UK property rental income rebounds after Covid-19

The total property income declared by unincorporated landlords in 2021/22 was £48.86 billion, compared with £46.37 billion in 2020/21, showing a great recovery to pre-Covid levels. In fact, the property income in 2021/22 was almost £1.5 billion higher than in 2019/20, before the pandemic hit. Whilst the pandemic hit many industries, it seems on the surface as though the UK property rental market is one that continued to thrive. Some of this may of course have been driven by market forces such as reportedly high demand for the rental properties available and could be set to increase further as more landlords’ fixed mortgage rate deals come to an end, potentially adjusting rents accordingly.  

Further to this, the average gross property income per landlord in 2021/22 was £17,300 of passive income. The average earned salary for the same year was c.£27,000, only an additional £10,000 more. This correlates with the increased rent that so many families are experiencing.

Of the 2.82 million unincorporated landlords, 89% claimed some form of expenses, such as mortgage interest, repairs, or agent fees, against their property income for tax purposes. However, each year less landlords are claiming finance costs, especially since the restriction on tax relief for finance costs came in in full from 2020/2021. In 2017/2018, 54% of unincorporated landlords claimed finance cost deductions, but this dropped to 45% in 2021/2022. Properties with mortgages have been a lot less tax efficient due to this restriction for many high earners, and perhaps a move has been made to use a corporate entity to hold property as a company, which may benefit from a full tax deduction for mortgage interest.

In light of this, the statistics do not capture the hidden income in incorporated entities and as more landlords look to incorporate their property business in recent years due to recent tax changes, this could tell a different story. This means that there could be a lot more money being made by landlords who are utilising corporate structures. Some of these landlords may find their affairs come under more scrutiny from HMRC following the publication of a recent ‘Spotlight’, highlighting a certain type of property business structuring. 

A rental property still looks like an attractive investment for many people in the UK, despite the challenges posed by the Covid-19 pandemic, the changes in tax rules as well as the proposed Renters (Reform) Bill. However, with the upcoming Autumn Statement, and an election in the not so distant future, landlords should be braced for further tax changes.