Buy-to-let: are the tax benefits still worth it?

On the surface the picture for those with a B2L portfolio may seem positive. UK landlords saw the average monthly rent reach £1,368 in December 2025. This was up 4% compared with December the year before, according to the Office for National Statistics (ONS).¹ 

Yet the actual increase seen by landlords varies significantly depending on location. For example, in the North East private rent inflation rose by 7.9% in the year to December 2025. In London, it grew by just 2.1% over the same period.²

Property prices also vary significantly across the UK. Areas where property commands higher rents are also often more expensive to buy in. This means the property income yield – the return landlords get from rental income as a percentage of the property’s value – is typically lower in more expensive areas. This is something landlords should consider.

While the average house price in England was up 2.2% in the year to November 2025, house prices in the North East went up by 6.8% over the same period. In London, house prices fell by an average of 1.2%.²

Even though average house prices in London have gone down in this period, it still more expensive (on average) to buy property in the UK capital than in other regions of the country. In November 2025, the average property cost £553,258 in London compared to £166,568 in the North East.³

The changing regulatory landscape

A key factor for landlords to consider is the regulatory landscape. The approach you take to holding property – basically whether you hold it in a company or personally – will affect the capital growth of your B2L portfolio.

For instance, landlords who operate through a limited company are subject to corporation tax of between 19% and 25%. For landlords with personally held property, HMRC views rental profits as income and taxes them accordingly. This is either at 20%, 40% or 45% depending on your marginal income tax rate. However, from April 2027, property income tax rates will see a two-percentage point increase across all bands, rising to 22%, 42%, and 47% respectively.

The forthcoming increase has seen more landlords set up companies to reduce their tax liability. Figures from Companies House show the number of B2L firms being set up rose 8% in 2025 compared to 2024. Overall there were more than 440,000 such firms in existence in 2025. This is nearly a fivefold increase compared to 2016.

Landlords who operate through a company are also able to deduct mortgage interest from rental income and taxable profits. This further reduces the tax burden.

But for incorporated landlords or those who receive dividend income alongside rental profit, the dividend tax rate will go up from April of this year. The ordinary dividend rate will increase from 8.75% to 10.75%, while the upper rate will rise from 33.75% to 35.75%. For those taxed at the additional rate, however, the dividend tax will remain at 39.35%.

In addition, in last year’s Autumn Budget the chancellor announced the freeze on income tax thresholds would be extended until 2031. This could see those earning income from B2L properties pushed into higher tax bands and facing larger tax bills.

Making Tax Digital

Growing numbers of landlords will also be affected by the introduction of Making Tax Digital. This will come into force on 6 April. Under the new rules, self-employed individuals (sole traders) and landlords with a gross annual income of £50,000 or more will have to keep digital records and submit tax records to HMRC five times a year. The changes will be phased in, taking effect from April of this year for those earning £50,000 or more. From April 2027 those with gross income above £30,000 will need to comply. Those with gross income of more than £20,000 will have to abide by the new rules from April 2028. Failure to pay on time could see landlords hit with hefty financial penalties.

The move has been described as the biggest shake-up in tax returns since self-assessment was launched more than 30 years ago. While HMRC has said it will help people to ensure they pay the right tax, it will add another layer of complexity to being a landlord.

The implementation of Section 24 several years ago has also reduced the financial benefits for some landlords. Introduced in the Finance Act 2017, it restricts the amount of mortgage interest landlords (as opposed to those operating through a company) can deduct from their rental income for tax purposes.

Prior to this, all landlords were able to deduct mortgage interest as an expense. However, following Section 24, landlords now only receive a 20% tax credit regardless of whether they are basic, higher or additional rate taxpayers. For higher rate and additional rate taxpayers, this change has made buy to let more expensive and therefore less attractive. In some cases, such as if they have a large mortgage and receive relatively low rental income, it could mean landlords who are higher or additional rate taxpayers pay more in tax than they receive in property income.

The rising cost of buying and selling property

It has also recently become more expensive for landlords to buy property in England and Northern Ireland. In October 2024, the stamp duty surcharge on additional properties – those other than your main residence – increased from three percentage points to five percentage points above the standard stamp duty land tax rates.

Landlords who want to sell property that is not their main home have to pay capital gains tax (CGT) on the sale. Since April 2024, CGT has been levied at 18% for basic rate taxpayers, while higher or additional rate taxpayers face CGT on sales of 24%. Also, you may not be able to sell at the time you want if market conditions are not favourable.

It is also worth noting that the CGT exemption – the amount free of CGT each tax year – is capped at £3,000. For assets in trust, the tax-free allowance is £1,500, or £3,000 for disabled beneficiaries. 

Weighing up the pros and cons

Being a landlord requires a lot of time and patience. Investing in property can be expensive, while maintenance and upkeep can be time consuming and costly.

While becoming a landlord has become more expensive, B2L portfolios have the potential to offer investors a regular source of income. Owning rental property can help people diversify their income sources too. It can also be a source of income in retirement. 

Even though the potential to grow a portfolio is there, investors must be able to navigate the complex regulatory and tax landscape. Maximising returns is only possible if investors choose the tax strategies that best suit their circumstances.

When investing in property, it is important to be aware of the pitfalls including periods of non occupancy that could reduce returns. It is always worth seeking advice to make sure it’s the right option for you.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

Sources
^{1, 2}Office for National Statistics, January 2026
³HM Land Registry, January 2026