Whether you're letting a buy-to-let, a furnished holiday home, or managing a portfolio through a company, understanding your tax position is key. Here's a simplified guide to help you navigate the key rules and opportunities around property ownership and tax.

 

Rental Income & Income tax

Any profit you make from rental income after deducting allowable expenses is subject to Income Tax at your marginal rate.

To reduce your tax liability, it’s important to make full use of your personal allowance and lower tax bands. Property income cannot be offset against other types of income, but any losses from rental can be carried forward and set against future profits from your rental business.

 

Owning property with others

You can hold property in your own name, jointly, or as part of a partnership, including with family members. This can be a tax-efficient strategy, allowing income to be split across people with lower tax rates or unused personal allowances.

Capital gains tax (CGT) & inheritance tax (IHT) benefits

If the property qualifies as a business asset:

  • You may be eligible for business asset disposal relief, reducing CGT to 10%
  • You could also benefit from 100% Business relief for IHT purposes, meaning no tax is due on the property when passed on

 

Second homes

If you own more than one home:

  • Capital gains tax may apply when you sell your second property, unless it qualifies as your main residence.
  • You can nominate one property as your main home for CGT purposes, usually the one that’s expected to increase most in value.

Renting out part of your main home

If you're renting out a furnished room in your main home, you may be eligible for:

  • Rent-a-Room Relief – up to £7,500 per year tax-free (or £3,750 each if shared)
  • If this doesn’t apply, the Property Allowance of up to £1,000 may still be available

Inheritance tax on second homes

Second homes form part of your estate for IHT. Gifting property can reduce IHT liability, but you must give up any benefit (e.g. not staying there rent-free). Paying market rent for use after gifting helps avoid unwanted tax consequences.

Shared ownership can be another useful strategy but must be structured properly to avoid losing tax benefits.

 

Company ownership & investment structures

There are different ways to structure property ownership:

  • Individual ownership
  • Joint ventures or partnerships
  • Limited companies

Using a company

Holding property in a limited company can reduce tax, as Corporation Tax is capped at 25%, lower than higher personal Income Tax rates. This is ideal if profits will be reinvested rather than taken out.

Family Investment Companies can be set up to include other family members as shareholders. This allows for tax-efficient profit sharing and wealth transfer.

However, if you plan to sell properties or take regular income, double taxation (corporation tax + dividend/income tax) can reduce the benefits.

 

Stamp duty land tax (SDLT)

SDLT is payable on most property purchases. Key rules include:

  • Standard threshold: £125,000
  • Second homes or additional properties incur a 3% surcharge
  • Companies and trusts always pay the surcharge
  • Non-UK residents pay an additional 2%

Multiple dwellings & mixed-use properties

There are some valuable reliefs, including:

  • Non-residential rates if buying 6+ dwellings
  • Mixed-use relief when buying both residential and commercial parts

High-value properties & ATED

If a company owns a residential property worth over £500,000, it may be liable for the Annual Tax on Enveloped Dwellings (ATED). While most rental companies are exempt if the property is let commercially, they still need to file a return each year.

Chargeable amounts for 1 April 2026 to 31 March 2027

Property value

Annual charge

More than £500,000 up to £1 million

£4,600

More than £1 million up to £2 million

£9,450

More than £2 million up to £5 million

£32,200

More than £5 million up to £10 million

£75,450

More than £10 million up to £20 million

£151,450

More than £20 million

£303,450

Chargeable amounts for 1 April 2025 to 31 March 2026

Property value

Annual charge

More than £500,000 up to £1 million

£4,450

More than £1 million up to £2 million

£9,150

More than £2 million up to £5 million

£31,050

More than £5 million up to £10 million

£72,700

 

 

 

Additionally, if a company purchases a property over £500,000, 15% SDLT may apply though exemptions exist if it's used for rental purposes.

 

Interest relief

As a landlord, most expenses related to letting your property can be claimed to reduce your tax bill. You can also claim the cost of replacing furnishings, including white goods.

