UK Rental Income Tax Changes in 2025: Key Updates for Landlords

Rental Income Tax Changes in the UK: 2025 Overview

In 2025, UK landlords face significant tax changes affecting rental income and property investments. Key updates include adjustments to Stamp Duty Land Tax (SDLT) and Capital Gains Tax (CGT) rates.

Stamp Duty Land Tax (SDLT) Changes

Effective from April 1, 2025, the SDLT structure has been revised:

• Reduction of Tax-Free Threshold: The SDLT tax-free threshold has been lowered from £250,000 to £125,000. Properties purchased above this value are now subject to SDLT.

  The Independent Landlord

• Increased Surcharge for Additional Properties: The surcharge on additional residential properties, including buy-to-let investments, has increased from 3% to 5%. This applies to properties purchased for over £40,000.

  UK Property Accountants

Capital Gains Tax (CGT) Adjustments

Changes to CGT rates have been implemented:

• Basic Rate Taxpayers: The CGT rate for basic rate taxpayers has increased from 10% to 18%.

• Higher Rate Taxpayers: For higher rate taxpayers, the CGT rate has risen from 20% to 24%.

These adjustments impact landlords planning to sell rental properties, potentially reducing net profits from property sales.

Mortgage Interest Relief

The method of claiming mortgage interest relief remains unchanged in 2025:

• Tax Credit System: Landlords cannot deduct mortgage interest payments from rental income to reduce taxable income. Instead, a 20% tax credit is applied to mortgage interest payments. This system continues to affect higher and additional rate taxpayers, as relief is limited to the basic rate of tax.
  LegalForLandlords

Making Tax Digital (MTD) Implementation

The MTD initiative has been expanded:

• Income Threshold: Landlords with annual rental income exceeding £50,000 are now required to comply with MTD for Income Tax.

• Requirements: This entails maintaining digital records and submitting quarterly updates to HM Revenue and Customs (HMRC) using compatible software. The goal is to streamline tax reporting and reduce errors.

  LegalForLandlords

Abolition of Furnished Holiday Lettings (FHL) Tax Regime

As of April 2025, the FHL tax regime has been abolished:

• Impact on Tax Reliefs: Owners of properties previously qualifying as FHLs no longer benefit from specific tax advantages, such as certain Capital Gains Tax reliefs. To utilize these reliefs, the business must have ceased operations before April 2025.
  GOV.UK

Conclusion

The 2025 tax changes present notable challenges for UK landlords. Staying informed and seeking professional tax advice are crucial steps to ensure compliance and optimize financial outcomes in this evolving landscape.