Buy-to-Let: the landlord trap tightens

For the best part of three decades, any idiot could make money in UK property.

And, for a while, this one certainly did.

September 2025

Agent: “It’s rent review time. The current rent is £740 pcm. We’re proposing £850.”

Me: “No. I really don’t want to go into the new rent control regime on an under-market rent. Let’s ask for £880–£890. Comparables are £1,000, but I acknowledge starting with a nine might cause sticker shock.”

Agent: “We don’t recommend that large an increase.”

Me: “Tell them £880. Doubtless they’ll negotiate down to £850 anyway.”

The agent tells the tenant we are going up to £880.

Agent: “She says she can’t afford that. She could do £777?”

Me: “WTF? Housing benefit, which I’m pretty sure she’s on, is £825. FFS. Counteroffer £810.”

Agent: “£790 is the best they can do.”

Me: “Okay then. Whatever.”

This is not a masterclass in rent optimisation. This is the tenant whose rent I went roughly 20 years without raising.

I changed it once. Downwards.

The tenant has paid on time, every month, for more than two decades. I’ve had enough experience of the other sort of tenant to know this is worth something.

And for much of that time, the mortgage cost me only £50–£80 a month. The rent covered the bills. House prices went up. Why stir things?

The tenant quite reasonably has me down as a soft touch.

Unfortunately, the government has decided to cure me.

Previously, on Finumus Does Property (Badly)

In the first article in this series, I explained how buy-to-let was a wonderful trade if you bought early enough, borrowed enough, and then mistook falling interest rates for signs of your genius.

In the second, we saw how Section 24 turned mortgage interest into a fiscal practical joke. Meanwhile Tower Hamlets decided my normal house was an HMO because three unrelated adults lived in it.

I explained in part three how my remaining non-London property produced a real post-tax return that was acceptable only if you put a heroic value on learning about mould.

Since then, the policy risks long floating about in the distance have moved into the building.

The Renters’ Rights Act is live. Making Tax Digital has arrived. Property income tax is going up. And London property has spent another couple of years looking less like an unstoppable wealth escalator and more like an expensive, illiquid, politically-managed bond, with plumbing.

The old buy-to-let dream was that your tenants bought you a house.

The new experience is that your tenants, HMRC, the council, the letting agent, the mortgage lender, and the First-tier Tribunal all hold a committee meeting in your bank account.

The good landlord tax

My arrangement with my long-standing tenant was simple.

If she paid on time, looked after the place, and the property roughly washed its face, I would not optimise every last pound of rent.

That bargain relied on two things:

• Capital growth doing the heavy lifting
• My retaining the option to move the rent towards market if the numbers stopped working

Neither of these can now be relied upon.

As already mentioned, the Renters’ Rights Act changes took effect on 1 May in England. Section 21 ‘no-fault’ evictions became a thing of the past. Assured shorthold tenancies became assured periodic tenancies. Landlords now need a statutory ground for possession.

The Act also put rent increases onto a revised Section 13 process. A landlord must use Form 4A, give at least two months’ notice, and you cannot increase the rent more than once a year. The proposed figure is supposed to be the open-market rent.

The government says this is not rent control – but it is rent control.

A £47 one-way option

A tenant who thinks the proposed increase is above market can apply to the First-tier Tribunal.

As of July 2026, the application costs £47, with help available for people on low incomes or certain benefits. The tribunal can determine a rent below the landlord’s proposal or the same as it. It cannot set a higher one.

If the decision comes after the proposed start date, the new rent will usually begin from the next payment date after the decision. The increase is not normally backdated to recover the landlord’s lost rent.

So, ignoring the value of the tenant’s time, £47 buys them a rather attractive one-way option:

• Heads: the proposed rent comes down
• Tails: the rent does not go above the landlord’s number
• Edge: any tribunal delay is largely financed by the landlord

Perhaps the system will be brilliantly staffed and ruthlessly efficient? Perhaps the First-tier Tribunal will become the Amazon Prime of residential property disputes?

Who knows?

