Journal
New Tax on Landlords: What's Changing in 2025
By Seymont London ·
The new tax on landlords has dominated headlines as the government continues to reshape the buy-to-let landscape. From April 2025, landlords face a combination of capital gains tax increases and ongoing restrictions that fundamentally alter the economics of rental property. Our team works daily with landlords across west London, and we're seeing genuine concern about profitability and exit strategies. This guide cuts through the noise to explain exactly what's changing, what it costs, and what you can do about it.
What Is the New Tax on Landlords?
The phrase 'new tax on landlords' actually refers to several compounding measures introduced since 2024. The most significant recent change came in the Autumn Budget 2024, when the Chancellor raised capital gains tax (CGT) rates on residential property from 28% to 24% for basic-rate taxpayers (previously 18%) and kept the higher rate at 24% (previously 28%), though these were adjusted again to 18% and 24% respectively according to GOV.UK guidance published in October 2024.
Combined with the existing Section 24 mortgage interest relief restriction—which limits tax relief on mortgage interest to 20%—many landlords now pay significantly more tax than they did five years ago. We're also seeing the impact of frozen income tax thresholds, which drag more landlords into higher tax bands as rents rise with inflation. According to ONS data, private rental prices increased by 9.2% in the 12 months to January 2025, pushing rental income higher while tax relief remains capped.
For landlords in areas like Kensington, where property values and rents are substantial, these changes have a pronounced effect on net yields. Our rental yield calculator at /tools/rental-yield-calculator helps you model the real return after all these tax changes are factored in.
How the New Tax on Landlords Affects Your Bottom Line
Let's use a practical example. Imagine you own a two-bedroom flat in Kensington, purchased for £800,000 and now worth £1,000,000. If you sell, you'll pay CGT on the £200,000 gain (minus your annual exemption of £3,000 for 2024/25, per GOV.UK). As a higher-rate taxpayer, that's £47,280 in tax—a substantial hit that wasn't nearly as severe a decade ago.
Meanwhile, if you're holding the property and have a £500,000 interest-only mortgage at 5%, your annual interest is £25,000. Before 2017, you could deduct this fully against rental income. Now, you receive only a 20% tax credit (£5,000), meaning you effectively pay income tax on £20,000 of income you never actually received. For a higher-rate taxpayer, that's an extra £8,000 in tax annually.
These aren't theoretical concerns. We speak with landlords weekly who are re-evaluating their portfolios, particularly those with high loan-to-value mortgages. Many are exploring selective sales, restructuring through limited companies, or focusing on areas where rental demand remains exceptionally strong, such as the properties featured on our /property-to-rent/kensington pages.
Limited Company Structures: A Partial Solution
One strategy gaining traction is transferring properties into a limited company structure. Companies pay corporation tax (currently 25% for profits over £250,000, or 19% below £50,000) and can still deduct mortgage interest as a business expense. For higher-rate taxpayers, this can deliver meaningful savings.
However, the transfer itself triggers capital gains tax and stamp duty land tax (SDLT), making it an expensive transition. According to GOV.UK, SDLT on investment properties includes a 3% surcharge, so transferring that £1,000,000 Kensington flat would cost around £43,750 in stamp duty alone, plus the CGT on any gain since purchase.
We typically recommend this route only for landlords with substantial portfolios, minimal existing gains, or long-term holding intentions. It's also worth noting that extracting profits from a company as dividends incurs personal tax, and selling a property held in a company structure may be less tax-efficient for some individuals. Professional tax advice is essential before making this leap.
What Landlords Should Do Now
First, model your actual tax position. Use tools like our /tools/rental-yield-calculator to understand your net return, factoring in mortgage interest restrictions, CGT implications, and maintenance reserves. Many landlords operate on outdated assumptions and are surprised when they see the true picture.
Second, consider your timeline. If you're planning to sell within the next few years, it may be worth acting sooner rather than later, especially if you expect further tax increases or property value stagnation. Conversely, if you're holding long-term in a high-demand area—particularly in prime central London zones we cover, such as /estate-agents/kensington—the fundamentals may still justify retention despite the tax drag.
Third, explore whether you're maximising all available reliefs. Lettings relief has been dramatically curtailed, but private residence relief may still apply if you lived in the property before letting it. The annual CGT exemption, though reduced to £3,000, should still be used strategically. Finally, ensure your property is achieving market rent; undercharging even slightly compounds the tax inefficiency.
Frequently asked
- What is the new tax on landlords in 2025?
- The new tax on landlords refers primarily to higher capital gains tax rates on property sales (18% for basic-rate, 24% for higher-rate taxpayers as of April 2025) and the ongoing restriction of mortgage interest relief to a 20% tax credit under Section 24, which has been fully phased in since 2020.
- Can I avoid the new landlord taxes by moving my property into a company?
- Transferring property to a limited company can reduce ongoing tax, as companies deduct mortgage interest fully and pay corporation tax instead of income tax. However, the transfer itself triggers capital gains tax and stamp duty (including the 3% surcharge), making it expensive and only worthwhile for some landlords with longer-term plans.
- How much capital gains tax will I pay when I sell my rental property?
- You'll pay CGT on the gain (sale price minus purchase price and allowable costs) after deducting the annual exempt amount of £3,000. Higher-rate taxpayers pay 24%, and basic-rate taxpayers pay 18% on residential property gains, according to current GOV.UK guidance.
- Is buy-to-let still profitable in London after the tax changes?
- Profitability depends heavily on leverage, purchase price, and location. High loan-to-value landlords in the higher tax bracket face significant tax drags, but properties in strong rental markets with low or no mortgage debt can still deliver reasonable returns, especially when capital appreciation is factored in.
- Should I sell my rental property now or wait?
- This depends on your personal tax position, the property's performance, and your long-term plans. If you're facing persistent void periods, high maintenance costs, or marginal yields after tax, selling may make sense. If the property is in a high-demand area and you can afford to hold, long-term appreciation may offset the tax costs. Professional valuation and tax advice are essential.