10 min read
As a landlord in the UK, navigating the ever-changing tax landscape can be challenging. With new regulations, reliefs, and deadlines, it’s essential to stay informed to maximise your tax savings and ensure compliance. In this blog, we’ll explore the top tax-saving tips for landlords in 2025 based on the latest data and regulations. Whether you are an experienced property investor or just beginning your journey, this blog will equip you with a good understanding of landlord taxation and help you to make informed decisions that will effectively optimise your financial position.
1. Understand the property income allowance
The property income allowance allows landlords to earn up to £1,000 in rental income tax-free each year. If your rental income is below this threshold, you don’t need to declare it to HMRC. For landlords with multiple properties, this allowance applies to the total income, not per property.
If your income exceeds £1,000, you can choose to deduct the allowance instead of claiming actual expenses. This is particularly useful if your expenses are minimal. However, it’s worth calculating both options to determine which is more beneficial for your situation.
2. Maximise mortgage interest relief
As of 2017, the phased reduction of mortgage interest relief has changed the way landlords handle their mortgage interest payments for tax purposes. Currently, landlords are unable to deduct mortgage interest directly from their rental income when calculating taxes. Instead, they are eligible for a tax credit that equates to 20% of their mortgage interest payments. To maximise this relief:
- Consider incorporating your property portfolio into a limited company. Companies are still eligible for full mortgage interest relief, potentially reducing your overall tax liability.
- Review your mortgage arrangements to ensure you’re on the most tax-efficient deal.
3. Claim all allowable expenses
One of the most effective ways to reduce your taxable rental income is by claiming all allowable expenses. HMRC permits landlords to deduct certain costs incurred in running their rental business. Common allowable expenses include:
Repairs and maintenance: Costs for repairing wear and tear, such as fixing a broken boiler or repainting walls.
Property management fees: Fees paid to letting agents or property management companies.
Insurance: Landlord insurance, including buildings, contents, and rent guarantee insurance.
Utility bills and council tax: If you pay these for your tenants, they are deductible.
Professional fees: Accountancy fees, legal fees, and other professional services related to your rental business.
Ground rent: If you pay ground rent on a leasehold property, this is deductible.
Direct costs: Costs directly related to your rental business, such as advertising for tenants and stationery, are also allowable.
Keep clear and thorough records of all expenses to ensure you claim everything you’re entitled to.
4. Utilise capital allowances
Capital allowances allow landlords to claim tax relief on certain capital expenditures, such as furniture, appliances, and equipment provided in furnished rental properties. The Annual Investment Allowance (AIA) enables you to deduct up to £1 million (as of 2025) from your profits before tax.
If you’ve made significant investments in your rental properties, such as installing energy-efficient boilers or solar panels, you may be eligible for additional capital allowances.
5. Consider incorporation
Integrating your property portfolio into a limited company can yield remarkable tax advantages, particularly if you’re a higher-rate taxpayer. Benefits include:
Lower corporation tax rates: Starting in 2025, corporations will face a tax rate of 25% on profits exceeding £250,000. For those earning below £50,000, a more favourable small profits rate of 19% will apply.
Full mortgage interest relief: In contrast to individual landlords, companies are still able to subtract mortgage interest from their rental earnings.
Tax-efficient profit extraction: You can withdraw profits as dividends, which may be more tax-efficient than paying income tax.
However, incorporation involves costs, such as stamp duty land tax (SDLT) and legal fees. The setup costs, additional administrative requirements, and potential stamp duty implications need careful consideration.
6. Plan for capital gains tax (CGT)
When you sell a rental property, any profit you make is potentially subject to capital gains tax (CGT). The CGT rates for 2025 are:
- 18% for basic-rate taxpayers.
- 24% for higher and additional-rate taxpayers.
To reduce your CGT liability:
Use your annual exemption: Each individual has an annual CGT exemption of £3,000 (as of 2025). Plan your property sales to make full use of this allowance.
Claim reliefs: Private Residence Relief (if the property was once your primary home) and Lettings Relief can significantly reduce your CGT bill.
Offset losses: If you’ve made a loss on another property sale, you can offset this against your gain.
7. Make use of rent-a-room relief
If you are considering renting out a room in your primary residence, you may qualify for rent-a-room relief. This program permits individuals to earn up to £7,500 annually in tax-free income from renting a furnished room.
This relief is particularly beneficial for landlords who live on their property and rent out spare rooms to lodgers.
8. Optimise your tax band
Your rental income is added to your other income to determine your tax band. If your total income pushes you into a higher tax band, you could face a higher tax rate on your rental profits. To avoid this:
Defer income: If possible, delay receiving rental income until the next tax year.
Increase pension contributions: Contributing to a pension can reduce your taxable income, potentially keeping you within a lower tax band.
9. Stay compliant with Making Tax Digital (MTD)
HMRC’s Making Tax Digital (MTD) initiative requires landlords to maintain digital records and submit quarterly tax returns using compatible software. From 2025, MTD applies to all landlords with rental income above £50,000 per year. To stay compliant:
- Invest in MTD-compatible accounting software.
- Keep accurate and up-to-date digital records.
- Work with a qualified accountant to ensure timely submissions.
10. Seek professional advice
Navigating the complexities of landlord taxation can be daunting. Seeking professional advice from experienced landlord accountants is invaluable. A professional landlord accountant will provide tailored guidance on all aspects of landlord taxation, ensuring you’re maximising your tax savings and remaining compliant with HMRC regulations.
Final thoughts
Effective tax planning for landlords requires a comprehensive understanding of available reliefs and allowances, combined with strategic timing and structure decisions. While these tips provide a foundation for tax efficiency, every landlord’s situation is unique. Keep in mind that tax regulations and rates may vary, and what works for one landlord may not suit another. Regular reviews of your tax position and strategy, ideally with professional guidance, will help ensure you maximise your property investment returns while remaining compliant with all tax regulations. Contact us today for a free consultation. Let us help you navigate the complexities of landlord taxation and achieve your financial goals.