However, the amount you can claim for mortgage interest and other finance costs on residential properties is limited to the basic income tax rate of 20%. This doesn’t currently apply to furnished holiday lets or properties owned by a company, but this is changing from 6 April 2025, when the furnished holiday letting regime will be abolished. From that date, all furnished holiday lets will be taxed the same as standard residential rentals.

If your property qualifies as a furnished holiday let (FHL) before 6 April 2025, or is owned by a company, you can still claim the full amount of finance costs.

 

Furnished holiday lets (FHL)

The Spring Budget 2024 confirmed that the FHL tax regime will end in April 2025. Until then, FHLs are treated as business assets, offering some tax benefits but these will no longer apply after the rules change.

To qualify as a furnished holiday let (until April 2025), your property must:

  • Be available to let for at least 210 days per year
  • Be let for at least 105 days
  • Not have long-term lets over 31 days (these are excluded)

Income tax

FHLs have lost many of their tax advantages over the years, but mortgage interest relief still applies in full until 2025.

Capital gains tax (CGT) and inheritance tax (IHT)

If your property meets the FHL conditions:

  • CGT may be charged at a lower rate of 10% using Business Asset Disposal Relief (instead of 24%).
  • IHT benefits may apply if the property qualifies as a business asset, potentially allowing 100% relief.

However, HMRC closely examines whether the property is run as a genuine business (e.g. providing services like a hotel). Simply renting it out isn’t enough to qualify for these tax breaks.

Second homes

Many landlords assume that all homes they live in are exempt from capital gains tax, but this only applies to your main residence.

Income tax

You may qualify for rent-a-room relief if you rent out part of your main home. This allows up to £7,500 per year (or £3,750 each for joint owners) to be tax-free. However, this does not apply to second homes.

Where rent-a-room relief doesn’t apply, the property allowance may cover up to £1,000 of rental income each year.

Capital gains tax (CGT)

Private Residence Relief (PRR) can reduce or eliminate CGT on your main home. If you own more than one home, you can nominate which one qualifies usually the one that’s increased most in value.

Inheritance tax (IHT)

Second homes count towards your estate for IHT. Gifting a property while continuing to use it (e.g. as a holiday home) could result in IHT charges, unless full market rent is paid by the donor. Shared ownership of a second home can reduce IHT but must be done carefully to ensure tax rules are met.

Structuring ownership of property investments

The way you own your property can make a big difference to your tax position. Common ownership structures include:

Direct ownership, joint ventures and partnerships

All three options are taxed similarly. Income is taxed at personal rates, and capital gains apply on sale. Partnerships allow income to be split across family members, making better use of allowances.

Limited company ownership

Owning property through a company can reduce tax bills, as corporation tax is up to 25%, lower than higher-rate income tax. However, taking money out of the company may lead to additional tax, so this structure works best if you don’t need to draw all the income.

Family members can be shareholders to distribute income efficiently. This can help with funding education or passing wealth to the next generation. In some cases, significant IHT savings are also possible.

That said, selling properties within a company may trigger a double tax charge: once on the company, and again on shareholders when profits are distributed.

Stamp duty land tax (SDLT)

SDLT applies to most property purchases in the UK:

  • First homes: no SDLT on properties up to £250,000 (until 31 March 2025)
  • Second homes: additional 5% surcharge on top of standard rates
  • Non-residents: extra 2% surcharge

If you sell your main home and buy a new one on the same day, the 5% surcharge doesn’t apply. If not, it must be paid upfront and reclaimed within 36 months.

Companies and trusts pay the 5% surcharge regardless of how many properties they own.

Mixed-use and bulk purchases

  • Buying mixed-use properties (e.g. part-commercial) may qualify for lower non-residential rates.
  • Buying six or more dwellings in one go also qualifies for commercial rates.

Abolition of multiple dwellings relief

This was scrapped on 1 June 2024, meaning SDLT costs may now be higher when purchasing more than one property in a single transaction.

High-Value residential property

Properties owned by companies or "non-natural persons" worth over £500,000 are subject to Annual Tax on Enveloped Dwellings (ATED), unless an exemption applies. These are often claimed by landlords who let out properties commercially.

The ATED charge (2024/25) ranges from £4,400 for properties worth £500,000 to over £287,000 for homes worth more than £20 million.