But the path for a rational landlord is obvious. Never again allow a reliable tenant’s rent to drift materially below market. Raise it every year. Keep comparables. Preserve evidence. Behave more like the spreadsheet.

Congratulations – you have made the soft-touch landlord more commercial.

Section 24 enters its baroque period

Section 24 already made the tax treatment of an individually owned, mortgaged rental property absurd.

In the old days, rent came in, running costs and mortgage interest went out, and the remaining profit was taxed. This was quaintly known as taxing profit.

Now an individual landlord cannot deduct residential finance costs in the normal way. Instead, the rent after non-financing costs is taxed. The landlord receives a basic-rate tax reduction for qualifying finance costs.

Here is a deliberately simple example. Assume an additional-rate tax paying landlord has:

• £20,000 of rent after all non-financing costs
• £15,000 of mortgage interest
• £5,000 of actual economic profit

For 2026/27, the tax is:

The property made £5,000 before tax. It lost £1,000 after tax. The effective tax rate on the real profit was 120%.

This is not a typo. It is a policy outcome!

From 6 April 2027, England, Wales, and Northern Ireland get separate property-income rates of 22%, 42%, and 47%. For me, the relevant number is naturally 47%.

One small mercy: the final policy also raises the finance-cost tax reduction from 20% to the 22% property basic rate. The Section 24 gap therefore remains 25 percentage points instead of widening to 27.

The same example for 2027/28 becomes:

The after-tax loss is now £1,100. The effective tax rate on the £5,000 economic profit is 122%.

Because both rates rise by two percentage points, the extra £100 tax in this simple example is exactly 2% of the genuine £5,000 profit.

That is almost elegant.

Only a government could preserve a tax distortion with such immaculate symmetry.

Refinance, repay, or run away

So, as we’ve seen I still own two investment properties. Both need mortgage decisions within the next 12 months, which is far from ideal timing.

My pointless-commuter-town terrace has reached the stage where the mortgage must be replaced or paid off. Paying it off would improve the cashflow, but a 22% tax credit is better than no tax credit at all.

The London property is the ex-local-authority freehold house in Tower Hamlets, currently let to Ukrainians.

Tower Hamlets treats it as an HMO because it is occupied by three sharers, even though it is let jointly as a normal house. My existing lender tolerated this by grandfathering the loan. Ordinary best-buy lenders are not so relaxed.

This makes the refinance expensive. It also makes the sale price more theoretical than any figure suggested by Zoopla.

Problem child

Who is the natural buyer for an ex-local-authority house with licensing weirdness attached?

Not a young family wafting through the door with a scented candle and a mortgage-in-principle.

Nope – it’s another landlord.

And that landlord buyer would get today’s mortgage rates, today’s Section 24, today’s Renters’ Rights regime, today’s compliance costs, and the additional property stamp duty surcharge on entry.

Clearly the property is worth whatever price induces someone else to voluntarily inherit my problem.

I see four broad choices:

1. Refinance and accept that the house is a geared long option on London.
2. Repay the mortgage and own a low-yielding, unwrapped, politically exposed property bond with plumbing.
3. Sell, pay the tax, and buy something sensible with what little equity is left.
4. Complain, procrastinate, and call it optionality.

Reader, you know me too well.

London doubled and went nowhere

Every year in our Family Finances Annual Report, I seem to write a version of this:

The total value of property assets was marked down again, based, as usual, on the bottom of the Zoopla range. Property fell as a share of family wealth, helped by a combination of ‘property down’ and ‘other assets up’.

Whilst ‘fraction of wealth in property’ is a KPI we’re trying to manage down, I would prefer to get all of it from the ‘other assets up’ department.

According to the UK House Price Index data, the average London property cost £262,793 in April 2006.

Twenty years later in April 2026, it costs £552,655.

Excellent! London property more than doubled. Break out the prosecco and start a property podcast.

Except… the RPI measure of inflation rose from 196.5 to 414.4 over the same period. Put the April 2006 price into April 2026 pounds and we get:

So 20 years of average London capital growth, after RPI inflation: approximately minus 0.3%.

