Deep Insight Nick Clay 20/12/2021

London School of Economics highlight tax barriers faced by landlords


In the autumn of 2021, the London School of Economics (LSE) published the NRLA-commissioned report Private Landlords and Tax Changes (authored by Kath Scanlon, Christine Whitehead and Fanny Blanc).

The research aimed to draw out the implications of recent tax changes and of the Covid pandemic for the Private Rented Sector (PRS) by analysing their impact and landlords’ potential responses. The research focused on England and landlords with portfolios based in England. However many tax and taxation-based policies emerge through Whitehall and HM Treasury, these have an impact on landlords across the UK.  

The research revealed that Covid-19 had only a limited impact on the likelihood of a landlord remaining in the PRS. However the cumulative impact of various tax changes has forced many landlords to reconsider whether they should continue to supply homes to rent.

This blog post focuses on the international research the report presents on taxation. How similarly and how differently are landlords in other developed economies treated in their tax system in comparison to landlords in the UK by HM Treasury?

An international comparison of tax regimes

The LSE examined the situation facing private landlords in other European and comparable countries. Their focus was mainly on taxation but also included a comparison of rent regulation, security of tenure and the effect of subsidies to tenants.

The objective of the study was to understand which elements of the English tax and regulatory systems are aligned with practice in other countries, and which elements of policy make the England and/or the UK distinctive (for better or for worse).

The study asked four key questions:

  1. Are there principles of taxation followed across most European and comparable countries?
  2. Are different types of landlord treated differently to one another?
  3. Are small company landlords treated in the same way as other small businesses?
  4. Finally, have there been significant changes in the taxation of landlords over the last few years?

Common taxation principles

When income tax was introduced to the UK in 1799, net rental income was taxed in the same way as other investments. Similar rules applied as tax systems developed across comparable countries.

Over the years however, taxation systems have become more complex and often no longer obey simple rules. One result of this is that the taxation of housing differs between tenures; private rental taxation differs between types of landlord and rental income is often treated as personal rather than as business income.

In many countries private rental property is treated as a business asset: meaning rental income net of costs and [maybe] depreciation is taxed.

Treatment of landlords

In a review of 19 European countries, the LSE research found rental income is typically taxed as business income – meaning deductions for at least some costs were allowed.

Among independent landlords, tax rates are typically based on income taxation and therefore often progressive. For corporate landlords, rates are much more likely to be either constant or to have two or more bands based on size/income.

Because mortgage interest payments are typically seen as costs by most exchequers which are covered in the LSE research, most countries permit private landlords to deduct the equivalent of mortgage tax relief at their marginal tax rate.

There are a few exceptions: These include Iceland, as well as the Netherlands and France (where the rules are more complex).

However the UK, as a consequence of the 2015 reforms to Mortgage Interest Relief (replacing it with tax credits), has definitely become a western European outlier in the definition of taxable income.

Independent landlords as small businesses?

The researchers asked academic experts across Europe and North America whether small company landlords were treated for tax purposes in the same way as other small businesses in their countries.  Responses reveal a complex picture.

In general, small companies were treated similarly whatever their activity, with those making net profits taxed at varying rates. In some others tax rates varied between those who owned property and those who were actively involved in supplying goods and services.  The key differences are in the definitions of taxable income and deductible costs.

Recent changes in the taxation of small landlords

Here the position of the UK is, unfortunately, near-unique.

Some countries whose tax systems were reviewed (Spain, Iceland) have been making taxation decisions which were clearly more favourable for landlords. In others - for example the Czech Republic and Slovenia asome changes move towards more favourable taxation of landlords whilst others have simultaneously been less favourable.

However none of the countries reviewed report a similar pattern to that seen in the UK. Here landlords have been hit by a series of tax changes which have been detrimental to profitability and returns on investment. The changes in taxation since 2015 include: 

  • keeping Capital Gains Tax for rented property at 28% when it was reduced to 18% for other assets;
  • requiring landlords to pay this tax within 30 days of the sale;
  • introducing a 3% stamp duty tax on purchases on non-principal homes;
  • for individual landlords, replacing marginal rate mortgage tax relief by a 20% tax credit.

As a result of regulation and tax changes almost 40% of respondents had either reversed decisions to invest or postponed proposed investment.

report authors, LSE

There have also been other more minor tax changes, as well as significantly increased regulation in the PRS.  Corporation tax for companies will also go up from 19% to 25% from 2023 (reducing the differential in property tax between individual and company landlords).

The report’s authors conclude  “The various tax changes were not elements of a cohesive strategy; rather, they were introduced piecemeal over a period of years for a range of reasons”. This however is no consolation for independent landlords!

The cumulative impact of taxation

The LSE researchers suggest that the international benchmark for landlord fairness should be an assessment of whether private rental property is treated as an investment good. This implies rental income net of costs should be taxed. The most important costs are with respect to mortgage tax relief, the costs of running the business (including depreciation); capital gains tax; and transactions taxes.

They conclude “The UK now lies at one – the ungenerous - extreme of [the taxation] spectrum. For individual landlords, mortgage tax relief has been limited to a 20% tax credit; limits have been placed on what can be claimed with respect to furniture and fittings and depreciation has never been allowed; and capital gains tax rates are higher than for other types of investment and has to be paid more quickly; and there is a supplementary 3% on stamp duty for landlords and second home owners.”

The UK now lies at one – the ungenerous - extreme of [the taxation] spectrum...Individually and cumulatively, the recent changes have reduced the incentive to be a landlord in England. 

report authors, LSE

The LSE team go on to suggest:

“Individually and cumulatively, the recent changes have reduced the incentive to be a landlord.  Landlords are observing the effects of higher taxes on returns, but taxation is not the only official lever: they also cite increasing regulation and bureaucracy and, importantly, the government’s negative messaging about private landlords and their role in the housing market.”


The full report, including how landlords are responding to the changing operating environment can be found in the Special Reports section of our website.

The LSE report that the operating environment for landlords in England is becoming less attractive. This diminishes the experience of tenants – the report notes almost 40% of respondents had either reversed decisions to invest or postponed proposed investment because of increased taxes and regulation.  The present tax environment is also having longer term effects on the rented housing market (see the full report for details).

The NRLA is committed to campaigning for the equal treatment for landlords in the tax system.

This blog post summarises part of the report independently written by the LSE. The NRLA have presented this summary as true to the report's findings as possible. Errors in interpreting or understanding the report's findings are those of the NRLA.  

Nick Clay

Nick Clay Research Manager

Nick Clay MSc, PgDip is the lead researcher for the NRLA. He previously worked for the RLA where he introduced the Landlord Confidence Index. Nick takes responsibility for the Research Observatory's content and rigorous approach to data analysis. He is a Certified Member of the Market Research Society.

Nick was formerly a Senior Economist for a multi-national consultancy. He has expertise in business support and entrepreneurship. He has written academic research, undertaken evaluations and developed strategies for business support organisations across England & Wales.

See all articles by Nick Clay