Such properties are also subject to a 15% SDLT rate when purchased, unless an exemption is claimed another reason why filing an ATED return each year is essential for corporate landlords.

Final thoughts

Tax rules for landlords are increasingly complex, especially with frequent changes around furnished holiday lets, SDLT surcharges, and company ownership. It's important to review your property structure regularly and get tailored advice to make sure you're as tax efficient as possible.

 

 

 

 

Capital gains tax


When you sell a residential investment property, you usually pay CGT at either 18% or 24%. These rates are higher than the usual 10% or 20% for other assets. Since April 6, 2024, the higher CGT rate on residential property dropped from 28% to 24%.

Everyone has an annual CGT exemption (£3,000 for 2024/25, down from £6,000 the previous year).

You might qualify for Business Asset Disposal Relief, which can reduce CGT to 10%, but this usually only applies if the property is a furnished holiday let or part of a large portfolio run as a business. HMRC must be convinced that you’re running a genuine business, not just collecting rent.

From April 6, 2025, the furnished holiday letting tax rules will end, so properties that previously qualified won’t get Business Asset Disposal Relief anymore.

Landlord tax on furnished holiday lets
The government announced in spring 2024 that the furnished holiday letting rules will be abolished from April 2025.

Until then, furnished holiday lets are treated as business assets with some tax benefits. To qualify, the property must:

  • Be available to let for at least 210 days per year
  • Be let for at least 105 days
  • Not have continuous lets longer than 31 days

Most income tax benefits have already been removed, so income is taxed similarly to other rental properties. However, interest relief restrictions don’t apply for these businesses.

Capital gains and inheritance tax on furnished holiday lets
If your property meets the furnished holiday let criteria, you could save significantly on CGT and IHT.

The property might qualify as a business asset for reliefs like Business Asset Disposal Relief (taxed at 10% on gains instead of 24%) and 100% Business Relief for IHT, which can mean no inheritance tax on the property. This applies to lifetime gifts too, and the property can be placed in discretionary trusts to protect it for future generations without IHT charges.

Using the income in this way could also help pay grandchildren’s school fees tax efficiently. Any CGT on gifts can often be deferred until sale.

It’s important to note that qualifying for Business Relief is hard. HMRC looks closely at the services you provide to see if you’re running a real business, not just a landlord. The more hotel-like services you offer beyond normal landlord duties, the better your chances of qualifying.

Second homes
People often know their main home is exempt from CGT, but if you own two homes and live in both, the exemption doesn’t automatically apply to the second one. Married couples don’t each get an exemption on two properties.

Income Tax on second homes
You might be able to use rent-a-room relief, which exempts up to £7,500 of rental income from tax if you rent out part of your main home. If multiple people receive rent, this is split between them. This relief usually doesn’t apply to second homes.

If rent-a-room relief isn’t available, you might claim a £1,000 property allowance for miscellaneous income.

Capital Gains Tax on second homes
Private Residence Relief (PRR) covers CGT exemption on your main residence. If you have more than one home, you can nominate which one is your main home, often the one with the biggest increase in value.

The rules get more complex if you own property overseas or are a non-UK resident spending significant time in the UK.

Inheritance Tax on second homes
The value of a second home is included in your estate for IHT. While complex trusts and debt planning used to reduce IHT on family homes, many of these strategies are no longer allowed. There are still some options with second homes.

If you gift a property but still use it (like for weekends), this can reduce IHT relief because of the “reservation of benefits” rule. A simple way around this is to pay full market rent for using the property. The rent is taxable for the recipient and lowers the donor’s estate value.

Shared ownership can help by giving away part of the property’s value, but make sure you give an undivided share (not specific parts) and share expenses equally, or you might lose the tax benefit.

Ownership structures for property investments
There are several ways to own property to reduce tax:

  • Direct ownership
  • Joint venture
  • Partnership
  • Limited company

Direct ownership, joint ventures, and partnerships are similar for tax. Profits are taxed at your personal income tax rate, and CGT applies on sale. Partnerships allow multiple partners (like family members) to use their personal allowances and lower tax bands.

