British Landlords Association

Landlords Hit with Higher Tax Bills in 2025 – How to Reduce What You Owe Legally

As the 2025 tax year unfolds, many landlords across the UK are facing a sharp rise in tax liabilities. Stricter enforcement, reduced allowances, and changing tax thresholds have combined to create a perfect storm—one that is hitting landlords hard.

The phrase “Landlords hit with higher tax bills in 2025 – how to reduce what you owe legally” is now more relevant than ever as property investors scramble for compliant ways to keep more of their rental income.

Whether you own a single buy-to-let or a growing property portfolio, this year’s changes could cost you thousands if you fail to plan. But there’s good news: there are perfectly legal strategies to reduce what you owe, without attracting HMRC scrutiny.

Why Are Landlords Being Hit with Higher Tax Bills in 2025?

The UK government has continued its long-standing policy of tightening tax rules for private landlords.

The goal is to level the playing field between homeowners and property investors while also increasing tax revenue to cover public spending. However, many landlords feel unfairly penalised, especially given their critical role in providing rental housing.

Here’s what’s contributing to the increased tax burden this year:

• Reduction in Capital Gains Tax (CGT) allowance: The CGT annual exemption has dropped again, from £6,000 in 2024 to just £3,000 in 2025, meaning more of your gain from a property sale is now taxable.
• Section 24 mortgage interest relief changes are still in force: Landlords can no longer deduct mortgage interest from rental income. Instead, they receive a flat 20% tax credit, which can push many basic-rate taxpayers into the higher-rate band.
• Corporation tax for property companies: The main rate of corporation tax remains at 25% for profits over £250,000, affecting landlords with properties in limited companies.
• Council tax premiums for empty homes: Some local councils have introduced higher premiums for properties left unoccupied, adding to overall holding costs.
• Inflation-linked rent not matching cost increases: Even with modest rent increases, landlords’ real income is being eroded by inflation, higher maintenance costs, and tax rises.

These changes have fuelled the ongoing cry: “Landlords hit with higher tax bills in 2025 – how to reduce what you owe legally.”

Top Legal Ways to Reduce Your Landlord Tax Bill in 2025

 Use a Limited Company Structure Wisely

Operating through a limited company can still be a tax-efficient option, especially for higher-rate taxpayers.

Rental profits inside a company are subject to corporation tax rather than income tax, and you can control when and how you extract income (e.g. through dividends or director’s salary).

This is particularly useful for portfolio landlords or those planning to reinvest profits rather than withdraw them immediately.

 Maximise Allowable Expenses

Landlords can deduct legitimate expenses to reduce their taxable profits. These include:

• Letting agent fees
• Insurance
• Maintenance and repairs (not improvements)
• Ground rent and service charges
• Accountant fees
• Legal fees for lets under one year

Carefully documenting and claiming these deductions is one of the easiest ways to reduce your tax bill legally.

 Claim the 20% Mortgage Interest Tax Credit

While you can’t deduct mortgage interest from profits, you can claim a 20% tax credit. Make sure this is correctly applied when filing your Self Assessment tax return. It won’t eliminate the cost, but it softens the blow.

 Invest in Capital Improvements Before Selling

If you’re planning to sell a property, capital improvement costs (like extensions, new bathrooms, or roofing upgrades) can be deducted from your gain when calculating Capital Gains Tax. Timing and documentation are key—keep detailed records and receipts.

 Transfer Property to a Spouse or Partner

If your spouse or civil partner is in a lower tax bracket, you may benefit from transferring some property ownership to them. This allows profits to be taxed at a lower rate, reducing the overall household tax bill. HMRC permits transfers between spouses without immediate tax consequences.

 Take Advantage of Rent-a-Room Relief (Where Applicable)

If you rent out furnished rooms in your main home, you can earn up to £7,500 per year tax-free under the Rent-a-Room scheme. It does not apply to buy-to-lets but is perfect for landlords letting out part of their residence.

 Plan for Capital Gains Tax with Smart Timing

Timing a property sale to fall in a tax year where you have minimal other income—or offsetting gains with losses from other assets—can significantly reduce your CGT bill.

