The property market in the United Kingdom has witnessed a remarkable surge in property income earned by landlords during the 2021/2022 tax year, reaching an impressive total of £48.87 billion. This substantial increase in property income can be attributed to both higher rental prices and a burgeoning number of investors entering the market.
A newly released report from Her Majesty’s Revenue and Customs (HMRC) sheds light on the earnings of the average investor during the 2021-2022 tax year, comparing these figures with previous years to discern shifting trends and patterns. It focuses specifically on unincorporated landlords, those who operate without the protection of a limited company.
Throughout the observed period, a staggering 2.82 million landlords declared property income derived from rental payments. The research reveals a robust recovery, bringing all metrics back to pre-pandemic levels.
The study also highlights a noteworthy 10% increase in property income generated by landlords over the five-year period spanning from 2017/2018 to 2021/2022, with total income climbing from £46.37 billion to the £48.87 billion reported in the most recent figures.
While rental prices have experienced significant growth, particularly in recent years, the number of individuals reporting property income to HMRC for tax purposes has risen as well, indicating a general expansion of the landlord market.
Understanding Landlord Earnings
HMRC’s data exclusively examines the declared rental income and any expenses claimed during tax assessments. To determine an investor’s true profits, one must account for income against other expenditures on the property, including non-deductible mortgage costs, agency fees, and renovation work, among others.
The data does not encompass profits from the sale of properties, which might result from capital appreciation.
Nevertheless, it is noteworthy that the average investor’s annual property income from rent has remained relatively stable over the five-year period, inching up from £16,300 in 2017/2018 to £17,300 in 2021/2022.
The research reveals that 89% of unincorporated landlords claimed some form of tax expenses. Notably, £6.85 billion was claimed for finance costs, £5.50 billion for repairs and expenses, and £3.4 billion for legal, management, and professional fees in the 2021/2022 tax year. These claims have risen in recent years, reflecting the escalating costs incurred by landlords. On average, landlords claimed £9,400 in expenses against their property income in 2021/2022.
Property Income by Region
London and the South East emerged as the regions with the highest property income for the 2021/2022 tax year, an unsurprising outcome given the elevated property prices and a larger rental market.
The East of England and the South West followed closely in terms of property income. The North West, while ranking fourth in terms of income, also held the fifth position for the number of unincorporated landlords reporting property income during the tax year.
The pattern holds true for expenses claims, with the top five regions being London, the South East, East of England, the South West, and the North West. Conversely, the North East recorded the lowest property income, landlord numbers, and expenses claims.
As mortgage rates in the UK remain considerably higher than they were two years ago, many landlords and property investors find a significant portion of their rental income allocated to borrowing costs. However, recent months have seen a decline in these rates, a welcome development for those contemplating refinancing their properties.
In the ever-evolving landscape of the property and mortgage markets, prospective investors are advised to meticulously assess all costs and expenses against rental income and potential property sale earnings. A long-term perspective is crucial in navigating these dynamic markets.