‍What is the best strategy for landlords navigating the new private rented sector?

Tom Entwistle gives his views:

1 May 2026 represents a sea change in the PRS in England; new laws, new rules and regulations bring challenges that many existing buy-to-let landlords are simply ill-prepared for.

The private rented sector hasn’t ever faced so many changes and pressures as it does today. Regulatory reform under Labour’s new rules brings a tightening tax environment, rising compliance costs and the most significant change of all: the most radical changes to residential tenancy laws in almost four decades.  

These changes combine to create a market that looks quite different from the one many existing buy-to-let landlords first entered. 

A landlord exodus

According to some recent research published by Savills, the total value of privately rented homes (the PRS in the UK) has fallen for three years on a run, declining by nearly £80 billion since 2022 as smaller and many “accidental” landlords have been abandoning the sector.

Given the increasingly unhelpful tax regime since 2015, one new regulation consistently piled on top of another since then, and a highly hostile media turned the public against landlords. Is it any wonder many landlords have decided that buy-to-let is no longer worth the candle?

Yet the sector has far from collapsed. The story is more complicated than the headlines you read almost every day in the press. To use yet another cliché, buy-to-let has reached a watershed; those landlords now considering their position are, by and large, those who hold just one or perhaps a couple more properties, always on an informal basis, and finding the economics no longer work for them.

Those who are settled in their view and intend on remaining are increasingly prepared to work at it, to structure their operation on a more professional level, perhaps to grow their portfolio size to take advantage of increasing demand that’s working in their favour. 

Rents in high-demand areas are continuing to rise. That’s not because landlords have planned it or wilfully raise rents; it’s simply basic economics: when the supply of a commodity shrinks, the price generally goes up. In housing, supply can’t be suddenly created; it takes years to build more housing stock as it falls way behind the country’s population growth.

Despite Labour’s promise to boost housing growth beyond what has been achieved in the past, so far its record on reaching a stated 1.5 million homes this parliament has been abysmal. Progress is way below target and unlikely to ever achieve it.

A tough environment

I’m not arguing here that making money in the private rented sector is an easy pitch, far from it. What I am saying is that it is a navigable market. This article sets out what experienced landlords can do and achieve by protecting their rental yields, planning for growth and keeping on top of compliance – building a business and a portfolio that’s designed to last and perhaps pass on to the next generation.

What’s changed?

On 1 May 2026, the Renters’ Rights Act (RRA) came into full force in England. Its introduction represents the biggest overhaul of private rented sector renting legislation since the Housing Act 1988. The changes are far-reaching and affect every aspect of how landlords manage their properties and their tenancies. 

When I started letting property in the late 1980s, I saw the shorthold tenancy and Section 21 as a great saviour of the PRS. It was a safety net that made me as a landlord secure in the knowledge that if all went wrong, I got a bad tenant, inevitable at some point, I could relatively easily remove them.

Indeed, the shorthold tenancy and Section 21 did have the desired effect. Instead of tenants having a secure tenancy for life, on controlled rents, under the old, regulated tenancies, you could let at a market rent and be sure of possession if the need arose. The rental market went from housing something like 8 per cent of households in England to around 20 per cent by 2020.

Under the RRA all that’s gone. Landlords can no longer bring a tenancy to an end simply by serving a two-month notice and providing the court with the correct documentation. No, possession now requires a longer notice and a valid ground under a newly reformed Section 8 regime. 

Alongside this change, all existing assured shorthold tenancies have been automatically converted to assured periodic tenancies, with no fixed end date. Fixed-term contracts are gone, so technically the modern tenancy is never-ending. 

Tenancies simply run on continuously, month to month or week to week. They run until either the tenant chooses to leave – which they can do at any time with short notice – or the landlord successfully pursues one of the reformed possession grounds. The latter will require a court hearing if the tenant resists.

Rent increases have also been controlled to some extent. Although landlords can still charge a market rent, increases are controlled through a formal Section 13 notice to propose a rent increase. Tenants are then given the right to challenge an increase at a first-tier tribunal. 

All landlords should be aware that with an existing tenancy, you are required by law to serve the government’s statutory Information Sheet by 31 May 2026. If you fail to do so you are liable to a civil penalty of up to £7,000 per breach.

Later on down the line, perhaps by the end of 2016, there is to be a national database for private landlords. Also, a new landlord ombudsman service, to which all landlords in England will be required to belong, is expected by 2028. 

Each phase of the RRA introduction adds further compliance obligations for private landlords and letting agents. For those landlords used to operating informally, this regime may come as a shock. Never before in England has letting property entailed so much red tape. 

No more relying on a basic tenancy agreement, the rarely used Section 21 notice, and what was basically a word-of-mouth approach to rent reviews. The adjustment required to the new regime will be substantial. It’s going to need robust processes in place to manage within the law.

Tax is tight and getting tighter

Regulation is only part of the equation. Under this Labour government the tax treatment of residential landlords is unlikely to be sympathetic. On the contrary, it could become even less favourable than it already is, but thankfully governments don’t last forever.

