Scotland’s property market is entering a turbulent new phase as landlords and industry leaders warn that heavy taxation and new rent control rules could trigger an investment exodus, reshape the rental landscape, and deepen the country’s housing shortage. At the centre of the debate is a growing backlash against the government’s approach to property taxes — a policy framework that critics argue is pricing smaller landlords out of the market and deterring much-needed capital at a critical time.
Rent Caps Add to Investor Anxiety
This autumn, the Scottish Parliament approved the Housing (Scotland) Bill, a sweeping reform package designed to boost tenant protections and stabilise rental prices. Under the new legislation, the government will be able to designate specific Rent Control Areas, where rent increases will be capped at inflation plus 1 percentage point, with a maximum annual rise of 6 %. The measure will apply to rent changes both during and between tenancies, but only within those designated zones.
The decision to create a rent control area will rest with the Scottish Government, following recommendations from local authorities. Proposals must be supported by evidence — including sustained rent growth above national averages, local affordability challenges, and a documented shortage of available rental homes. The aim, according to ministers, is to intervene in the most overheated markets while allowing other areas to function more flexibly. The new rent control powers are expected to come into force in 2026, following the Bill’s enactment and secondary legislation.
Certain types of housing will remain exempt from rent control measures, including purpose-built student accommodation, mid-market rent schemes, and large-scale build-to-rent projects. These carve-outs are designed to encourage institutional investment — but they also deepen the divide between large corporate landlords and smaller private owners.
Tax Policy Fuels Market Frustration
For many landlords, however, rent regulation is only part of the problem. Tax policy — particularly the costs associated with acquiring investment property — is increasingly seen as a bigger barrier to market entry.
The Additional Dwelling Supplement (ADS), a surcharge on second homes and buy-to-let purchases, was raised to 8 % in December 2024. It applies to nearly all purchases of investment properties and, according to industry body Propertymark, adds a substantial upfront cost that deters many landlords from expanding their portfolios.
On top of ADS comes the Land and Buildings Transaction Tax (LBTT), Scotland’s equivalent of stamp duty. Residential rates are progressive, ranging from 0 % on properties up to £145,000 (about €166,700) to 12 % on purchases above £750,000 (around €860,000). While first-time buyers receive some relief — paying no LBTT on purchases up to £175,000 (about €201,100) — investors do not qualify for such concessions.
The Real Cost of Buying an Investment Property
The combined effect of ADS and LBTT can dramatically inflate acquisition costs — and in many cases, wipe out the appeal of rental returns.
Take, for example, a £200,000 (€230,000) rental property. The 8 % ADS alone adds £16,000 (€18,400) to the purchase price. LBTT adds another £1,100 (€1,265). The total upfront tax bill reaches £17,100 (€19,665) — nearly 10 % of the property’s value.
For a £400,000 (€460,000) property, the burden becomes even heavier: £32,000 (€36,800) in ADS and £13,350 (€15,350) in LBTT, for a combined £45,350 (€52,150). For smaller investors relying on mortgage financing, those costs are often a deal-breaker.
“Additional taxation and the prospect of rent control areas in Scotland continue to be a huge disincentive for landlords,” said Timothy Douglas, Head of Policy and Campaigns at Propertymark. “We urge ministers to revisit any taxes that dissuade potential landlord investors.”
Rental Market Remains Under Pressure
Despite government efforts to slow rent growth, the Scottish rental market remains tight. According to Citylets, average private rents rose 3.6 % year-on-year in Q2 2025, underscoring persistent demand and insufficient supply. In Edinburgh, the average monthly rent reached £1,525 (€1,750) in mid-2025, while in Glasgow it stands around £1,280 (€1,470) — both near record highs.
Industry analysts argue that high entry costs — particularly the ADS surcharge — are a key reason why many small landlords are exiting the market. Faced with heavy upfront tax bills, they are either selling their portfolios or redirecting capital to England, where acquisition costs remain lower. South of the border, for instance, the equivalent stamp duty surcharge was increased to 5 % in 2024 — still significantly below Scotland’s 8 %.
Risks of a Two-Tier Rental System
Critics warn that the current mix of policies could create a fragmented rental market. On one side, institutional investors will continue to fund large-scale developments — supported by targeted exemptions and incentives. On the other, small and medium-sized landlords, who supply a large share of homes in suburban and rural areas, may withdraw altogether.
Such an outcome could shrink rental supply in precisely those regions where demand for affordable housing is greatest. Analysts caution that the resulting imbalance could fuel further rent increases over the medium term and make it even harder for younger tenants and lower-income households to find suitable accommodation.
Calls for Comprehensive Tax Reform
Propertymark and other industry bodies are urging the government to conduct a comprehensive review of Scotland’s property tax system. Their recommendations include reducing ADS, introducing reliefs for smaller landlords, or aligning LBTT with broader housing supply objectives.
The ultimate goal, they argue, is to strike a sustainable balance between tenant protection and investment incentives. Without that balance, Scotland risks a prolonged shortage of rental housing — undermining the government’s own affordability targets and discouraging much-needed private capital.
Final Perspective
Scotland’s rental sector now faces a critical inflection point. With rent controls soon to take effect in designated areas, the 8 % ADS surcharge unchanged, and LBTT still among the highest in the UK, the total cost of buying an investment property remains 2.5–3.5 percentage points higher than in England. Unless policymakers act to reduce these barriers, many private landlords are likely to exit the market — tightening supply further and keeping upward pressure on rents for years to come.