- Among renters who left a tenancy in the past 12 months, 14% were asked to leave by their landlord, according to government figures released today (source: English Housing Survey 2024 to 2025: private rented sector – pre-Renters’ Rights Act overview – GOV.UK)
- Just 3% of tenants said they left their tenancy because their landlord raised the rent, with the Renters’ Rights Act (effective from 1 May) set to make increasing rents more difficult for landlords
- The Renters’ Rights Act offers more protection for tenants, however it could also end up forcing more landlords out of the market
- Some landlords will be looking for alternative income-generating investments including through pensions and ISAs – five investment options they might consider
- The figures also show that among private renters whose tenancy ended in the last three years, nearly half (45%) were served a section 21 notice – which are now banned by the Act
- Over half a million private rented households paid rent in advance in addition to the deposit in 2024/25 – the Act bans advance payments of more than one month’s rent
Sarah Coles, head of personal finance at AJ Bell, comments:
“The government has published an overview of the rental sector before the Renters’ Rights Act came in, which shows how many tenants had been forced to move out because of things that have since been banned by the Act. But while it’s hoped the new law will help protect renters and offer them more security, it may be the final straw for some landlords.
“It’s expected to mean accidental landlords and those with one or two properties will be more likely to sell up, while corporate landlords have the resources to take the additional costs and legislation on the chin. It may also put off some of those who had been weighing up whether or not to get into the market.
“Those who have been using rental properties to generate an income might now be considering alternative homes for their money. The good news is that investing in stocks and shares is far more tax efficient. You can invest up to £20,000 a year in a Stocks and Shares ISA, where growth and income is tax free.
“Depending on their circumstances and the objectives of investing, landlords might also invest in a pension. If they have sold up, landlords might find themselves with significant sums of spare cash, so the fact they may be able to contribute up to £60,000 into a pension each tax year could be incredibly valuable.
“If you max out your allowance for this year and still have more money you want to put into the pension, you might be able to take advantage of ‘carry-forward’ rules. If you haven’t used your full allowance in any of the previous three years, and were a member of a pension scheme during those years, you may be able to carry forward the unused allowance. Bear in mind though that you still won’t be able to pay in more than your total earnings in the current year.
“For those planning to use the property to generate income for retirement, a pension could be a natural home for your money. You not only get tax-efficient growth, but tax relief at your highest marginal rate on the way in. It means a higher rate taxpayer putting £6,000 into their pension could have it topped up to £10,000 through claiming higher rate tax relief.
“Investing in the markets isn’t a direct swap for investing in domestic property. On the plus side, your investments are more diversified and liquid. However, the income and growth from any investment is never guaranteed, so anyone who needs certainty over regular income could consider cash savings, which come with less potential income and growth, but more solid guarantees.
“In the current tax year, you can put up to £20,000 into a Cash ISA – as long as you haven’t used your allowance elsewhere. For those with larger sums, if you were to put additional cash into a normal savings account, there will be tax to pay once you make interest above your personal savings allowance. It means some people will consider tax-efficient alternatives.
“Popular options include investing in low coupon gilts and holding them to maturity, so the vast majority of the return is from the tax-free capital gain rather than the taxable income. Some people will also use fixed rate savings accounts that pay at the end of a set period. This defers the tax to another tax year when you may pay a lower rate of tax. Some even consider Premium Bonds, which run a real risk of losing value after inflation so shouldn’t be held for longer periods, but which stand a small chance of winning a big prize.
“If you’re investing for income, traditionally a UK equity income fund could be a mainstay of your portfolio. These focus on stocks with higher dividend yields, and historically tend to deliver a yield of around 4%, depending on how the market is doing. Investors also consider global income funds. However, these tend to come with a slightly lower dividend yield because so much of the benchmark is made up by the US, where dividends tend to be lower and value is often delivered through share buybacks.
