Navigate Complex Property Tax Rules and Keep More of Your Profits

Running a property portfolio in the UK today feels like navigating a minefield. Between Section 24 restrictions hitting your mortgage interest relief and Capital Gains Tax rates climbing higher, it’s no wonder so many landlords are feeling the squeeze. But here’s the thing: with smart tax planning and the right professional guidance, you can still make your investments work hard for you.

This guide walks you through everything you need to know about property tax in 2024-2025. We’ll cover the strategies that could save you thousands, the pitfalls to avoid, and how to structure your investments for maximum returns.

The Property Tax Challenges You’re Facing

Let’s be honest – the tax landscape for property investors has become pretty brutal. Section 24 restrictions mean landlords pay tax on gross rental income, getting just a 20% basic rate tax credit for mortgage interest, regardless of whether you’re paying 20% or 45% tax. Meanwhile, CGT rates jumped to 18% and 24% for residential property from October 2024, while the annual allowance dropped to a measly £3,000.

The numbers are eye-watering. Higher-rate taxpayers with £30,000 rental income and £10,000 mortgage interest now face an extra £2,000 annually compared to the old rules. For bigger portfolios, we’re talking tens of thousands extra each year, with effective tax rates hitting 50% or more for higher and additional-rate taxpayers.

Property Ownership Structures: Personal vs Limited Company

This decision shapes everything about your tax bill, so let’s break it down properly.

Personal Ownership Own property in your own name, and rental income gets taxed at personal rates: 20% basic, 40% higher, 45% additional. Thanks to Section 24, your mortgage interest only gives you a 20% tax credit. When you sell, you’ll pay 18% basic rate and 24% higher rate CGT on residential property, with just a £3,000 annual allowance.

Limited Company Structure: This is where things get interesting. Companies pay corporation tax at 19% between £50,000-£250,000 profits, and 25% above. The real game-changer? Companies can deduct mortgage interest as a business expense, completely sidestepping Section 24.

But extracting those profits adds another tax layer. Dividends face tax at 8.75% basic rate, 33.75% higher rate, and 39.35% additional rate above the dividend allowance. For capital gains, companies pay corporation tax with no annual allowance; however, extracting proceeds results in more dividend tax.

The best route depends on your income, borrowing levels, and whether you’re reinvesting profits or withdrawing them. The complexity means you really need professional analysis to get this right.

Section 24 Mortgage Interest Relief Cap: Understanding the Impact

If Section 24 is crushing your returns, forming a UK limited company could be your lifeline. This restriction, fully implemented since 2020, has completely changed the game for individual landlords.

Here’s how it works: instead of deducting mortgage interest from rental income (which made perfect sense), you now get a 20% tax credit. Sounds fair? Not if you’re a higher-rate taxpayer paying 40% or 45% tax. Higher-rate taxpayers get hammered, while basic-rate taxpayers barely notice.

The restriction creates what many call effective tax rates above 50% and sometimes 60% for some landlords. That’s way beyond the headline rates because of how it interacts with personal allowance tapering and other thresholds.

You’ve got options, though. Transfer ownership to a spouse in a lower tax band, convert to furnished holiday lets where possible, or pay down mortgage debt to reduce interest exposure. However, the key point is that corporate landlords aren’t affected by Section 24, which explains why incorporation has become so popular.

Stamp Duty Land Tax Planning and Thresholds

SDLT planning matters more than ever, particularly in light of recent rate hikes. From April 2025, the main residence 0% threshold was dropped from £250,000 back to £125,000, which pushed up SDLT for most purchases.

Current SDLT Rates for Additional Properties: Buy-to-lets and second homes attract a 5% surcharge on top of standard rates from April 2025, applying to properties with a value of over £40,000. The surcharge doesn’t apply when you’re replacing your main home, and you are entitled to a three-year window for refunds if you sell the old place.

Standard rates remain: 0% up to £125,000, 2% from £125,001-£250,000, 5% from £250,001-£925,000, 10% from £925,001-£1.5 million, and 12% above £1.5 million. Add the surcharge and you’re looking at: 5% up to £125,000, 7% from £125,001-£250,000, 10% from £250,001-£925,000, 15% from £925,001-£1.5 million, and 17% over £1.5 million.

First-Time Buyer Relief Changes. Bad news for first-time buyers: thresholds dropped from £425,000 to £300,000, with the maximum purchase price for relief falling from £625,000 to £500,000 from April 2025.

Compliance Requirements: You must pay SDLT within 30 days of completion, with penalties and interest for late payments. Digital submissions and complex portfolios need extra attention to avoid costly mistakes.

