Tax Planning for Property Investors: What Still Works in 2025/26?
Being a landlord in 2025/26 is far from straightforward. Over the past decade, property investors have seen the gradual loss of tax reliefs, growing regulation, and rising interest costs — and April 2025 brought another blow with the abolition of the Furnished Holiday Letting (FHL) regime.
But while many of the generous reliefs of the past have disappeared, there are still opportunities for efficient tax planning — if you know where to look.
This post reviews what has changed, what remains, and what landlords can still do to legally reduce their tax liabilities in the 2025/26 tax year.
What’s Changed Recently?
1. Abolition of Furnished Holiday Lettings (FHL) Relief – from April 2025
From 6 April 2025, FHL properties no longer receive special tax treatment. This means:
- Capital Gains Tax reliefs such as Business Asset Disposal Relief (BADR), Holdover Relief, and Rollover Relief are no longer available
- Plant and machinery capital allowances can no longer be claimed on furniture, appliances, etc.
- FHL income is now treated the same as standard property income
Any gains on the sale of FHL properties from 6 April 2025 onwards will be taxed at standard CGT rates, and letting profits will no longer qualify for business-style deductions.
2. Mortgage Interest Restrictions
Landlords of residential property can no longer deduct mortgage interest from rental income.
Instead, since April 2020, they receive a basic rate tax credit (20%) on the interest paid — regardless of their marginal rate.
This affects:
- Higher-rate (40%) and additional-rate (45%) taxpayers the most
- Portfolio landlords with significant leverage
- Landlords holding properties in personal names
What Reliefs and Strategies Still Work?
Despite these changes, a number of tax planning opportunities remain for property investors.
1. Use of a Limited Company Structure
Operating through a limited company remains a popular and often more tax-efficient route for landlords — particularly where:
- Rental profits are high
- Properties are being held long-term
- Borrowing is significant
Advantages include:
- Full deduction of mortgage interest against rental profits
- Corporation tax on profits at 25% (2025/26 rate for profits over £50,000)
- Flexible profit extraction via dividends or director’s salary
- Ability to retain profits within the company for future investment
However, there are trade-offs:
- Higher compliance and admin costs
- Potential double taxation if profits are extracted
- Complications when transferring existing properties (SDLT and CGT issues)
Tip: Transferring an existing property portfolio into a company can trigger Capital Gains Tax and Stamp Duty Land Tax unless certain reliefs apply (e.g. incorporation relief for genuine partnerships — not available to individuals).
2. Offset Other Expenses Against Rental Income
While mortgage interest relief is restricted, other expenses remain fully deductible from rental income, including:
- Letting agent fees
- Repairs and maintenance
- Insurance
- Council tax and utilities (if paid by landlord)
- Accountant fees for preparing rental accounts
- Ground rent and service charges
Tip: Ensure records are complete and properly categorised — and distinguish between repairs (deductible) and capital improvements (not immediately deductible).
3. Capital Gains Tax Annual Exemption and Spouse Transfers
The CGT annual exemption remains at £3,000 per person in 2025/26.
If a property is jointly owned, both parties can use their exemption when selling — reducing the taxable gain by up to £6,000.
Additionally:
- Transfers between spouses or civil partners are tax-free for CGT
- A spouse with lower income may pay a lower CGT rate (18% vs 28%)
Tip: Before a property sale, consider transferring a share to your spouse to maximise reliefs and access lower tax bands — provided the transfer is genuine and documented.
4. Pension Contributions to Offset Higher-Rate Tax
If your rental income pushes you into a higher tax band (40%+), consider using personal pension contributions to:
- Reduce your adjusted net income
- Bring you back within lower tax bands
- Restore lost allowances (e.g. Child Benefit)
Note: Rental income counts towards your total income for tax purposes, but you can’t make employer contributions from rental profits unless you operate through a company.
5. Use of Trusts and Estate Planning for Long-Term Investors
For landlords thinking long-term, particularly those with children or IHT concerns, trusts can be used to:
- Hold property for future generations
- Reduce Inheritance Tax exposure
- Limit exposure to income tax at higher rates (with careful structuring)
However, trusts come with complexity, and professional advice is essential. This is not a short-term tax saving tool, but part of succession planning for landlords with larger estates.
6. Timing the Sale of Property
If you’re selling a property, timing matters.
- Capital Gains Tax is payable within 60 days of completion (residential property)
- The date of exchange determines the tax year the gain falls into
- You may benefit from spreading sales across tax years to use more than one annual exemption or stay in a lower CGT band
CGT rates (2025/26):
- 18% on gains within the basic rate band
- 24% (reduced from 28%) on residential property above the basic rate band
- 20% for non-residential property
Tip: Run calculations in advance. In some cases, accelerating or delaying a sale by a few weeks can reduce CGT substantially.
Still Letting Short-Term? Other Considerations Post-FHL
Even without FHL treatment, some landlords will continue to let on a short-term basis (e.g. Airbnb, holiday lets). Consider:
- VAT registration: If gross income exceeds £90,000, VAT may apply
- Planning permission and local licensing: Check local authority rules
- Business rates: May apply instead of council tax if property is available to let for more than 140 days a year
- Capital treatment: You may still qualify for CGT reliefs on trading assets if the activity is genuinely a business (though this is increasingly scrutinised)
Summary: Tax Planning Still Matters
The tax landscape for property investors is tougher than it once was — but there are still ways to plan efficiently.
Still-effective tax planning options include:
- Holding property through a limited company
- Using other expenses to reduce taxable profits
- Planning disposals to use annual exemptions and lower CGT bands
- Transferring property between spouses for tax efficiency
- Using pension contributions to manage income tax
- Exploring trusts and estate planning for long-term goals
