Tax increases will drive much-needed landlords from sector, says LSE

Tax increases for private landlords will drive some out of the sector, while others will pass the costs on to their tenants, stretching household budgets and putting home ownership further out of reach.

The warning comes from a new report by the London School of Economics, Taking Stock.

It analyses the private rental sector and its importance to the UK housing mix.

Despite the Government’s clear championship of the institutional build-to-rent sector, the report says that small private landlords will continue to be the backbone of the private rented sector.

The report says that demand for private rented accommodation is set to grow, and that to meet this, there needs to be investment in the sector.

However, it points out that the UK already treats private landlords for tax purposes less favourably than many other countries, ahead of further clampdowns.

These include a surcharge on Stamp Duty Land Tax for landlords, removing the wear and tear allowance, and reducing the amount of mortgage interest eligible for tax relief.

Authors Kath Scanlon, Christine Whitehead and Peter Williams find the sector has more than doubled in size in the past 15 years and now accounts for almost one-fifth of all dwellings.

Despite government initiatives to encourage institutional investment, the bulk of properties are owned by individual landlords with only one or two buy-to-let properties.

The report concludes: “Even if institutional investors enthusiastically enter the market, individual landlords will remain dominant – as they are across Europe.

“Shrinking the sector therefore does not seem a sensible way forward, given what we know about unmet demand and need.”

The Government has recently changed the tax treatment of private landlords in several ways, including imposing a surcharge on Stamp Duty Land Tax for landlords, removing the wear and tear allowance, and reducing the amount of mortgage interest eligible for tax relief. These changes will hit small landlords particularly hard, argues the report.

Irrespective of any regulatory changes, the authors suggest that demand for private renting will continue to rise, with individual landlords remaining the dominant providers. They highlight concerns over whether there will be sufficient landlords to meet continuing growth in tenant demand.

The report finds:

  • The growth of buy-to-let is in part a product of the low returns available to investors elsewhere in the market, and that driver is likely to continue.
  • High house prices and the need for large deposits make it unlikely that younger households will enter owner-occupation to the extent they did in the last four decades, increasing their reliance on the private rental sector.
  • The new tax treatments will damage landlords’ returns and create disincentives to invest in the sector.
  • The Government’s goals for the private rental sector are multiple and sometimes inconsistent.
  • Improved data is urgently needed to inform policy.

Kath Scanlon said: “There have been a number of recent changes in the tax treatment of small landlords, and more generally in the tone of policy discussion about the private rented sector.

“These decisions seem to reflect anecdotal rather than hard evidence, as there is a striking lack of data about landlords and their business models.

“The current government favours institutional landlords, but even if that part of the sector were to grow rapidly, small landlords would still be the backbone of the industry.

“We need a private rented sector that works for the long term with policies that reflect the housing challenges the UK faces.”

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  1. Jacqueline Emmerson

    Well there you go. A clear statement that the government favours institutional investors. Nothing to do with increasing properties available for first time buyers.

  2. mrharvey

    The government has a tendency to look at the big picture without taking into account any of the subtleties that have shaped the property sector since the 80s.

    In theory there is nothing wrong with taxing landlords, nor is there with any demographic. But in a time when landlords are actually propping up the UK property market – due to the increasing need to rent for most people – the government is cutting its nose off to spite its face. If anything, legislation should be favouring landlords and bringing them into the sector, as that is where the future of the housing market is.

    As long as supply stays this low, and demand stays this high, prices will go up. If prices go up, a proportion of the population gets priced out of the market and is forced to rent. Now tell me, if even landlords are being made to leave the market, where does that leave everyone? I shudder to think.

  3. Property Paddy

    This is a government initiative to save money on tax collection and spend

    It’s easier to go after a few institutions than a million individual landlords to collect taxes

    This is privatised social housing through the back door less tax money spent providing social housing.

    It makes me sad that this government really don’t care about the man on the street in any way or shape other than a tax generating biped.


  4. LandlordsandLetting

    Yet more evidence, if more were needed, that this country is being run by a bunch of very articulate privileged pretty boys, who have no idea what they’re doing and never seem to understand the Law of Unintended Consequences.

    And could this be the future for landlords?

  5. Mark Connelly

    I don’t know why the chancellor thought that they were mutually exclusive. The market can easily accommodate both institutional build to rent providers and the smaller private landlord.

    Given that UK private landlords were already getting a raw deal, tax wise, compared to landlords elsewhere in the world. It’s a real slap in the face having been actively encouraged to invest in the sector. Also encouraged to make personal provision for retirement as a result of failing pensions. Even risk adverse people got involved as there wasn’t a bean to be earned in savings. And this is how the chancellor rewards them.

    Sadly this can happen when there is no viable opposition to the government of the day.

  6. Woodentop

    “………………small private landlords will continue to be the backbone of the private rented sector”.


    And as long as they are not higher rate tax payers or borderline, not much to fear about income tax. Basic rate tax payers only have to worry about the 3% stamp duty on purchase.


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