Portugal cuts rental tax to 10%: A warning shot for the UK?

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Portugal cuts rental tax to 10%: A warning shot for the UK?

Recent announcements from the Portuguese Government, including a proposed reduction of income tax on residential rental income to 10% or even 0% in some cases, have captured the attention of UK landlords. The move contrasts strongly with UK policy direction and raises two important questions:

1. Is Portugal positioning itself as a more attractive reinvestment destination for UK landlords?
2. Does the UK Government risk being forced into similar reforms if rental supply continues to fall?

This article explores these issues from a landlord-focused, strategic perspective.

Portugal Is Actively Encouraging Landlords

Portugal has made a decisive shift towards using incentives rather than penalties to shape its rental market. Key measures include:

• A proposed 10% tax rate for residential rental income within a defined moderate rent bracket up to €2,300 per month
• A 0% tax rate for rents at least 20% below local medians
• Existing reduced rates of 10% for 10 to 20 year leases and 5% for leases over 20 years
• Reduced taxable bases for company structures

It is a clear strategic signal. Portugal wants to increase rental supply, encourage affordability, and reward landlords who commit to long-term or moderate-rent housing.

This approach is in stark contrast to the UK’s direction over the past decade.

Why UK Landlords Are Taking Notice

UK investors face a combination of rising costs and increasing penalties:

• Section 24 mortgage interest restrictions
• Income tax rates of 20 to 45% on rental profits
• An additional 2% tax increase on landlords was announced in the recent Budget
• Higher financing costs, with the UK base rate almost double that of the EU
• Growing regulatory burdens
• Persistent shortages in rental stock due to sustained landlord exits

Meanwhile, Portugal benefits from:

• A significantly lower tax burden on rental income
• A lower interest rate environment
• A government that openly acknowledges the role of landlords in solving housing supply issues

A portfolio generating rental profits taxed at 10% instead of 40% can dramatically improve net outcomes. When combined with lower borrowing costs, it is easy to see why some UK landlords are exploring overseas reinvestment, with Portugal now high on the list.

Could Portugal Be a Better Reinvestment Choice for Some UK Landlords?

For many landlord profiles, the answer is increasingly yes.

Portugal may be attractive to those who:

• Are exiting the UK market because Section 24 makes leveraged buy-to-let unviable
• Prefer stable, long-term rental yields
• Value predictable taxation and low operating burdens
• Want exposure to growing European rental markets
• Are comfortable investing internationally using appropriate legal and tax structures

Not every investor will be suited to the Portuguese market, but its direction of travel is hard to ignore. Portugal is becoming more landlord-friendly at the same time the UK is becoming less so.

Will the UK Need to Introduce Similar Incentives?

The UK Government may eventually have no choice.

The UK rental sector is under significant pressure:

• Tenant demand is rising
• Supply is shrinking
• Rents are increasing at record rates in many regions
• Councils are struggling with housing obligations
• Homelessness pressures are increasing
• Most commentators attribute at least part of the supply decline to taxation and regulation

If supply continues falling, the Government may need to consider reforms such as:

• Revisiting or reversing Section 24
• Offering lower tax rates for long-term tenancies
• Encouraging affordable or moderate rents through tax incentives
• Introducing measures to support reinvestment into the rental sector

Portugal’s approach demonstrates that a government can stimulate rental supply by rewarding landlords rather than penalising them. If the UK continues to push landlords out of the market, similar corrective measures may eventually become unavoidable.

A Strategic Turning Point

Portugal’s rental tax reforms serve both as an invitation and a warning.

For UK landlords looking for stable returns, lower taxation, and a supportive policy environment, Portugal is becoming a credible reinvestment destination.

For UK policymakers, Portugal’s shift highlights how far the UK has diverged from landlord-friendly policy and how unsustainable that may be if rental supply continues to shrink.

If the UK wants a functional rental market, it may ultimately need to pivot towards incentivising landlords, not deterring them.

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Case study: The landlord who expanded using buy to let gearing

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Case study: The landlord who expanded using buy to let gearing

For landlords, growth often depends on using gearing – borrowing against equity in existing properties to fund further acquisitions. In 2025, with property values stabilising and lenders reintroducing more competitive products, gearing remains one of the most powerful tools for portfolio expansion. This case study illustrates how one landlord used refinancing and sensible leverage to double their holdings, while also highlighting the risks of stretching too far.

Meet the Landlord

Our case study landlord owned three terraced houses in the North West, purchased between 2014 and 2017. Each property had appreciated significantly in value, with strong rental yields relative to purchase price. The landlord wanted to expand but lacked the liquid capital for further deposits.

The Expansion Challenge

Although the landlord’s equity position was strong, cashflow was under pressure as older fixed rates were expiring. Refinancing was necessary both to stabilise payments and to raise funds. The questions were:

• How much equity could be safely released without over-gearing?
• Which properties should be refinanced first to maximise affordability?
• Would lenders support the expansion given portfolio size and experience?

The Restructuring Plan

Working with a broker, the landlord created a staged refinancing plan:

• Step 1: Refinance the highest-yield property at 75% LTV, releasing £40,000 of equity.
• Step 2: Refinance the other two at 70% LTV, releasing a further £55,000.
• Step 3: Use the £95,000 released as deposits on two additional properties, maintaining gearing at a sustainable level.

