Frequently Asked Property Tax Questions (2024/25)

Essential Tax Guidance for Landlords, Developers & Investors

Whether you’re a buy-to-let landlord, property developer, or managing a portfolio through a company, knowing the tax rules is key to avoiding unexpected liabilities and improving your bottom line. Below are the top questions property owners ask — with practical answers based on the latest UK tax guidance.

1. Do I need to pay tax on rental income?

Yes, all rental income is taxable and must be reported to HMRC through a Self Assessment tax return. You’re taxed based on your total profits — that’s your rental income minus allowable expenses.

Allowable expenses include:

• Letting agent fees
• Maintenance and repairs (not improvements)
• Property insurance
• Utility bills and council tax (if paid by you)
• Ground rent and service charges
• Accountancy fees
• Some legal fees (e.g. for evicting a tenant)

Your tax rate depends on your overall income:

• 20% for basic rate taxpayers
• 40% or 45% for higher and additional rate taxpayers

 Tip: Use a property-specific bookkeeping app or software to stay on top of your income and deductions.

2. Can I still deduct mortgage interest from my rental income?

Not in full. Since April 2020, mortgage interest is no longer an allowable expense for residential landlords. Instead, you receive a 20% tax credit on the interest portion of your mortgage payments.

This means:

• Basic rate taxpayers may see no difference
• Higher and additional rate taxpayers often face higher tax bills, as they can’t offset interest at their marginal rate

This change doesn’t apply to:

• Commercial property
• Furnished Holiday Lets (until April 2025)
• Property held in a limited company — where full relief is still available

3. What is the Property Allowance?

The Property Allowance is a £1,000 tax-free allowance for casual or low-level property income. If your total gross rental income is less than £1,000 per year, you don’t need to declare it to HMRC or pay tax.

If you earn more than £1,000:

• You can choose to deduct the £1,000 allowance instead of actual expenses (if it results in a lower tax bill)
• Or deduct actual allowable expenses if they exceed £1,000

This is often useful for:

• Short-term lets
• Garages or driveways rented out
• Occasional lodgers (not using Rent-a-Room Relief)

4. What are the current Capital Gains Tax (CGT) rules for property sales?

When you sell a residential property that’s not your main home, any profit (gain) is potentially taxable. For 2024/25:

• The annual CGT exemption is £3,000
• Gains above this are taxed at:
• • 18% if you’re a basic rate taxpayer
  • 24% if you’re a higher or additional rate taxpayer

You must:

• Report and pay CGT within 60 days of completing the sale
• Calculate gain based on original purchase price, plus costs like legal fees and improvement works

Main homes may be eligible for Private Residence Relief, which can reduce or eliminate CGT.

5. Can married couples reduce tax on rental income?

Yes. If you jointly own a property with your spouse or civil partner, rental income is automatically split 50/50 for tax purposes.

However, if one spouse pays a lower tax rate, you can:

• Legally change the ownership proportions using a deed of trust
• Submit Form 17 to HMRC to reflect the actual ownership split for tax purposes

This is especially useful if:

• One spouse has unused personal allowance
• You’re trying to keep income under the higher rate threshold

Always use a solicitor to formalise ownership changes, especially if there’s a mortgage.

6. Do I pay Stamp Duty Land Tax (SDLT) on investment properties?

Yes. Buy-to-let and second home purchases are subject to normal SDLT rates plus a 3% surcharge on the entire purchase price.

Example:

• A £300,000 buy-to-let purchase:
• • Normal SDLT: £5,000
  • 3% surcharge: £9,000
  • Total SDLT: £14,000

Note:

• SDLT rules vary in Scotland (LBTT) and Wales (LTT)
• There are reliefs for multiple dwellings and mixed-use properties, which may lower your bill

Planning to buy via a limited company? SDLT rules still apply.

7. What’s Rent-a-Room Relief and how does it work?

Rent-a-Room Relief allows live-in landlords to earn up to £7,500 tax-free from letting a furnished room in their main home.

If two people share ownership, they each get £3,750.

Key rules:

• Property must be your main residence
• The room must be furnished
• You can’t claim this relief and also deduct expenses

This is a great option for:

• Lodgers
• Hosting students
• Airbnb (if it’s your primary residence)

If income exceeds £7,500, you can:

• Choose to pay tax on the excess, or
• Opt out of the scheme and deduct actual expenses instead

8. Do I need to pay tax if I sell my main home?

Usually not. If the property has been your only or main residence the entire time, you can claim Private Residence Relief (PRR), which exempts the entire gain from CGT.

You may pay some CGT if:

• You let the property at any time
• You owned it long before moving in
• You used part of it exclusively for business
• You’ve lived abroad during ownership

PRR also includes the final 9 months of ownership as deemed “residence” even if you’ve moved out.

9. How is a Furnished Holiday Let (FHL) taxed — and what’s changing in 2025?

Until April 2025, FHLs enjoy special tax treatment, including:

• Full mortgage interest relief
• Capital allowances for furniture/equipment
• CGT Business Asset Disposal Relief at 10%
• Possible pension contribution advantages

To qualify, the property must:

• Be available for letting 210+ days a year
• Be actually let for 105+ days
• Be let to the public (not friends/family)

 From 6 April 2025, the FHL regime has been abolished. FHLs are now taxed like any other rental property — with no special CGT or interest relief.

If you operate an FHL, it may be worth reviewing your strategy before these changes take effect.

10. Do I need to register for Self Assessment as a landlord?

Yes — if you earn more than £1,000 from rental income in a tax year.

You must:

• Register with HMRC by 5 October after the tax year ends
• Submit your return online by 31 January
• Pay any tax due by 31 January (with possible payments on account in July)

Penalties apply for late registration, returns, or payments — so don’t delay.

11. Should I put my rental property in a limited company?

It can be beneficial, but depends on your goals.

Advantages:

• Corporation tax (19%) is often lower than income tax
• Full mortgage interest relief
• Easier to retain profits in the company for reinvestment

Drawbacks:

• No CGT exemption on transfers into the company
• SDLT may apply again when transferring
• Higher admin, accountancy, and dividend tax when extracting profits

It’s ideal for:

• High earners with multiple properties
• Long-term portfolio building
• Those who plan to retain profits in the business

 Always get a personalised tax review before transferring property into a company.

12. What records should landlords keep?

HMRC expects you to keep detailed and accurate records for at least 6 years, including:

• Rental agreements
• Income received (rent, deposits, etc.)
• Expense receipts (repairs, management fees, insurance)
• Bank statements
• Property purchase and sale documents
• Mortgage interest certificates

Digital record-keeping will eventually become mandatory under Making Tax Digital (MTD) for income tax — so now is a good time to move online.

 Ready to Get Your Property Taxes in Shape?

At Merranti Accounting, we work with landlords, developers, and property investors to ensure their tax is done right — from ownership structure to selling strategies.

Need clarity on CGT, SDLT, or the upcoming FHL changes?

Call us today: 01342 836 557
Email: contactus@merranti.com

Let’s reduce your tax, stay compliant, and grow your property profits together.

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