The Section 24 restriction was introduced by George Osborne, then a Conservative government. It restricts individual private landlords to a 20 per cent tax credit on mortgage finance costs rather than allowing a full deduction. 

In force in full since 2020, its impact is most acute for higher-rate taxpayers who are financially leveraged on significant portions of their portfolios. For those who find themselves in this position, the effective tax rate on rental profits is considerably higher than it appears on paper. That’s because landlords are taxed on gross turnover rather than true profit, which can in certain circumstances result in an effective tax rate exceeding 100 per cent of actual cash retained.

Digital reporting

From 6 April 2026, Making Tax Digital for Income Tax became a mandatory requirement for landlords whose combined gross income from property and self-employment exceeded £50,000 in the previous tax year. 

Under the regime, quarterly digital submissions reporting on income and expenses for the periods ending in August, November, February and May replace a single annual self-assessment return, though the final January 31 return is still required. 

The £50,000 threshold will fall to £30,000 from April 2027 and £20,000 from April 2028, progressively drawing in more landlords. For landlords who keep their records on paper or a simple spreadsheet, new software is required and a fundamental change in approach to their bookkeeping.

As we look ahead, rental income is to be taxed at higher rates from April 2027, with the basic rate for property income rising from the standard 20 per cent to 22 per cent. The increase may seem modest in isolation, but when combined with Section 24 restrictions and the 5 per cent Stamp Duty Land Tax (SDLT) surcharge, it makes it harder to make the finances stack up for standard buy-to-let. 

The sensible response to all these changes is a strategic audit of your situation. Everyone is different in this respect so you should gather together all the evidence you need to assess your own property income and finances. Then, go to see a good accountant who specialises in property.

You’re not trying to avoid paying tax but you need to fully understand the economics of your own operation and the post-tax yield of each asset. You need to look at a long-term plan for your investments and disposals, capital expenditure and the potential capital gains tax (CGT) position with your existing assets. 

The Limited Company

This is a key question to the future operation of a rentals business in the PRS. There are few topics now that generate more discussion in landlord circles - whether or not to hold property through a limited company? The tax case for incorporation is compelling for many landlords, but it won’t suit everyone, that’s why professional advice is so important before you embark on such a route. 

Companies are not subject to Section 24 as they receive full relief on financing costs. They pay corporation tax at 19 per cent on profits up to £50,000 (or 25 per cent above £250,000), rather than income tax at 20, 40 or 45 per cent. 

Directors / shareholders in the company can choose when and how to extract profit, whether as salary, dividends or a combination of the two. This gives considerable flexibility over the timing of personal tax liabilities.

It you intend to grow and you are making new acquisitions; incorporation is most likely the default choice precisely for these reasons. But the position for landlords with existing portfolios held personally as an individual or partnership is more complicated. That’s because transferring property from personal ownership to company ownership will likely trigger a Capital Gains Tax bill along with stamp duty (SDLT). 

However, incorporation relief may apply, though not always available in all circumstances. The 5 per cent SDLT surcharge may also apply on the transfer, depending on how the transaction is structured and whether mortgage debt is involved. Lenders typically require refinancing from a buy to let mortgage to a company loan as part of any incorporation. This usually comes at a slightly higher rate, and some will ask for personal guarantees. 

For those landlords intent on growing their portfolios, making new purchases, it clearly makes sense to consider incorporation. For those needing to transfer an existing portfolio, the decision requires careful appraisal with professional advice. Tax savings need to be weighed against the upfront cost of achieving them and your long-term objectives.

For those landlords already incorporated or considering doing so, they should be aware that HMRC introduced new mandatory disclosure requirements for directors of “close companies” from the 2025–26 tax year onwards. 

These new measures require directors to report, on their personal self-assessment tax return, the dividends received from directorships during the tax year, and their peak shareholding percentage. A LandlordZONE article covers these requirements in detail.

Taking the long view 

The traditional buy-to-let investor of fifteen or twenty years ago would typically invest for eventual pension income and chase capital appreciation. In the meantime, the rental income was something of a bonus along the way to retirement. Rising house prices, cheap credit and a relatively light regulatory touch made that model work extremely well. 

Average house prices in the UK surged by an average of 7 per cent over the last 20 years, rising from £113,900 to £268,200. For England, average prices generally went even higher, pushing toward £290,000 as of early 2026.

Unfortunately, that model no longer works quite so well. What has now replaced it, among those landlords who are building or consolidating portfolios, is an income-orientated approach with a considerably longer time horizon. 

Investment property portfolios are increasingly being underwritten over twenty to thirty years, rather than five to seven. Succession planning through a family investment company structure, with property held in trust or shares distributed across family members, can also be built in from the outset rather than as an afterthought. 

Financial discipline

These days yield matters more than the headline purchase price. A lower entry price may look attractive, but when set against a rental income that does not support the finance costs, a management overhead that erodes the net return, and a compliance burden that adds time and expense, that calculation may be way off the mark. 

