New IMLA analysis shows some landlords could pay more in tax than they earn from rent
A new report from the Intermediary Mortgage Lenders Association (IMLA) by Rob Thomas, Principal Researcher at IMLA, The October 2026 Budget: Impact on the housing and mortgage markets, examines the practical impact of the Budget’s decision to raise tax on rental income by a further two percentage points.
Combined with an equivalent increase from last year, the basic, higher, and additional rates of tax on rental income will rise to 24%, 44%, and 49% respectively from the 2027/28 tax year. These increases apply only to landlords who hold properties in their own name, not to those operating through limited companies, which pay Corporation Tax.
This data reveals a concerning truth: the current situation is forcing individual landlords to run numbers many have never had to run before — and for some, those numbers no longer add up.
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When the tax bill exceeds the profit
The headline rates do not tell the full story. Because mortgage interest relief was replaced with a basic-rate tax credit years ago, landlords with buy-to-let mortgages cannot deduct their full interest cost when calculating taxable income. The result is that effective tax rates — what landlords actually pay as a share of their rental profit — are considerably higher than the statutory rates suggest.
IMLA’s illustrative calculation uses a £250,000 property with a £150,000 interest-only mortgage, generating annual rental profit of £4,365 before tax. Under the 2027/28 rates, a higher-rate taxpayer would pay approximately 74% of that profit in tax. An additional-rate taxpayer earning over £130,000 would pay around 86%.
For landlords with earnings between £100,000 and £125,140 — where the personal allowance is progressively withdrawn — IMLA’s example puts the effective rate at approximately 124% of rental profit. That means paying £1.24 in tax for every £1 earned from the property.
What landlords are likely to do next
IMLA is careful not to predict a wave of fire sales. Whether a landlord sells depends on their mortgage level, local rental yields, capital growth expectations, investment horizon, and the tax liabilities that come with disposal itself. Some will hold, banking on long-term house price growth to justify staying in. Others will reassess.
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.”
What the Budget has done is widen the tax gap between individual and corporate landlord ownership, and that gap now matters enormously in broker conversations. Last year, 67,000 companies were formed to hold buy-to-let properties, and in January 2026 alone, 5,922 new buy-to-let limited companies were set up — 11% more than in the same month a year earlier, according to Which? Research published in 2026.
Leading conversations on policies and next move
The clearest opportunity for brokers is the restructuring conversation. Landlords who currently hold property in their own name and are considering moving to a limited company structure cannot simply transfer their portfolio. Doing so triggers Stamp Duty Land Tax and potentially Capital Gains Tax.
As IMLA previously warned the government, repeated tax interventions risk destabilising the private rented sector without a coherent strategy to replace what they erode.
The more practical route for many will be to sell a personally held property and purchase the next one through a company, which means a new mortgage application, a new product, and a broker who understands both sides of that decision.
IMLA also flags a broader concern for tenants. Individual landlords accounted for 81% of tenancies in the English Private Landlord Survey 2024. The number of mortgaged buy-to-let properties has already fallen by 157,000 between November 2022 and August 2026.
If supply continues to contract — even partially — the pressure on rents intensifies.
As Davies said: “Policy needs to support a sustainable rental market which recognises the range of households who rely on it, including those for whom homeownership is currently and is likely to remain out of reach.”
That is ultimately the centre of the conversation. Tax rises that push individual landlords out of the market do not automatically create better outcomes for tenants. What the sector needs is a policy framework that keeps enough landlords from both individual and corporate in the market to meet demand, while giving brokers and their clients the stability to plan beyond the next Budget.
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