How government regulation has restricted individual property investment

Over the past five years, landlords have been subject to increasing government regulation that has reduced returns and disincentivised property investing.

Legislative changes and tax rises mean it could be far more difficult for individuals to generate a return from property investments.

While this shift started under the previous government, the trend has continued under Keir Starmer’s leadership, with a key tax change announced at the Autumn Budget in November as well.

Reduction in mortgage interest tax relief

Before April 2017, you could deduct mortgage interest from your rental income, reducing your Income Tax bill on that revenue. This relief was at your marginal rate of Income Tax, meaning higher- and additional-rate taxpayers could benefit from tax relief of 40% and 45% respectively.

However, starting in the 2017/18 tax year, the government reformed this. Over the following three tax years, it reduced the amount of fully tax-relievable mortgage interest each year until it reached 0% in April 2020. The government then replaced the relief with a tax credit, but only at the basic rate of 20%.

Income Tax on rental income will rise from April 2027

While the previous government restricted reliefs and made rental income less tax-efficient, the current crop has announced that the tax rate payable on property income will increase.

Forming part of Rachel Reeves’ tax increases at the 2025 Autumn Budget in November, this measure confirms that, from April 2027, the Income Tax charged on rental income will rise 2% to:

• 22% for basic-rate taxpayers
• 42% for higher-rate taxpayers
• 47% for additional-rate taxpayers.

The Renters’ Rights Act means tighter legislative regulation of landlords

Receiving Royal Assent on 27 October 2025, the Renters’ Rights Act is now law, and changes will come into force on 1 May 2026. This will introduce a set of changes that could be impactful for private landlords, especially as these affect new and existing tenancies.

Below are details of some of the key updates that could affect you:

• The abolition of assured shorthold tenancies (ASTs). Under this system, landlords and tenants agree fixed tenancy periods. From 1 May 2026, these will be replaced with assured periodic tenancies (APTs) which will run from month-to-month until the tenant serves notice or the landlord has grounds to repossess the property.
• In addition to the end of ASTs, landlords will no longer be allowed to evict tenants on the grounds of moving back into or attempting to sell the property in the first 12 months of a new tenancy. Furthermore, after the 12-month protected period has ended, landlords will need to provide four months’ notice when using these grounds. Tenants can serve notice during these 12 months, provided they give at least two months’ notice.
• Section 21 notices, or “no-fault evictions”, are abolished. Instead, landlords will need specific grounds for possession under a section 8 notice. Depending on the reason for possession, the notice period will vary.
• Landlords are still able to propose annual rent increases by serving a section 13 notice. These increases must be in line with local market rents, and tenants can either accept the increase or dispute Meanwhile, landlords and agents must publish an asking rent and will not be allowed to encourage bids above this price.
• Tenants will have the right to request a pet, and landlords cannot “unreasonably” refuse.
• Further changes are also set to take effect after 1 May 2026. For example, Awaab’s Law, which requires social housing owners to take swift action to make sure homes are safe when tenants raise issues, will be extended to private landlords.

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Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

The Financial Conduct Authority does not regulate estate tax planning or regulate buy-to-let (pure) and commercial mortgages.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

Think carefully before securing other debts against your home.

IPS Capital does not provide tax or legal advice.