Limited companies
Owning property through a limited company can save tax because corporation tax is up to 25%, which is lower than higher personal income tax rates. However, if you withdraw income from the company, you may face extra tax, reducing the benefit.

You can involve family members as shareholders to use their tax allowances. These are called family investment companies. They help pay for things like university fees or first homes for children.

Limited companies can also offer IHT savings when property or capital is passed on to family shareholders.

There can be double tax when selling property through a company — tax on the gain inside the company and tax on dividends when profits are distributed.

Company ownership is best if you don’t need to take all profits out right away. Keeping profits for reinvestment, paying debt, or protecting wealth for future generations can be very tax efficient.

The benefits also depend on whether the property is a high-value residential one (covered later).

Stamp Duty Land Tax (SDLT)
SDLT is due on residential property purchases over £125,000, but this limit is temporarily raised to £250,000 until March 31, 2025.

If buying second or additional properties, an extra 5% surcharge applies on purchases over £40,000.

The 5% surcharge doesn’t apply if you’re replacing your main home, provided you buy the new property on the same day or before selling the old one. Otherwise, you must pay SDLT and reclaim it later within 36 months.

Trusts and companies always pay the extra 5%, no matter how many properties they own.

Non-residents pay an additional 2% surcharge on residential property purchases. Rules define who counts as resident for these charges.

Current SDLT rates (until March 31, 2025) with surcharges in brackets:

  • £1 - £125,000: Nil (3%)
  • £125,001 - £250,000: Nil (3%)
  • £250,001 - £925,000: 5% (8%)
  • £925,001 - £1.5 million: 10% (13%)
  • Above £1.5 million: 12% (15%)

Reliefs to consider:

  • Mixed-use purchases may use non-residential SDLT rates
  • Buying 6+ dwellings in one transaction may qualify for non-residential rates
  • Multiple dwellings relief (ends June 1, 2024) can reduce SDLT when buying several homes at once

Higher-value residential property
Non-natural persons (including companies) owning residential property over £500,000 face annual charges starting at £4,150 (2023/24), to encourage moving property out of company ownership.

To discourage this, SDLT on such purchases by non-natural persons is 15%.

Many exemptions exist, especially for commercially let properties, but must be claimed yearly. Most property companies file an ATED return even if they pay no charge.

Annual Tax on Enveloped Dwellings (ATED) rates for 2024/25:

  • £500,000 – £1 million: £4,400
  • £1 million – £2 million: £9,000
  • £2 million – £5 million: £30,550
  • £5 million – £10 million: £71,500
  • £10 million – £20 million: £143,550
  • Above £20 million: £287,500

 

Inheritance tax

Inheritance tax (IHT) reliefs on investment property are limited, but there are some simple steps that can help reduce the tax burden.

IHT is charged at 40% on assets in your estate above the nil rate band, which is currently £325,000. This band hasn’t increased with inflation or property prices since 2009 and is expected to stay frozen until 2028, meaning more property value will be subject to IHT.

There is an extra “residence” nil rate band of £175,000 introduced in 2017. This applies to properties that were your main home at some point and are left to your children or direct descendants when you die. However, this relief reduces if your estate is worth more than £2 million, tapering down by £1 for every £2 above that threshold.

IHT planning – gifts

One way to reduce IHT is to lower the value of property in your estate by gifting it. For this to work, you must give away both the property and the right to any income it generates. The gift will be excluded from your estate for IHT if you live for at least seven years after making it, with reduced rates applying after four years.

Be aware that capital gains tax (CGT) may apply to you as the donor when gifting property to others, except for gifts between spouses or civil partners.

Landlord tax on furnished holiday lets

In the Spring Budget 2024, it was announced that the furnished holiday letting rules will end in April 2025. Until then, furnished holiday lets are treated as business assets and enjoy some tax benefits. After April 2025, these benefits will no longer apply.

To qualify as a furnished holiday let, a property must be let commercially, available for at least 210 days a year, let for at least 105 days, and no continuous letting period should exceed 31 days.

