Being a landlord in 2025 is not as simple as it once was
Interest rates are on the rise, tax laws continue to change, and regulations are becoming tighter, all of which have complicated rental income to deal with, particularly when it comes to taxes.
But here’s the best part:
- Landlords can still legally keep more of their income and lower their tax bill with proper planning.
- Whether you’re a new property investor or a seasoned landlord, this guide covers practical, HMRC-compliant strategies to save tax in 2025 without cutting corners.
Know Your Allowable Expenses with Certified Accountants UK
One of the most effective ways to reduce your tax bill is to claim every legitimate expense. HMRC allows landlords to deduct certain costs from their rental income before calculating tax.
For 2025, allowable expenses include:
- Letting agent fees
- Property repairs and maintenance
- Buildings and landlord insurance
- Legal and accounting expenses
- Council tax and bills (if you pay them)
- Travel costs associated with managing your property
- Replacement of household items (fridges, sofas, curtains, etc.)
Keep accurate, digital records. HMRC’s “Making Tax Digital” (MTD) regulations make good accounting a necessity, not an option
Use the Domestic Items Relief Correctly
If you replace fixtures or appliances on a rental property, you can claim tax relief, but only for like-for-like replacements. That means if you’re upgrading an old electric cooker to a new one of similar quality, it’s tax-deductible. But a top-end smart oven? You might only be able to claim for half the cost.
Consider Setting Up a Limited Company
Increasing numbers of landlords are buying and holding property in limited companies, and it’s easy to see why.
This is what you might get:
- Mortgage interest is deductible in full in a company structure
- Company tax (currently between 19% and 25%) falls below the higher individual income tax bands
- Enhanced scope for long-term inheritance and capital gains planning
But there is additional paperwork, accounting costs, and alternative tax implications on profit withdrawal if owned by a company.
Tip: Don’t rush to incorporate. Get advice from property accountants first.
Mortgage Interest Relief – Understand the Rules
If you have rental property in your own name, you’re no longer able to deduct interest on a mortgage against your rental profits. Instead, you get a tax credit of 20% on interest paid.
It won’t make much difference to basic-rate taxpayers, but it’s a major problem for higher-rate landlords who had previously deducted more.
Other options to be considered:
- Putting the property into a limited company (though stamp duty and CGT will apply)
- Sharing ownership with a lower-income spouse (see next section)
Share Income with Your Partner Legally
- If your spouse or civil partner is in a lower tax bracket, it may be possible to offset tax by sharing rent income.
- With shared ownership and a properly completed Form 17, you can declare a split that reflects the true ownership percentage of the property.
- Just make sure this works for both of you in the long term. It’s not just about tax relief, but also about legal ownership.
Plan for Capital Gains Tax (CGT), discuss with a Tax Accountants
If you’re selling a buy-to-let property in 2025, you’ll likely have to pay Capital Gains Tax on any profit.
Rates of CGT on residential property currently:
- 18% for basic-rate taxpayers
- 28% for higher- and additional-rate taxpayers
Advice to reduce your CGT:
- Make use of your annual exemption (£3,000 in 2025)
- Net off capital improvements (e.g., loft conversion, extension, not ordinary repairs)
- Time your sale to cover two tax years
Pass assets to a spouse if they have unused allowances (be careful, this can have other tax implications)
Maximise Your Pension Contributions
- This is one tactic that landlords are likely to underestimate, but which can really cut your tax bill.
- If your rental profits push you into a higher tax band, putting money into a pension can bring you back down, and you’ll also be awarded tax relief on the contribution as well.
- Though you can’t invest directly in residential property within a pension, it’s still an excellent means of keeping taxable income down overall.
Stay Compliant and Ahead of Regulatory Changes with a Professional Accountant
Landlords are under increasing pressure in 2025, especially in the areas of energy efficiency, protecting tenants and filing digital tax returns.
While these regulations might appear burdensome, following them can save you money by:
- Avoiding fines and penalties
- Make yourself eligible for local tax relief (e.g, EPC improvements)
- Making your property more appealing to long-term tenants
Final Thoughts: Tax Planning Is Just Good Business
The UK tax system is not always landlord-friendly, but it does reward those who prepare.
Don’t leave it until the tax return deadline. Get a handle on your rent income, know your figures, and, where necessary, have a professional property accountant.
Need Help with Tax Planning?
From starting to having a whole portfolio, the right tax plan will make a huge impact on your bottom line.
Get started now. Explore your setup, control your expenses, and take the right decisions that work in your long-term interests.
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