Capital Gains Tax Planning and Recent Changes

CGT planning became critical following the October 2024 rate changes.

• From 30 October 2024, CGT rates increased and unified at 18% basic rate and 24% higher rate for most disposals, including residential property
• The annual allowance is stuck at £3,000.

Reporting Requirements and Deadlines: You must declare CGT within 60 days of selling a rental property, with penalties for late or incorrect reporting. That’s a tight deadline requiring serious preparation.

Effective Planning Strategies Make the most of your £3,000 annual CGT allowance by timing sales across tax years where you can. Transfer property between spouses to double available allowances and potentially benefit from lower tax bands. Use capital losses from the same year or previous years to offset gains, keeping proper records of all transactions.

Consider timing disposals when your income is likely to be lower, such as after retirement, to take advantage of lower CGT rates. Principal Private Residence Relief might apply if the property was ever your main home, and allowable costs, including legal fees and improvements, can reduce taxable gains.

Annual Tax on Enveloped Dwellings (ATED)

ATED hits UK residential properties worth over £500,000 owned by companies, with rates varying by property value. However, rental properties get significant relief opportunities.

Properties let commercially on arm’s length terms qualify for rental business relief, effectively exempting most buy-to-let investments. You must claim the relief annually, and the property needs to be genuinely available for letting throughout the year.

ATED rates climb annually and can be substantial for expensive properties. Properties valued £500,000-£1 million face annual charges of £4,050, rising to £232,350 annually for properties over £20 million. You’ll need professional advice to ensure relief claims are properly made and maintained.

VAT on Commercial Property Transactions

Commercial property investors face additional VAT complexities that can significantly impact transaction costs and ongoing compliance.

• Option to Tax Elections Property owners can elect to charge VAT on rents and sales through an ‘option to tax’ election. This lets you recover VAT on purchase costs and ongoing expenses but creates ongoing VAT obligations. Elections are irrevocable for 20 years and need careful consideration of the tenant’s circumstances.
• Transfer of Going Concern (TOGC) Relief: TOGC relief can eliminate VAT on commercial property sales where specific conditions are met, including the purchaser continuing the same type of business. Both parties must be VAT-registered, and specific conditions must be met.

Input VAT recovery depends on your business activities and VAT status. Professional advice is crucial given the complexity and potential for expensive mistakes in commercial property VAT planning.

Non-UK Resident Landlord Requirements

Non-resident landlords face specific UK tax obligations and compliance requirements that differ significantly from UK residents.

• NRCGT (Non-Resident Capital Gains Tax) Non-UK residents selling UK residential property must notify HMRC under NRCGT rules and pay CGT within the same 60-day deadline as UK residents. The reporting process involves additional complexity and documentation requirements.
• Income Tax on Rental Profits Non-resident landlords must file UK tax returns reporting rental income and can claim the same deductions as UK residents. However, letting agents typically deduct basic rate tax at source unless a clearance notice is obtained from HMRC.
• Double Taxation Relief Where rental income is taxed in both the UK and your country of residence, double taxation treaties may provide relief. Professional advice is essential to navigate treaty provisions and claim appropriate relief.

Rental Income Tax Obligations and Compliance

Getting your rental income tax obligations right ensures compliance while maximising legitimate deductions.

• What Constitutes Taxable Rental Income: Taxable rental income includes rent payments, non-refundable deposits, tenant-paid utilities, service charges, and insurance payments. Refundable deposits returned in full aren’t taxable, but retained amounts for damage or unpaid rent become taxable income.
• Allowable Deductions: Mortgage interest is eligible for a 20% tax credit for individual landlords, while other expenses, such as letting agent fees, insurance, repairs, and maintenance, are fully deductible. The £1,000 property income allowance can be claimed instead of actual expenses if more beneficial.
• Tax Rates and Thresholds Rental profits are taxed as income at your marginal rate: 20% basic rate (£12,571-£50,270), 40% higher rate (£50,271-£125,140), and 45% additional rate (above £125,140). Joint owners must each declare their share of income and expenses.

Self-Assessment Filing Requirements and Deadlines

Property investors must meet specific filing requirements and deadlines to avoid penalties and maintain compliance.

• Registration and Filing Deadlines You must register for self-assessment by 5th October if rental income exceeds £2,500 after expenses or £10,000 before expenses. Paper returns must be submitted by 31st October, with online returns due by 31st January, along with any outstanding tax.
• Required Forms and Documentation: Filing rental income involves completing the Self Assessment form (SA100) and the supplementary property form (SA105). Keep detailed records of all income sources, expenses, and supporting documentation, including receipts, invoices, and bank statements.
• Payments on Account If your tax liability exceeds £1,000, you’ll need to make advance payments towards next year’s tax bill, due 31 January and 31 July. This requires careful cash flow planning and accurate profit projections.

