher-rate taxpayer below the personal allowance withdrawal threshold would pay approximately 74% of that profit in tax from 2027/28, while an additional-rate taxpayer (earning more than £130,000) would pay approximately 86%.

For a landlord whose income falls between £100,000 and £125,140, where the personal allowance is progressively withdrawn, the effective rate can exceed 100%. In the report’s example of a landlord earning a £100,000 salary, the tax attributable to the rental income would reach approximately 124% of rental profit in the 2027/28 tax year.

A move to buying through limited companies?

However, IMLA says that doesn’t automatically mean landlords will sell up. Instead, it says decisions will also reflect borrowing levels, local rental yields, expectations for house price growth, investment timescales and the tax liabilities associated with disposing of a property.

However, it does believe it will accelerate the trend of landlords buying properties through limited companies. Landlords may consider transferring existing holdings into a company but would incur stamp duty and potential Capital Gains Tax liabilities, so may instead sell a property held in their own name and buy another, which is then held via a company structure. 

Kate Davies, executive director of IMLA, said: “Landlords will respond differently to these changes, depending on their financial circumstances and what they want from their investment. Some will continue to see a strong case for holding property over the long term, particularly where they anticipate capital growth. Others may decide that lower rental income, alongside their wider costs and commitments, changes that calculation.

“Company ownership can offer a suitable structure for investment, including for those planning to pass their investment properties down to their children, but existing landlords also have to consider the costs of restructuring or selling. Understanding those choices is essential to assessing how the Private Rented Sector will develop.”