Nominally, London more than doubled. But in real terms it went slightly backwards.

British property! Now available in nominal!

At least it’s not leasehold

This is an index, not my house. It ignores rent. The April 2026 figure is provisional. RPI is not the only possible inflation measure. And individual streets, houses, and flats behave differently.

Indeed, that last point matters. In the year to April 2026, the average London terraced house rose 0.7%, whereas the average flat or maisonette fell 4.3%.

Thank God I never bought leasehold.

One of the best pieces of financial advice my father gave me 30 years ago was simply: “Never buy leasehold.”

My London house is an ex-local-authority shithole. I say that with affection, and a spreadsheet full of repairs. But it is a freehold ex-local-authority shithole.

No cladding bill. No lease extension issues. The ground rent wheeze was not my problem. There’s no mystery service charge. And no managing agent charging me £300 to reply to an email explaining why it costs £300 to reply to an email.

‘London property’ is not one asset class. A freehold house in a development constrained part of London is not the same thing as a leasehold flat in a tired block or an off-plan shoebox flogged off overseas as a portable Swiss bank account with a concierge.

That distinction is one reason I have not sold.

A long-dated option on London recovering its mind

The first decade of my investment property ownership benefitted from an enormous tailwind.

London was on a Thatcherite/Blairite tear. The City boomed. The UK was open, liberalising, financialising, and unusually good at attracting global talent and global money.

London became the de facto financial capital of Europe. We had economic growth! (Something my now-adult children have sadly never experienced.)

Alas, then came the Global Financial Crisis. Property owners ought perhaps to have learned something about leverage. Instead, interest rates collapsed and asset owners were rescued by duration.

Then came Brexit, extra stamp duty, tax creep, planning paralysis, non-dom reform, and a national agenda that shifted from ‘build, trade, and get rich’ to ‘who can we tax to pay benefits to others?’

Maybe London will eventually remember how to be London. Owning a freehold house is a long-dated option on that possibility.

It’s not my base case. It may not even be my sensible case.

But nobody is forcing the option to expire today.

Making Tax Digital: making landlords grumpy

Just when I thought one annual tax return was enough interaction with HMRC, HMRC characteristically disagreed.

Making Tax Digital for Income Tax (MTD) began on 6 April 2026 for sole traders and landlords whose qualifying gross income from self-employment and property exceeded £50,000 in 2024/25.

The threshold falls to £30,000 from April 2027 and just £20,000 from April 2028.

Affected taxpayers must keep digital records in compatible software, submit quarterly updates, and then complete their year-end tax return in that software.

HMRC has taken an annual indignity and given it seasonality.

Landlord limited

In fairness, I already keep records. I have accountants. I can use software. This will not break me.

But that is not the point.

Small landlordism increasingly resembles a business with:

• Safety and regulatory obligations
• Licensing and possession risk
• Financing risk
• Tenant risk management
• Software compliance
• Tax complexity
• Political risk

…but all without the scale, limited liability, pricing power, professional management, and/or tax treatment that could make such a business attractive.

Equity is not what Zoopla says it is

Why not sell the London house and put the proceeds into an ISA over several years?

Because I do not have the £300,000 of equity that the simple subtraction suggests.

Using the rounded numbers from last time:

• Current value: £600,000
• Mortgage: £300,000
• Apparent equity: £300,000
• Original cost: £100,000

The mortgage reduces my cash on sale. But it does not reduce the capital gain. And there’s capital gains tax (CGT) to pay.

For 2026/27, the annual exempt amount for CGT is £3,000 and the higher CGT rate is 24%.

Ignoring selling costs, capital improvements, available losses, and any reliefs, the exit looks like this:

My apparent £300,000 equity becomes about £180,720 of cash – before estate-agent and legal costs.

Past-Finumus remortgaged the property to extract cash and buy more houses. He has, in effect, already eaten a large part of the cake.

Present-Finumus is left holding the plate and HMRC’s bill.