“Corporate bond funds are also a popular choice for income investors, as they deliver a stream of income, and tend to do so at a lower risk than shares. The level of risk in corporate bonds varies significantly depending on the companies issuing the bonds. There will be bond funds that take a cautious approach, those that focus on the high yielding, riskier end of the spectrum, and strategic bond funds that can take advantage of wherever they see value.
Five income funds landlords might consider
Janus Henderson UK Responsible Income
“The fund looks for UK companies with attractive long-term business models. It uses an exclusions-based approach to responsible investing, which prevents the team from investing in areas such as oil and gas, and mining. It also means the fund has a diversified income stream compared to many of its peers within the UK equity income sector.
Schroder Global Equity Income
“The fund aims to deliver income and capital growth ahead of the MSCI World Index by investing in companies it believes offer growth and sustainable dividends. The strategy benefits from an extremely disciplined and well-articulated investment process that has been in place for many years. However, the team takes positions that are very different to the benchmark, so the fund could be volatile over short periods and investors may need to be patient.
Vanguard Global Corporate Bond Index Fund
“This fund tracks the Bloomberg Global Aggregate Float Adjusted Corporate Index – a measure of global, investment grade corporate bonds. It’s a competitively priced and efficient way to gain exposure to the performance of global, investment grade bonds.
Invesco High Yield UK
“This fund invests in corporate and government debt securities which are either non-investment grade or unrated and may include contingent convertible bonds. This means it focuses on the higher risk end of the corporate bond spectrum, and aims for a higher yield.
Artemis Strategic Bond
“The fund aims to provide a combination of income and capital growth over a five-year period. It invests mainly in debt and debt-related securities (of any credit quality), but can also hold some cash and near cash investments, other transferable securities, funds, money market instruments, shares, and derivatives.
“The flexible fixed income strategy can tilt the fund according to whichever part of the bond market the team believe is providing the best opportunities. This fund is co-managed by a trio of managers who each bring their fixed income specialism to the fund across macroeconomic, investment grade corporate bond and high yield corporate bond analysis.
Six squeezes on landlords
“There are six squeezes that have made letting property more onerous and less rewarding in recent times, which may factor in some landlords’ decision to turn towards other income-producing investments.
- Legislation is getting tougher
“The Renters’ Rights Act has added to the administrative burden for landlords and gives them less flexibility when they want to make changes to their portfolio. It’s not the only legislation they’ve grappled with. They’ve also faced new rules relating to the energy efficiency of rental properties that stipulate most of them need to be rated at least an E – unless they qualify for an exemption. This is expected to rise to C by 2030, which would force some landlords into spending more on energy efficiency upgrades.
- Mortgage rates are squeezing some landlords
“Buy-to-let mortgage rates have been gradually getting cheaper since mid-2023, when rates peaked. It means anyone remortgaging from a two-year deal could find their finances stack up better. However, if you are remortgaging from a five-year deal, set in 2021 when rates were at rock bottom, you will see your monthly payments climb substantially.
- There’s more tax on buying rental property
“From 2016, there has been a stamp duty surcharge on additional properties. It was initially 3% but rose to 5% in 2024.
- There’s more tax on rent
“Since 2017, landlords who pay higher rates of income tax haven’t been able to get full tax relief on mortgage interest payments. The change was phased in, so that by 2020, they only received 20% relief.
“Meanwhile, frozen income tax thresholds mean more landlords paying more income tax at higher rates. From next April, they’ll also be hit with higher rates of income tax on residential property, which will rise to 22% for basic rate taxpayers, 42% for higher rate taxpayers and 47% for additional rate taxpayers.
- There may be more capital gains tax to pay
“Many more will pay capital gains tax, and they’ll pay more of it, thanks to the cutting of the annual capital gains tax allowance. Some landlords might choose to hold the properties for life in order to avoid paying this tax. However, they then run the risk of having to pay inheritance tax at a much higher rate.
- Increased costs and admin from ‘Making Tax Digital’
“Making Tax Digital is being phased in. Those with qualifying income over £50,000 have had to use the system since 6 April, and the threshold will fall to £30,000 from April 2027 and £20,000 from April 2028.”
