Higher-rate taxpayers with buy-to-let properties pay more in income tax on their rental profits than they retain from the rent in 292 of England’s 293 local authority areas, according to new research.

The analysis by landlord software company LetCompliance examines how much landlords keep from rental income after mortgage interest, income tax and compulsory compliance costs.

It estimates that, for every £100 of rent received by a landlord with a 25% deposit, £49.10 goes on mortgage interest, £9.94 on income tax and £1.21 on compulsory fees, leaving £39.75 before other running costs.

For higher-rate taxpayers, however, the picture is considerably worse. The company says a landlord with the same mortgage arrangement pays more in income tax than they retain from the property in almost every council area analysed. Those with a 25% deposit keep just £20 of every £100 of rent in England after paying £29.70 in income tax.

Typical

The study models a typical two-bedroom flat in each area, using average local rents, a 25% deposit and an interest-only mortgage at 4.82%, assuming the property is let throughout the year.

LetCompliance also calculates that it takes an average of 10.5 years for a landlord buying an average-priced English flat to earn back their initial deposit and stamp duty from the rental income remaining after mortgage interest, tax and compulsory costs.

There are also big regional differences, with the estimated payback period ranging from 4.4 years in Boston to 64.2 years in Kensington and Chelsea.

However, the firm acknowledges that this is a best-case calculation. It excludes letting agent fees, repairs, insurance, service charges and void periods, as well as any changes in the property's value. The payback figure represents the time taken to recover the initial cash deposit and stamp duty, rather than the full cost of the investment.

Variable

LetCompliance says these variable expenses were excluded to allow consistent comparisons between local authority areas, adding that landlords’ actual returns would be lower.

Founder Erdem Volkan says more is on the way: an ombudsman every landlord will have to join - whose fee is not yet set - and a Budget plan to raise property income tax again from April 2027. “Many smaller landlords will decide the risk is no longer worth it. And for a young couple hoping to build security through property, finding that money and waiting a decade to see it back is no longer a plan,” he adds. “It is a dream.”

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