Common Compliance Mistakes and How to Avoid Them

Property investors frequently encounter specific compliance issues that can trigger penalties and investigations.

• Digital Record-Keeping Requirements: Making Tax Digital becomes mandatory from April 2026, but preparation is essential now. Many landlords currently lack compliant digital bookkeeping systems, risking future non-compliance penalties.
• Income Reporting Errors. Common mistakes include underreporting rental income, particularly short-term lets or overseas property income, and failing to claim all allowable expenses, including repairs, finance costs, and professional fees.
• Deadline Failures: Missing SDLT deadlines (30 days) and CGT reporting deadlines (60 days) trigger automatic penalties. HMRC continues targeted campaigns to uncover undisclosed rental income, making accurate reporting essential.Professional Tax Advice: Maximising Your Investment Returns

Working with property tax specialists can significantly improve your financial outcomes through strategic planning and compliance management.

• Proven Tax Savings Strategies Professional advisors help implement effective strategies, including maximising allowable expenses, using annual CGT allowances, transferring assets between spouses, and structuring ownership for optimal tax efficiency. Expert guidance frequently helps property investors minimise tax liabilities and avoid penalties more effectively than going it alone.
• Compliance and Risk Management Specialists ensure accurate filing, proper documentation, and proactive planning for regulatory changes. They provide expertise in complex areas, such as ATED relief claims, VAT elections, and international tax obligations, which significantly impact your overall returns.
• Long-Term Wealth Planning: Professional advice extends beyond annual compliance to strategic wealth building through corporate structures, inheritance tax planning, and succession strategies that preserve and efficiently grow your property portfolio.

Your property investments deserve expert tax guidance to navigate the complex UK tax landscape successfully. Contact our property tax specialists to discover how strategic planning can maximise your returns while ensuring full compliance with all requirements.

Book your property tax consultation today and take control of your investment tax strategy.

CGT Planning

Capital Gains Tax (CGT) planning is crucial for property investors:

– Principal Private Residence Relief: If the property has been your main home at some point, you may be eligible for relief.

– Annual Exempt Amount: Each individual has an annual CGT exemption, which can help reduce taxable gains.

Selling residential property has a different CGT rate than selling commercial property. You will pay 10% at a basic rate and 20% at a high rate selling non-residential property assets.

You pay 18% at the basic rate and 24% at the high rate for selling residential property.

There are allowable costs to reduce your CGT.

You must also note that you must report your CGT liability when selling residential property within 60 days of disposal to HMRC.

You will also need to notify HMRC if you are a non UK resident and sell residential property under the NRCGT rules.

Getting Professional Advice

Navigating UK laws and regulations can be complex. Seeking professional property tax advice can ensure you maximise your savings and stay compliant. A property advisor can help you understand your HMRC bill, identify eligible deductions, and guide you through the appeal process if necessary.

About Optimise Accountants & Simon Misiewicz

Optimise Accountants is a UK specialist firm helping landlords, property investors, and developers keep more of their returns through clear, compliant tax planning. Since 2003, the team has focused on the issues that matter most to portfolio owners: Section 24 mortgage interest restrictions, CGT at 18%/24%, SDLT surcharges and reliefs, ATED and VAT on commercial property, and the fast-approaching Making Tax Digital regime. From choosing between personal ownership and a limited company to structuring Family Investment Companies and succession plans, Optimise provides practical strategies that minimise unnecessary tax and reduce compliance risk.

Simon Misiewicz, FCCA, ATT, EA, MBA, leads the advisory practice. A Chartered Certified Accountant, UK tax adviser, and US Enrolled Agent, Simon combines deep technical knowledge with straight-talking guidance for time-poor landlords. He is known for mapping out the pros and cons before clients commit, optimising corporation tax and dividend extraction in company structures, timing disposals to manage CGT, and aligning day-to-day bookkeeping with MTD’s quarterly reporting and penalty rules. Simon’s approach ties annual tax savings to long-term goals—estate protection, cash-flow resilience, and a clean audit trail that stands up to HMRC scrutiny.

Whether you need a defensible company setup, a CGT/SDLT plan on your next transaction, or an MTD-ready workflow, Optimise Accountants turns complex rules into clear actions—so your portfolio works harder while staying fully compliant.