The broker ensured five-year fixed products were used, which were tested at pay rate rather than inflated stress rates, making affordability more achievable.

The Outcome

The landlord doubled their portfolio from three to six units within 12 months. The strategy delivered:

• £95,000 equity unlocked without selling any properties.
• £16,000 annual increase in rental income across the expanded portfolio.
• Improved cashflow stability through five-year fixes, protecting against further rate rises.

Although monthly repayments rose due to higher borrowings, the rental uplift more than compensated, creating a stronger long-term position.

Lessons for Other Landlords

• Use gearing strategically – focus on refinancing properties with strong yields and growth potential.
• Sequence refinances – start with high-yield units to build affordability headroom for weaker ones.
• Balance risk and reward – higher gearing accelerates growth but increases vulnerability if rates rise or rents fall.
• Plan for contingencies – maintain liquidity buffers for voids, repairs and unexpected rate changes.
• Think long-term – gearing should build sustainable income, not just short-term capital extraction.

Risks of Over-Gearing

While gearing is powerful, over-leverage has been the downfall of many landlords. Risks include:

• Cashflow pressure if rates rise or rents stagnate.
• Reduced refinancing options if LTVs are too high when fixed deals expire.
• Vulnerability to valuation dips, which can trap landlords on reversion rates.

In 2025, most lenders cap LTVs at 75% to guard against these risks. Landlords should take this as a signal to avoid pushing too aggressively.

Final Thoughts

Buy-to-let gearing remains one of the most effective ways to grow a portfolio. Used responsibly, it can transform equity on paper into additional income and long-term wealth. The key is to approach it with discipline: understand lender rules, stress-test cashflow, and plan for both good and bad scenarios. The landlord in this case study expanded sustainably because they geared strategically, not recklessly.

Speak to Our Sponsor

Our sponsor works daily with landlords to structure refinancing plans, release equity and use gearing to fund expansion. They can help you model how much equity can be unlocked safely and which lenders support your growth strategy.

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Publication date: Monday, 8 December 2025

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Rachel Reeves faces £7,550 bill to upgrade EPC rating on her rental home

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Rachel Reeves faces £7,550 bill to upgrade EPC rating on her rental home

The Chancellor Rachel Reeves is facing a £7,550 bill to improve the energy performance of her London home under Labour’s tougher EPC rules for private landlords.

The Daily Telegraph reports that her four-bedroom property in Dulwich is rated D, falling short of the requirement for all new tenancies to meet EPC C by 2028 and all lets by 2030.

The rules, introduced by Ed Miliband, mean her family home risks falling foul of legislation unless she pays for recommended upgrades.

An EPC report for the house, seen by the newspaper, outlines a programme of works costing between £4,900 and £7,550.

Labour’s red tape burden

Conservative Party chairman, Kevin Hollinrake, said the Chancellor’s latest predicament underlines the pressure created by Labour’s climate strategy.

He told the Telegraph: “Rachel Reeves finds herself in yet another sticky situation of her government’s own making.

“Ed Miliband’s reckless dash for net zero means Reeves now faces a £7,550 bill to bring her property up to an EPC rating of C.”

He added: “This is indicative of the growing burden of red tape Labour is piling onto landlords across the country – driving up rents and reducing supply.”

List of EPC improvements

The EPC improvement suggestions include thicker loft insulation at an estimated £100 to £350 and removing flooring to install new insulation at £800 to £1,200.

Fitting solar water heating, typically costing £4,000 to £6,000, is also recommended.

If completed, these steps would move the property from a score of 64 to 70, taking it into the C band.

However, the projected savings are modest with annual energy bills being cut by roughly £300.

That means the Chancellor’s investment could take around 25 years to recover.

Reeves failed to license home

It is the second time in recent months that Reeves has faced scrutiny over her rental home.

In October, she was found to have breached housing rules by failing to obtain a selective licence from Southwark Council after letting out the property when she moved into No 11.

The Labour-run authority waived enforcement action, despite previously prosecuting private landlords for the same offence and penalties can reach £30,000.

Rent inflation driven by costs

The National Residential Landlords Association’s Chris Norris warned that many landlords face similar costs with little financial support to carry out the work.

He said: “The government has been slow to recognise the economics of private renting when it comes to energy efficiency measures, and the fact that rent inflation is driven largely by landlords’ costs.

“Even if these costs are not her primary concern, we would encourage the Chancellor to focus on the effect that these upfront costs will have on the cost of living for renting households.”

The former energy and net zero minister, Miatta Fahnbulleh, said the shift to EPC C by 2030 is intended to ‘reduce the number of fuel-poor households in England’.

She added: “Ensuring warmer, healthier private rented homes will lift many families out of fuel poverty and reduce energy bills.”

Industry estimates suggest landlords may face a combined outlay of around £36bn, and that the entire rental stock is unlikely to reach EPC C until 2043, 13 years beyond the government’s deadline.

Lenders are also warning that some landlords could choose to exit the market or remove homes from long term lettings, increasing eviction risk and further tightening supply.

The Chancellor’s spokesman was approached for comment by the Telegraph.

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