Buy-to-let property: the tax position for landlords
A series of measures recently announced, on top of others in recent years, have materially altered the post-tax profitability of rental property.
Since the Autumn Budget 2025, buy-to-let (BTL) landlords have been asking themselves: should I stay, restructure or sell up? Every landlord’s situation is different but it’s no surprise many BTL landlords are re-evaluating their position.
Following our introductory insight on BTL property, this article explores the main tax changes for BTL landlords who own property personally.
The changing tax landscape
Higher income tax on rental profits (from April 2027)
Property income tax rates will rise by 2%, becoming 22% (basic rate), 42% (higher rate) and 47% (additional rate), representing a real cash cost.
The continuing restriction on mortgage interest relief
This remains the single biggest tax cost for many landlords with mortgages. Individuals cannot deduct mortgage interest or other finance costs when calculating taxable profit. Instead, they receive only a tax credit equal to the basic rate of tax, currently 20% but rising to 22% from April 2027.
This means higher or additional rate landlords suffer tax on profits they never actually receive. Highly leveraged landlords experience the greatest squeeze on cash flow, as the higher the interest cost, the worse the distortion.
Abolition of the furnished-holiday-let regime
A favourable tax regime for landlords providing furnished holiday lets (FHLs) was abolished in April 2025. Former FHLs are now taxed like standard BTL properties, further reducing post-tax returns for those affected.
Reduced capital gains tax allowances
The annual exempt amount has been cut significantly in recent years which means landlords now pay capital gains tax (CGT) on a greater proportion of the gain when selling. Typical residential property gains are taxed at 18% (basic rate) or 24% (higher and additional rate).
Stamp duty land tax
Stamp duty land tax (SDLT) has increased the cost of acquiring BTL properties, with an additional 5% being added when the SDLT surcharge applies. Those purchasing multiple properties can no longer benefit from multiple dwellings relief, which reduced the SDLT exposure following its abolition in June 2024. The additional SDLT costs have become a major barrier to restructuring or acquiring additional properties.
What are your options now?
Option 1: stay as you are – but reassess the numbers
For some landlords, doing nothing but tightening belts may still make sense. This particularly applies if the properties have a low mortgage or are fully owned, or the portfolio is operating profitably despite the changes.
However, landlords need to have realistic expectations about lower net returns – profits should be recalculated with the 2027 income tax increases in mind to ensure the business remains viable.
Landlords should also consider if current market conditions will support rental increases to maintain post-tax profitability, or whether their financing arrangements can be improved by reducing borrowing or securing a more manageable rate. They should also consider how the property fits into their long-term goals, for example, whether they are holding for income, capital appreciation or retirement planning.
Option 2: restructure (most commonly through incorporation)
Some landlords are now exploring incorporation as a solution to rising personal tax burdens. Companies are attractive for several reasons.
Companies can still deduct finance costs in full when calculating taxable profits, unlike individual landlords. This is especially advantageous where borrowing is high, or interest rates remain elevated. However, there may be transactional costs or early repayment charges on restructuring, which should be factored into any decisions.
Corporation tax rates (25% for most real estate companies) may be lower than the marginal income tax rates on rental profits (which will rise to as much as 47% in 2027). However, companies are subject to a potential double layer of taxation – first on the company’s profits and again on a personal level when those profits are extracted.
That said, a corporate structure offers far greater flexibility over the timing and method of profit extraction, whether through salary, dividends or loan repayments. This can create valuable planning opportunities, particularly where you do not need all the rental income right away, are planning for retirement or intend to reinvest profits.
However, incorporation is not a quick fix.
Transferring a property portfolio into a company triggers two major tax hurdles:
- CGT on the disposal by the individual.
- SDLT on the company’s purchase of the property.
In some cases, incorporation and SDLT reliefs for genuine property businesses is available. However, the tests are strict, so it should not be assumed they will apply.
Incorporation is not the right route for everyone. It can be costly if you get it wrong, so getting professional advice before you take the plunge is essential.
Incorporation tends to be most suitable for large portfolios, highly mortgaged properties and landlords planning long-term investment or where profits will remain in the company.
Option 3: exit – sell all or part of the portfolio
Some landlords, particularly those with high leverage or very low net yields, may conclude that selling is the most rational option. Exiting the BTL market can offer several advantages: crystallising gains while property values remain strong, achieving full liquidity and freeing up capital to reinvest in more tax-efficient structures.
However, it is important to consider the tax implications. CGT of up to 24% will be due on any sale and must be reported and paid within 60 days. Furthermore, lenders may impose early repayment charges on redemption of existing mortgages.
Where the BTL is operated through a company, further care is required to ensure the exit is structured tax-efficiently and does not give rise to unintended tax consequences.
Help from the experts
There is no one-size-fits-all approach but doing nothing is now a decision in itself.
If you own BTL property personally, now may be the right time to re-evaluate and take advice. Understanding your options today could shape your financial future for years to come.
Contact Moore Kingston Smith today to access our real estate expertise and team members that will help you make the right decisions to match your personal ambitions.
