Property Tax in 2025: What Landlords and Investors Need to Know

Property continues to be a popular investment strategy in the UK, offering the potential for capital growth alongside regular rental income. But as with any investment, it’s vital to stay on top of the changing Property Tax landscape. With a number of legislative updates affecting landlords and property investors in the 2025/26 tax year, understanding your obligations is key to remaining compliant and making the most of your returns.

At IN Accountancy, we work closely with landlords and property investors to navigate the complexities of property taxation. In this article, we highlight the main tax implications for 2025 and outline practical steps you can take to optimise your position.

1. Tax on Rental Income

Rental income is subject to Income Tax, with your liability determined by your total income from all sources, including employment, pensions, and property.

Income Tax Bands for 2025/26 (expected to remain consistent with recent years):

• Basic rate – 20%
• Higher rate – 40%
• Additional rate – 45%

Allowable Expenses

To calculate your taxable rental income, you can deduct expenses directly related to the running and upkeep of your property. These include:

• Mortgage interest – While full relief for individual residential landlords is no longer available, a basic rate tax credit applies (see below).
• Repairs and maintenance – Essential works to keep the property safe and habitable.
• Letting and management fees – Payments to letting agents or property managers.
• Insurance premiums – Including buildings and landlord-specific policies.
• Legal and professional fees – Costs such as lease agreements and dispute resolution.

Claiming all eligible expenses accurately can significantly reduce your Property Tax bill.

2. Mortgage Interest Relief: Where Things Stand in 2025

, The tax treatment of mortgage interest for individual residential landlords is somewhat more complicated than that for other deductions. Rather than deducting mortgage interest from rental income, landlords receive a basic rate (20%) tax credit on the interest paid.

Impact on Higher-Rate Taxpayers

If you fall into the higher or additional tax bands, you may find your overall tax liability has increased in recent years due to the restriction on interest relief. This is an important consideration when assessing the profitability of your property portfolio.  The treatment of mortgage interest can also impact on other aspects of your tax affairs – it can for example push you into a higher tax band than you may expect because your taxable income is not reduced by the interest paid.

3. Capital Gains Tax (CGT) on Property Sales

If you sell a buy-to-let or second property and make a profit, Capital Gains Tax may apply. This doesn’t apply to your main residence (subject to certain conditions), but does impact landlords and property investors.

CGT Rates on Residential Property:

• Basic rate taxpayers – 18%
• Higher and additional rate taxpayers – 24%

For basic rate taxpayers it is important to appreciate that the 18% rate only applies to the extent the individual has basic rate band available over and above their taxable income – any gain in excess of that will be taxed at 24%.

Annual Exempt Amount

For the 2025/26 tax year, the CGT annual exemption remains at £3,000.  This means you can make capital gains of up to £3,000 in the year without paying any CGT.

Timing of payment

For sales of commercial property the gain is included on your self-assessment return for the year and the CGT is payable on the normal due date.  For UK residential property however if there is a taxable gain then a return must be made to HMRC within 60 days of completion and any CGT paid at the same time.  This will only be an estimate and will probably need to be adjusted when you file your self assessment return for the year.

Planning Tip

If you’re thinking about selling, consider:

• Using your annual CGT exemption
• Offsetting capital losses
• Timing disposals across tax years

Careful planning can make a significant difference.

4. Inheritance Tax (IHT) and Property Portfolios

For property investors, especially those with substantial portfolios, Inheritance Tax is an important consideration.

Key thresholds and rates:

• Nil-rate band – £325,000 per person
• Standard IHT rate – 40% on the value of estates above the threshold
• Residence Nil-Rate Band (RNRB) – Additional relief when leaving your main residence to direct descendants

Ways to Reduce IHT Exposure

• Gifting property during your lifetime (but be mindful of CGT consequences)
• Holding assets in trust (which requires great care when setting up)
• Structuring your property business appropriately (perhaps through a Family Investment Company)

Proper estate planning now can help preserve more of your wealth for future generations.

5. Rent-a-Room Scheme

If you rent out a furnished room in your main residence, the Rent-a-Room Scheme allows you to earn up to £7,500 tax-free each year.

This can be a simple and tax-efficient way to generate additional income, provided the property is your main home.

Two Options for Tax Treatment

• Claim the £7,500 allowance with no expense deductions
• Opt out and declare full income, deducting actual costs

Choosing the right option depends on your specific circumstances, so it’s worth reviewing carefully.

      6. Staying Ahead of Tax Changes

Tax legislation is continually evolving. While pace of change in property tax has slowed in recent times private landlords do seem to be a favourite target for governments looking to raise revenue so the potential for further change remains.

At IN Accountancy, we keep our clients informed and up to date with all relevant changes, helping you remain compliant and make informed financial decisions.

Need Advice?

If you’d like to discuss how these updates might impact your portfolio, or you’re planning to buy, sell, or restructure your property holdings, we’re here to help.

📞 Call us on: 0161 456 9666
📧 Email us at: [email protected]
💬 Or visit our website to book a free consultation

And to keep up with all the latest tax updates, visit the HMRC website