Landlord Tax Guide: Buying, Selling, and Letting Property

This guide simplifies the complexities of property investment for both new and experienced landlords, helping you buy, let, and sell properties tax-efficiently.

In this guide, you will learn:

• Different types of property investments
• The taxes involved in rental income and property sales
• How to structure ownership for tax efficiency
• Key strategies to reduce your tax bill

Types of Property Investments and How They’re Taxed

There are three common types of property investments:

Buy-to-Let Properties: Purchased mainly to rent out to tenants. These offer steady rental income and potential property value growth.

Furnished Holiday Lets (FHL): Short-term holiday homes with special tax benefits (until April 2025).

Second Homes: Properties not used as a primary residence and taxed differently than your main home.

Buy-to-Let (BTL) Properties

Buy-to-let means buying a house or flat specifically to rent it out to tenants. This is one of the most popular types of investments because it provides regular rental income and has the potential for long-term value growth.

Main Taxes You Pay on Buy-to-Let:

Income Tax: You must pay tax on your rental income after subtracting allowable expenses like maintenance and letting agent fees. For the 2025–2026 tax year, if your total income is between £12,571 and £50,270, you’ll pay 20% tax. Higher incomes fall into 40% or 45% tax brackets.

Mortgage Interest Relief: Landlords can't deduct full mortgage interest from their income anymore. Instead, they get a 20% tax credit on mortgage interest payments. Companies, however, can deduct the full amount.

Capital Gains Tax (CGT): When you sell the property, you may pay CGT on the profits. The rate is 18% for basic-rate taxpayers and 24% for higher-rate taxpayers.

Inheritance Tax (IHT): If you pass away, your buy-to-let property becomes part of your estate and may be taxed under IHT, depending on its value.

Furnished Holiday Lets (FHL)

FHLs were once highly tax-advantaged, but from 6 April 2025, the special regime will be abolished.

• No more capital allowances

• No more business asset disposal relief

• Now taxed like normal rental income

• Occupancy tests (105 days let, 210 days available) no longer apply for tax purposes

Impact: If you own an FHL, prepare for higher taxes and rethink your ownership structure or pricing model.

Second Homes

Any property that's not your primary residence counts as a second home. Key tax points:

• Rental income is taxable under standard rules.

• CGT applies when selling, but you might qualify for Partial Principal Private Residence (PPR) Relief if you lived there before.

• Inheritance Tax (IHT) still considers the full market value of your estate.

• Using strategies like trust ownership or sharing ownership with family members may help reduce this tax.

Quick Tip: If you rent out a room in your primary home, you can claim up to £7,500 tax-free under the Rent-a-Room scheme.

Ownership Structures: Maximise Your Tax Efficiency

The way you own a property can affect how much tax you pay. There are different structures like owning it directly, through a partnership, or via a limited company.

Direct Ownership

If you own the property in your own name, any profit from rent is taxed based on your personal income tax rate. You can only offset rental losses against future rental profits, so there’s no immediate benefit if you lose money early on.

Joint Ventures and Partnerships

Owning a property with someone else, such as a spouse or business partner, allows you to split income. This helps lower overall tax if one person is in a lower tax bracket. Partnerships also make it easier to invest together without taking on all the risk alone.

Limited Companies

Many landlords now buy properties through limited companies because of tax advantages. Companies pay corporation tax, which is between 19% and 25%—often lower than personal income tax rates. Also, profits can be kept in the company or paid to family members through dividends. However, selling the property may lead to double taxation—once on company profits and again when taking money out personally.

Taxes on Property Transactions

When buying or selling a property, you need to understand the taxes involved at each step.

Stamp Duty Land Tax (SDLT)

When you buy property in England or Northern Ireland, SDLT applies:

• 0% on the first £125,000
• 2% on the next £125,000
• 5% on the next £675,000
• 10% on the next £575,000
• 12% on the remaining amount
• +5% surcharge for second homes

Tip: First-time buyers get a discount (if conditions are met).

Annual Tax on Enveloped Dwellings (ATED)

• Applies to companies owning UK residential property valued above £500,000.
• Annual charges vary based on property value.
• Exemptions exist for properties rented out commercially, but a return must still be filed to claim the exemption.

Capital Gains Tax (CGT)

Payable on the profit (gain) when you sell a property that is not your main residence.

Current Rates (from 6 April 2025):

• 18% for basic-rate taxpayers.
• 24% for higher-rate taxpayers.

Allowable Deductions: Reduce your taxable gain by deducting costs directly related to the purchase and sale, such as:

• Legal fees
• Estate agent fees
• Stamp Duty Land Tax paid on purchase
• Costs of capital improvements (not general maintenance)

Principal Private Residence (PPR) Relief: If the property was ever your main home, you may be entitled to PPR relief for the period you lived there, including the final 9 months of ownership.

What’s Changing Soon (Stay Ahead)

• From April 2026, landlords earning >£50,000 must file quarterly digital updates to HMRC.
• From April 2027, the threshold will be lowered to £30,000.

Prepare early by adopting digital bookkeeping systems!

Top Strategies to Reduce Property Taxes:

Maximise Allowable Expense Claims: Ensure you are claiming all eligible deductions against rental income (e.g., repairs, insurance, letting agent fees). Claim the replacement of domestic items relief correctly.

Consider Tax-Efficient Ownership Structures: For married couples or civil partners, explore options for splitting ownership to utilise lower tax bands.

Long-Term Inheritance Tax Planning: Seek advice on strategies like trusts or early gifting (while considering the 7-year rule).

Seek Professional Advice: For complex tax scenarios or when scaling your property portfolio, consulting a specialist property tax advisor is highly recommended.

Conclusion

In 2025, understanding landlord taxation is not optional, it's essential. Whether it's income tax on rental profits, CGT on sale, or future digital reporting obligations, landlords need to stay sharp to protect their investments. Tools like the online UK tax return system can make filing easier. But for more complex issues, consider seeking advice from HMRC or a trusted property tax advisor.

FAQs

1. How much tax do landlords pay on rental income in the UK?

Rental income is taxed based on your total taxable income. In 2025–26:

• 20% on income between £12,571 and £50,270
• 40% on income between £50,271 and £125,140
• 45% on income above £125,140

You can deduct allowable expenses to reduce your taxable profit.

2. Do landlords pay capital gains tax when they sell a property?

Yes. If you sell a rental property for a profit, CGT applies. The rate is 18% for basic-rate taxpayers and 24% for higher-rate taxpayers. You can deduct allowable expenses like legal fees and stamp duty to lower the tax.

3. What expenses can landlords deduct from their taxes?

Allowable expenses include:

• Letting agent fees
• Repairs and maintenance (not improvements)
• Mortgage interest (via a 20% tax credit)
• Insurance, utilities, and council tax, if paid by the landlord
• Professional fees related to letting

Note: It’s crucial to keep detailed records of all income and expenses to claim them properly.

4. How can landlords reduce Inheritance Tax (IHT)?

Landlords can reduce IHT by:

• Gifting property to relatives
• Using trust structures
• Owning property jointly

• Applying for Business Property Relief (BPR)

Note: It’s crucial to speak to a qualified tax advisor or financial planner who can assess your specific circumstances and recommend tailored solutions that align with your overall planning.