Explore what landlords need to know to stay informed and profitable
Tax planning might not be the most exciting part of property investment, but for landlords, it is one of the most essential. With tighter margins, rising costs, and regulatory changes shaping the market, landlords can no longer afford to ignore how taxation impacts their returns.
Whether you own a single property or a growing portfolio, taking a proactive stance on your tax situation is now a key element of successful investing.
Why tax matters more than ever
As mortgage rates stay high and lending criteria remain strict, landlords are scrutinising every outgoing expense. However, while the focus rightly remains on rental income and borrowing costs, taxation can quietly diminish profitability if left unchecked.
Over the past decade, the UK tax landscape for landlords has shifted considerably, and 2025 continues this development. From reduced reliefs to changing company regulations and possible reforms to furnished holiday lets, today’s environment is more intricate than ever. Staying informed isn’t just wise; it’s vital to protect your financial interests.
Mortgage interest relief: What’s changed?
Perhaps the most notable change in recent years has been the gradual removal of full mortgage interest relief for individual landlords. Before 2017, mortgage interest could be fully deducted when calculating taxable rental income. Now, this has been replaced by a flat 20% tax credit, regardless of whether you pay income tax at the basic, higher, or additional rate.
For basic-rate taxpayers, the effect may be small. However, for those in higher tax brackets, it means that rental income is now taxed at your full rate, with only a partial offset from the tax credit. As a result, this leads to a higher overall tax bill and lower net returns.
Owning properties through limited companies
This change has prompted many landlords to consider owning properties through limited companies. Companies can still deduct mortgage interest as a business expense, and Corporation Tax rates are often lower than personal income tax rates.
However, company ownership brings new responsibilities, such as arranging separate mortgage products, preparing annual accounts, and paying dividend tax if profits are withdrawn personally. Selecting the appropriate structure relies on your income, investment horizon, and willingness to manage administration. A qualified tax adviser can assist you in comparing options and avoiding expensive mistakes.
What counts as an allowable expense?
Although mortgage interest relief has been restricted, landlords can still deduct a broad range of expenses, provided they are wholly and exclusively related to the rental activity.
Typical allowable expenses include:
- Letting agent fees
- Insurance policies (buildings, contents or liability)
- Routine repairs and maintenance (excluding improvements)
- Utilities, ground rent and service charges
- Council tax (where paid by the landlord)
- Professional fees for legal or accountancy services
- Marketing or tenant-finding costs
The difference between repairs and improvements can be a grey area. Replacing a broken boiler is generally allowed; however, upgrading to a larger, more efficient system might not be. Accurate record-keeping and sensible advice can help you stay compliant with HM Revenue & Customs.
Capital Gains Tax on sale
If you decide to sell a rental property, you may be liable for Capital Gains Tax (CGT) on any profit you make. This is calculated based on the difference between your sale price and the original purchase price, after deducting allowable costs such as legal fees and estate agent charges.
From the 2025/26 tax year, the CGT annual allowance has been lowered to £3,000 per person, well below previous levels. Basic-rate taxpayers pay 18% on gains, while higher or additional-rate taxpayers are charged 24%.
Joint ownership between spouses or registered civil partners can help double the available allowance, and timing a sale across tax years may reduce liability. If the property was once your primary residence, you may also qualify for Private Residence Relief or limited Lettings Relief, although these have become more restricted in recent years.
Individuals holding property through a limited company are subject to different regulations, as gains are typically incorporated into the company’s profits and taxed under Corporation Tax.
Stamp Duty: Still a primary consideration
Stamp Duty Land Tax (SDLT) remains one of the most significant upfront costs for property investors in England and Northern Ireland. In October 2024, the Chancellor announced a 5% additional rate on the purchase of additional properties.
Stamp duty must be budgeted early. It can significantly impact your upfront costs and should be factored into your overall yield assessment, rather than being viewed as a one-time expense.
Should you use a limited company?
The number of landlords opting to hold properties in limited companies has increased in recent years, and the trend continues into 2025.
The potential benefits include:
- Full mortgage interest deductibility
- Corporation tax rates (currently 25% for most companies)
- Easier reinvestment of profits within the company
- Potential inheritance tax planning benefits
However, there are also disadvantages. Limited company mortgages often involve higher rates and fees, and withdrawing profits as dividends attracts additional personal tax. Running a company also requires more administration, including annual filings, bookkeeping, and professional advice.
Owning a limited company can be especially beneficial for landlords looking to retain profits or grow their portfolio over time. However, for those with only one or two properties, or who need to withdraw income regularly, the advantages may be more limited.
The rules on furnished holiday lets
Furnished holiday lets (FHLs) currently benefit from more favourable tax treatment compared to standard rental properties, although this may change soon.
To qualify as an FHL in 2025, the property must be:
- Available for letting at least 210 days per year
- Let for at least 105 days
- Commercially let to the public (not used for personal stays)
When these conditions are met, landlords can access:
- Full mortgage interest relief
- Capital allowances for furnishing costs
- Certain capital gains reliefs on sale
- Business rates (instead of council tax) in some locations
However, the government is reviewing these benefits and has proposed aligning FHL rules more closely with standard lettings, which could reduce or remove many of the current advantages.
If you own or intend to purchase a holiday let, it’s essential to understand the current qualifying rules and keep thorough records. Staying informed about proposed changes will also enable you to adjust your strategy if necessary.
What’s on the horizon for landlords?
Tax policy continues to evolve.
Areas under review or likely to see future change include:
- Alignment of rules across letting types
- Adjustments to SDLT and CGT thresholds
- Stricter enforcement of undeclared rental income
- Inheritance Tax reforms affecting property portfolios
The direction of travel is towards greater transparency, professionalism, and compliance across the rental sector. While this may lead to more administration, it also encourages forward-thinking landlords to invest with a structured, strategic mindset.
Stay ahead with proactive planning
Tax needn’t cause stress. With proper preparation, such as reviewing your ownership structure, keeping records organised, or timing key decisions, you can stay in control.
Understanding how your property income and gains are taxed will help you make more informed decisions and retain a greater portion of your returns. In today’s market, that could mean the difference between merely breaking even and cultivating a sustainable investment portfolio.
Do you want to refinance your portfolio structuring?
From portfolio structuring to securing the right funding, our team will help you invest wisely and maximise your post-tax returns. Speak to Burlington Financial, telephone 01262 674988 or email enquiries@burlington-financial.uk.
