## Rental Yields Remain Strongest in Scotland and Wales

New analysis from Dwelly, based on government house price records and the latest Office for National Statistics (ONS) rental data, reveals that Scotland and Wales continue to offer the strongest rental yields in the UK. This is particularly significant as landlords face a 2% increase in tax on property income, savings, and dividends confirmed by the Office for Budget Responsibility (OBR). The tax rise comes amid rising compliance costs, squeezing landlord margins.

Dwelly’s research identifies West Dunbartonshire as the top-performing area with a 9.1% rental yield, followed by Greater Glasgow at 7.8%, and Renfrewshire and Inverclyde both at 7%. Other notable high-yielding locations include Merthyr Tydfil and Newcastle upon Tyne at 6.6%, Portsmouth at 6.5%, and Manchester at 6.2%. These figures demonstrate that despite tax pressures, certain regions continue to deliver attractive returns for landlords.

## Impact of Tax Increases on Landlords

Sam Humphreys, head of M&A at Dwelly, emphasised the importance of identifying markets with strong or improving yields in light of the latest Budget tax hikes:
“With the Budget confirming yet another tax increase for landlords, identifying markets that offer strong or improving yields is essential, as even small percentage changes to property income tax and dividends can significantly impact overall portfolio performance.”

He added:
“For landlords facing a higher tax environment, these areas offer valuable opportunities to help maintain margins as operating costs continue to rise.”

Both individual landlords and incorporated investors will feel the impact of these tax changes. Individuals will see reduced net yields, while incorporated landlords face changes affecting dividend and savings income.

## Smaller Landlords Face Greater Challenges

Analysts warn that smaller landlords may struggle to absorb the additional tax burden, which could accelerate contraction in the private rented sector. Although the average rental yield across Great Britain has remained steady at 6% over the past year, rising rents have only broadly kept pace with increasing house prices. This balance has helped stabilise returns but leaves little room for error amid rising costs.

## Regions with Notable Yield Growth

The research also highlights areas where rental yields have increased most sharply over the past year. Merthyr Tydfil recorded the largest rise, up 0.94 percentage points, driven by rent increases and softer property prices. Westminster, Rhondda Cynon Taf, Tower Hamlets, and West Dunbartonshire also saw significant yield improvements. Other areas with notable annual yield growth include Barking and Dagenham, Lambeth, Rutland, Redcar and Cleveland, and King’s Lynn and West Norfolk.

## Practical Steps for Landlords

Dwelly’s analysis underscores the need for landlords to adopt a strategic approach in this evolving market. Key recommendations include:

– **Model post-tax yields with precision:** Landlords should update cash flow forecasts to factor in the 2% tax increase on property income, savings, and dividends. Assessing the impact on individual properties rather than relying on portfolio averages is crucial, as small changes can affect gearing strategies, refinancing plans, and acquisition decisions.

– **Maintain thorough documentation:** Preparing valuations, rent schedules, and cost histories enables landlords to benchmark assets against high-performing regions. Clean records support faster, more informed decision-making when investment opportunities arise.

– **Consider smart refinancing:** Reviewing fixed-rate expiries and interest coverage is advisable. Rising yields in parts of Scotland and Wales may justify targeted refinancing to improve cash flow and free capital for selective portfolio expansion.

– **Evaluate selective disposals:** Selling underperforming or ‘drag’ assets that no longer meet return thresholds can improve overall portfolio efficiency. Reinvesting in stronger yielding regions can bolster margins and strengthen the balance sheet. Landlords should also consider Capital Gains Tax implications before selling.

– **Reassess ownership structures:** Given the latest tax changes, landlords should review whether individual or corporate ownership remains optimal. Ownership structure influences dividend strategy, borrowing capacity, and long-term exit planning.

## Conclusion

The data confirms that strong rental yields persist in specific UK regions, particularly Scotland and Wales, offering landlords opportunities to sustain returns despite rising tax and operational costs. However, success increasingly depends on disciplined portfolio management, precise financial modelling, and strategic planning. Landlords who treat their property holdings as businesses and adapt proactively will be better positioned to maintain margins in a challenging environment.

Suggested internal link anchors
– rental yields UK landlords
– property income tax
– private rented sector
– portfolio performance
– refinancing strategies
– Capital Gains Tax
– ownership structure
– rental market trends
– landlord tax changes
– regional rental yields

TLA update

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