Special Report Nick Clay 20/12/2021

LSE pinpoint landlords' tax disadvantage


The aim of this research is to draw out the implications of recent tax changes and of the Covid pandemic for the Private Rented Sector (PRS)  in England.  The research was undertaken by the London School of Economics. We are also grateful to the Tenancy Deposit Scheme for facilitating the survey research.

This study looks at the reasons why many landlords have either reduced their property holdings or have decided to exit the sector completely. The report asks landlords about the impact of Covid-19 on their business. It also asks landlords about tax changes since 2015, these have included:

  • Keeping CGT for rented property at 28% when it was reduced to 18% for other assets.
  • Requiring landlords to pay this CGT 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.

The report also includes a review of the tax environment in other developed economies. 

Private landlords make up the gap in rented accommodation caused by a lack of social housing, but I think [they] are treated badly and squeezed for every penny

former landlord

Landlords & Tax Changes

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What landlords said

It is clear in the research that large proportions of landlords are concerned about the cumulative effect of tax changes. Landlords saw the change from mortgage interest rate relief to a basic tax credit as the most important tax change driving portfolio reduction and credit. This change is followed by the imposition of a 3% surcharge in SDLT for purchases which are not the main residence. The result has been reduced investment in housing stock, and an increase in those planning to leave the sector. 

Covid was seen as a much less important problem - fewer than 5% of landlords saw Covid as having a decisive impact on their property businesses. When speaking specifically to ex-landlords, the main reason for exit among this experienced group were rising costs, changes in taxation and regulatory changes. Ex-landlords also pointed out that becoming "ex-landlords" was not part of a business exit plan, but rather had been forced upon them by a cumulation of these listed factors.

Covid is temporary but the tax changes are permanent and together with all the plethora of legal changes add up to a more complex and challenging situation. I think this will put off small investors and is the reason I will sell up rather than leave my daughter with the properties to manage.

current landlord

An international comparison of tax systems

The growth in England's PRS since the turn of the century is a similar experience to that of many other comparable countries. However, in almost all the countries in our survey landlords of all types are treated as investors and so able to claim a variety of costs – notably mortgage interest – against their revenues. England is also an exception in having subjected landlords so many tax changes which had impacted negatively on returns. Many countries are identifed in the study as having much more accommodating tax environments than England.  

The report makes a clear statement in its conclusions - that it is mainly as a result of tax changes since 2015 that landlords are exiting the PRS. 

No other business operates under such regulations, of not being able to offset business expenses such as buy-to-let mortgages against tax, thereby effectively paying tax on losses. These changes will ultimately make renting far more difficult and expensive for tenants, as the supply of private rented property decreases.

current landlord

Final comments

In recent times, the private rented sector in England has seen a number of changes in taxation and regulation at both national and local level. Many of these changes have disproportionately (or only) affected landlords who operate as individuals rather than company landlords. Individually and cumulatively, the recent changes have reduced the incentive to be a landlord in England.

However, predicting the timing and magnitude of these effects is challenging, as is assessing them in retrospect. Some trends resulting from this analysis are becoming increasingly clear. For example increased taxation and regulation are already leading to (i) many landlords saying that they plan to reduce their involvement over the next few years (ii) the restructuring of portfolios as some landlords adopt a company structure. 

The report's authors note that these changes are probably gradual. In part this is because transactions taxes including capital gains tax are a significant disincentive for sellers. There are also many landlords who are simply less responsive to changes in tax or regulation, including those who do not regard their investment strictly (or at all) as an economic transaction.

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.Individually and cumulatively, the recent tax changes have reduced the incentive to be a landlord in England.

report's authors, LSE

Landlords & Tax Changes

Last updated: 09/12/2021 at 09:58 - 891.88 KB


The attached report was commissioned by the NRLA, but written by the London School of Economics who retained editorial control over the report. The views contained in the report are not necessarily those of the NRLA. The NRLA would like to thank the Tenancy Deposit Service (TDS) for supporting the survey-based research elements of the study. TDS have not otherwise been involved in the research, nor necessarily have a view on any of the report's findings.