Taxing matters

This is the difference between a good historical investment and a good prospective investment. People confuse the two all the time.

It is also why CGT creates lock-in. Selling a mediocre asset crystallises a very non-mediocre liability.

Also, because this is residential property, the disposal must generally be reported and the CGT paid within 60 days of completion.

It must then appear on Self Assessment, where HMRC’s systems can renew their acquaintance and pretend not to recognise each other.

What if CGT changes?

No increase in the CGT rate on residential property has been announced. The current higher rate is 24%.

However I own a leveraged, illiquid asset pregnant with a large nominal gain and a holding period measured in governments. Regime risk is part of the investment case, whether or not it fits into a discounted-cashflow model.

Suppose – purely as a stress test – that a future government decided to align CGT with the 45% additional rate of income tax.

How ‘fairly’ would this be implemented?

With full RPI-style indexation from 1996 to May 2026, my £100,000 cost would become roughly £272,000.

Without indexation, my cost would remain £100,000.

That difference is not cosmetic:

Scenario	Taxable gain after £3,000 allowance	CGT	Cash after mortgage and CGT
Current law: 24%, no indexation	£497,000	£119,280	£180,720
Hypothetical 45%, full RPI-style indexation	£325,029	£146,263	£153,737
Hypothetical 45%, no indexation	£497,000	£223,650	£76,350

The indexed version is annoying. The no-indexation version is a mugging.

Here’s the maths assuming indexation was introduced:

And if not:

These are deliberately simplified scenarios. Actual CGT payable depends on ownership, dates, acquisition and sale costs, capital improvements, losses, and reliefs.

Get professional tax advice before doing anything expensive.

Under current rules, death itself is not a CGT disposal and inherited assets generally acquire a market-value base cost at the date of death. The estate may face IHT instead. That interaction is another source of lock-in – and another rule a future government could change.

I am not going to invent a combined future CGT-and-IHT bill to stress test. (I don’t want to encourage them.)

Hold, sell, or sulk?

So what am I going to do?

Probably some combination of hold and sulk.

The non-London property still has the same excellent tenant. I do not want to evict her. However I do not want to subsidise her forever, either. So the rent will therefore keep moving up, however reluctantly, because the alternative is to operate a small private welfare state with a damp problem.

My London house is more interesting. It is a poor-looking yield investment. It’s tax-inefficient. It has refinancing risk and local-authority weirdness. And it occupies mental space out of all proportion to its value in the Finumus household balance sheet.

But it is also a freehold house in London. Which may be a terrible reason to hold it. It may also be the only reason that has mattered for the past 30 years.

It doesn’t add up

The old buy-to-let equation was simple:

Tenant rent + mortgage leverage + time = wealth

The new equation is messier:

Rent − costs − Section 24 − tax − MTD − repairs − refinancing − tribunal delay − CGT anxiety + possible London comeback − guilt = shrug

I appreciate this new version may not catch on in personal finance textbooks.

If you’re thinking about starting from scratch, I wouldn’t bother. My returns came from buying before the boom, using leverage, enjoying falling interest rates, having inflation erode the debt – and not being wiped out by tenants, repairs, or policy at the wrong moment.

I was not clever. I was long houses, short sterling debt, and born at the right time.

A new buyer gets today’s price, today’s mortgage rate, today’s stamp duty, today’s tax rules, today’s regulation, no ISA or SIPP shelter, no liquidity, concentrated asset risk, and a lingering suspicion that the answer to every political question that asks “who should pay?” will eventually conclude “the landlord”.

Could buy-to-let still work? Obviously. Property is local. Some landlords buy well, add value, operate efficiently, or use companies sensibly. Circumstances and tax positions vary. This is a personal case study, not financial, tax, or legal advice.

But ‘buy any London property, gear it up, wait, and become rich’ is no longer an investment strategy. It’s now an historical anecdote.

Doubtless some readers in the comments will explain that all of this is a skill issue.

Fair!

Any idiot could make money in property once. Doing it under the new rules may require competence.

This is worrying.

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