Remember, the CGT allowance in 2025 is only £3,000, so every pound matters. Always use this tactic under professional guidance to avoid costly mistakes.

 Use Pensions for Long-Term Efficiency

Contributions to pensions can reduce your taxable income and push you back into a lower tax band. This is particularly effective for landlords who also have employment or self-employed income.

Landlords hit with higher tax bills in 2025 – how to legally reduce what you owe by planning not only your property investments but your entire financial portfolio.

 Offset Losses from Other Properties

If you have one Property making a loss (e.g. due to repairs or void periods), you can offset that loss against profits from other rental properties. This reduces your total tax liability across your portfolio.

 Use Trusts or Family Investment Companies

For landlords who are thinking long-term or planning for succession, it may be beneficial to explore trusts or Family Investment Companies (FICs). These structures help with inheritance tax planning and can also reduce your ongoing tax exposure when appropriately structured.

Red Flags: What Not to Do

Trying to reduce your tax bill illegally is never worth it. HMRC has ramped up digital tracking, and they now use sophisticated data-matching tools to catch tax evaders. Avoid:

• Undeclared rental income
• Paying tradespeople cash without documentation
• Inventing expenses
• Not reporting capital gains on property sales

Sticking to the mantra “Landlords hit with higher tax bills in 2025 – how to reduce what you owe legally” means staying firmly on the right side of the law.

Financial Planning Is More Important Than Ever

The key takeaway for landlords in 2025 is that reactive tax planning no longer works. The landscape is too complex, and even minor errors can trigger penalties or missed opportunities.

Whether it’s restructuring your portfolio, selling underperforming assets, or reinvesting in higher-yielding properties, now is the time to act.

Get advice from a qualified accountant who specialises in property taxation. Use property management software to track expenses. Review your rental strategy at least once per year.

Remember: Landlords hit with higher tax bills in 2025 – how to reduce what you owe legally is not just a warning—it’s a strategic opportunity for those who prepare wisely.

Frequently Asked Questions (FAQs)

 Why are landlord tax bills going up in 2025?

Due to reductions in allowances such as CGT, continued restrictions under Section 24, and higher corporation tax for companies holding property portfolios. Inflation and council tax hikes also play a part.

 Is it better to own a rental Property in a limited company now?

It depends on your tax band, long-term goals, and how much income you plan to extract. For many higher-rate taxpayers, a limited company offers advantages.

 Can I still deduct mortgage interest in 2025?

Not fully. You can no longer deduct it from rental income, but you can claim a 20% basic rate tax credit on the interest paid.

 How much is the CGT allowance in 2025?

Only £3,000 per person—down from £6,000 in 2024. Married couples can pool this for £6,000.

 Are there penalties for not declaring rental income?

Yes. HMRC can charge penalties and interest. In some cases, failure to report rental income can trigger a tax investigation or prosecution.

 Can I claim for home office use if I manage properties from home?

Possibly, but it must be reasonable and proportionate. You can claim part of your electricity, internet, and office equipment as allowable expenses.

 What happens if I transfer Property to my spouse?

You may benefit from lower overall tax bills if your spouse is in a lower tax band. The transfer is tax-free between spouses but could affect future CGT or inheritance tax planning.

 Will these tax changes affect landlords with just one Property?

Yes, even single-property landlords will notice the impact—mainly due to reduced reliefs and higher basic costs, such as council tax and compliance requirements.

 Is it too late to restructure my property portfolio?

No, but act fast. Restructuring now could yield significant long-term savings, particularly if you sell poor-performing assets or use tax-efficient vehicles.

 Where can I get tailored advice on reducing my landlord tax bill?

Consult a tax advisor or chartered accountant with expertise in UK property. They can review your holdings, suggest strategies, and ensure compliance with relevant regulations.

Final Word

Landlords hit with higher tax bills in 2025 – how to reduce what you owe legally is more than just a trend—it’s a crucial financial reality.

But with the proper knowledge, preparation, and professional guidance, you can protect your income, optimise your returns, and keep more of what you earn. The time to act is now.