Landlords need a laser focus on genuine local demand before investing in a property. Research is crucial to determine yield averages for a specific property type and its location. Average figures can be misleading, so walking the streets, talking to local agents and scouring the lettings ads is vital.

Experienced landlords are always sceptical of optimistic projections. They will always focus on verifiable tenant demand that comes from a location near major employers, colleges and universities and strong transport connections.

Do the numbers work?

Rental demand remains high across much of England. However, yields vary considerably by region, area, location and property type for lets. Gross yields of 6 per cent or above are considered average across the UK for single lets, lower in London and parts of the Southeast but in many northern cities, well-positioned and properly managed properties can achieve gross yields in excess of 10 per cent. Multi-occupied properties can increase these yields. 

Areas that consistently appear in lists of top-performing strong rental yields include the Northeast, Yorkshire and Lancashire: Hull, Newcastle, Bradford, Sunderland and Middlesbrough, alongside parts of Manchester, Liverpool, Leeds, Sheffield and Nottingham. These locations have relatively affordable house prices with steady demand from students, young professionals and longer-term renters (families). 

High yield sales claims should be taken in with some scepticism. Some locations are in economic decline with weaker tenant demand, higher void periods and local social problems. Management time and dealing with tenancy issues will quickly erode a high yield. An experienced landlord will distinguish between genuine high yields and good market conditions rather than optimistic assumptions and a good sales pitch. 

The national supply outlook provides support for those who remain in the market. According to market data compiled in the UK Real Estate Outlook 2026, landlord instructions to letting agents have been declining since 2017. In areas of strong underlying demand, well-maintained properties owned by capable landlords and managed properly now face less competition for tenants. 

“A lower entry price looks attractive until it is set against rental income that does not support the finance costs, a management overhead that erodes the net return, and a compliance burden that was not in the original calculation.”

HMOs, short-term lets and mixed use

Many experienced landlords now look beyond the standard single-let residential property to improve their income potential and to spread risk across different tenancy types.

Houses in Multiple Occupation (HMOs) offer considerably higher gross income per property than standard single lets. But there’s a trade-off. There’s considerably more regulatory complexity with expensive higher safety standards and mandatory licensing above certain size thresholds. HMOs usually require far more management time than a single let.  

HMOs are popular student lets and in the right location gross yields are high. However, under the Renters’ Rights Act, a new Ground 4A only allows possession of student HMOs between 1 June and 30 September each year, considerably complicating the management of student lets.

Landlords must have served a written statement by 31 May and then served a proper Section 8 notice using Ground 4A to regain possession. HMOs are unsuitable for landlords who lack the management time and capacity to run these properties properly, but for those who do, they offer an investment with consistently high yield potential. 

Short-term and holiday lets are another potentially high-yield alternative to standard single lets. They occupy a completely different sector of the market, with their own lending criteria and increasingly active planning and regulatory controls. Management time is a key issue as high turnover requires admin, cleaning and other services. Taxation is another issue as local authorities increasingly look to raise more revenue. 

Multi-occupied commercial properties, typically buildings with residential accommodation above a retail or commercial ground-floor unit, offer a diversified risk profile. These properties require specialist mortgage finance and a clear understanding of both the residential and commercial tenancies and management requirements. For those landlords already familiar and competent with residential lettings, the logical next step may be into commercial property. 

Standard buy-to-lets may remain as the core of an investment property portfolio, but having a broader mix of property and tenancy types can improve income and reduce risk overall.

The energy efficiency imperative

The minimum energy efficiency standards (MEES) for private rented properties in England have been subject to repeated consultation, revised deadlines and shifting goalposts. The current position, confirmed by the government, is that the minimum EPC rating will rise from E to C for all private rented properties from 1 October 2030.

The complication is that the methodology used to measure energy performance is also changing. From October 2029, the existing Energy Efficiency Rating, which is based on estimated energy cost, will be replaced by the new Home Energy Model. This assesses how well a property retains heat rather than how much energy it uses. 

Properties that achieve an EPC C rating under the current methodology before October 2029 will be treated as compliant, with the minimum standards until their certificate expires, which can be up to ten years. This creates an incentive to address energy performance before the switchover 2027.

Running your property as a business

One theme that runs through a successful approach to navigating the new letting environment. You must treat your rental portfolios as businesses. They are not a passive investment anymore. That means using a system, effective management methods, fully documented processes, having a good knowledge of the rules and regulations, and financial records maintained throughout the year. 

Compliance with the Renters’ Rights Act requires thorough documentation. The new possession grounds, the Section 13 rent review process, the Information Sheet obligation, the forthcoming database registration, health and safety and risk assessment reviews. 

All these require documentation, timing and good processes. For landlords who self-manage, understanding these requirements in detail is time consuming but essential. For those who use letting agents, ensuring that those agents are genuinely up to speed with the new rules is not an option, it's a safety net. An agent who serves an incorrect notice, misses a deadline or misunderstands the reformed grounds for possession creates a liability for you the landlord, not just for themselves.

For those who are willing and able to clear that bar, the fundamentals of residential investment, sustained rental demand, constrained supply and a market that needs professionally managed property remain profitable.