Income tax

Most income tax advantages on furnished holiday lets have been removed, and now income is taxed similarly to regular rental income. However, loan interest relief restrictions don’t apply for furnished holiday lets.

Capital gains tax and inheritance tax

There are still significant CGT and IHT savings if the furnished holiday let conditions are met.

The property might qualify for Business Asset Disposal Relief, meaning a capital gain on sale could be taxed at 10% instead of 24%. Being a business asset also means potential 100% Business Relief for IHT, so no IHT is charged on the property. This also applies to lifetime gifts and can be used in trusts to protect the property for future generations.

Using the income this way can be a tax-efficient method to pay grandchildren’s school fees. Though the gift can trigger CGT, gains can often be deferred until sale.

Note: qualifying for Business Relief is difficult. HMRC looks closely at the services provided to confirm a genuine business is running — the more services like a hotel (beyond normal landlord duties), the better the chance of qualifying.

 

Second homes

Most people know selling their main home is exempt from CGT, but if you have two homes and live in both, the exemption doesn’t automatically apply to the second home. Also, married couples cannot each claim the exemption separately.

Income tax

Rental income from your main home may benefit from “rent-a-room relief,” which exempts up to £7,500 of rental income from tax. If rent is split between more than one person, this is halved. This relief usually doesn’t apply to second homes.

If rent-a-room relief doesn’t apply, you might still claim the £1,000 property allowance for miscellaneous rental income.

Capital gains tax

The CGT exemption on your main home is called Private Residence Relief (PRR). If you have multiple homes, you can nominate which is your main home to claim PRR—usually the one that has increased most in value.

PRR rules are complex, especially if you own overseas properties or are a non-UK resident spending significant time in the UK.

Inheritance tax

A second home’s value is included in your estate for IHT. Complex planning involving trusts or debts was once used to reduce IHT on family homes, but many options have been restricted by HMRC. More opportunities exist with second homes.

If you gift a property but still use it, this affects IHT relief due to the “reservation of benefits” rule. The simplest solution is to pay full market rent for its use, which is then taxable income for the recipient. This rent also reduces your estate’s value.

Shared ownership lets you give away part of a property’s value, but you must give an undivided share of the whole property, not just parts, and share all associated costs equally to keep the tax benefits.

 

Ownership structure of your property investments

You can hold property in different ways to reduce tax:

  • direct ownership
  • joint venture
  • partnership
  • limited company

Direct ownership, joint ventures, and partnerships

These structures are similar for tax: profits taxed at your personal rate, and capital gains charged on sale. Partnerships allow use of allowances and lower tax bands of multiple partners, which can include family members.

Limited companies

Owning property through a limited company may reduce tax because corporation tax is up to 25%, often less than higher income tax rates. However, if you withdraw income from the company, double taxation can reduce the benefit.

Like partnerships, you can include family members as shareholders (family investment companies). Properly structured, dividends can be paid to use their tax-free allowances and lower bands, helping with university fees or first home deposits.

Company ownership can also save IHT by passing shares to family members. But there can be double taxation on property sales—once in the company and again when distributing profits.

This setup suits those who don’t need all profits as income right away and want to keep gains for reinvestment, debt repayment, or protecting assets for future generations.

Benefits depend on whether the property is a high-value residential one, which has additional tax consequences.

Stamp Duty Land Tax (SDLT)

SDLT is due on residential property purchases over £125,000, but this threshold is temporarily raised to £250,000 until March 31, 2025.

For second or additional properties, an extra 5% surcharge applies on purchases over £40,000.

The extra 5% isn’t charged if the new property replaces your main home and the transaction happens on the same day or shortly before. Otherwise, SDLT is paid and reclaimed once the old home is sold, within 36 months.

Trusts and companies pay the extra 5% regardless of how many properties they own.

Non-residents pay an additional 2% surcharge, with specific rules on determining residency.

 

Current SDLT rates (surcharged rates in brackets):

Property value

Residential (from 1 Apr 2025)

£1 - £125,000

Nil (3%)

£125,001 - £250,000

2 (5%)

£250,001 - £925,000

 

£925,001 - £1.5M

10% (13%)

Above £1.5M

12% (15%)