Tax planning for property investors: Structures, reliefs, and pitfalls

For UK property investors, smart tax planning can make the difference between a profitable portfolio and one that barely breaks even. The goal is not to avoid tax, but to structure your affairs so you pay what you owe – and no more – while staying firmly on the right side of HMRC.

1. Choosing the right structure

The first big decision is how you hold your properties:

  • Personal ownership (in your own name or jointly) 
  • Limited company (often a special purpose vehicle, or SPV) 
  • Partnership or LLP 

Personally owned property is usually taxed under income tax rules, with rental profits added to your other income and taxed at your marginal rate. HMRC explains the basics here: Paying tax when you rent out property. 

Limited companies pay corporation tax on profits and charges akin to Capital Gains Tax on disposals, while you pay tax again when extracting money as salary or dividends. For some higher-rate taxpayers, this can still be more efficient than personal ownership, but it needs modelling over the long term.

Transferring an existing portfolio into a company can trigger both CGT and Stamp Duty Land Tax (SDLT). In some genuine business cases, Incorporation Relief can defer CGT if you transfer a going concern into a company in exchange for shares; see HMRC’s guidance on Incorporation Relief. However, HMRC is actively challenging artificial schemes, especially around LLP property incorporations. Always take specialist advice before restructuring.

2. Key reliefs and allowances

There are several reliefs that UK property investors should understand:

  • Property income allowance
    If your gross property income is relatively low, you may be able to use the £1,000 property income allowance instead of claiming actual expenses. 
  • Allowable expenses
    You can normally deduct costs that are “wholly and exclusively” for the rental business, such as repairs, letting agent fees, insurance and accountancy costs. HMRC explains how to work out your taxable rental profit here: Work out your rental income. 
  • Finance costs
    For individual landlords, mortgage interest is no longer a full deduction; instead, you receive a basic-rate (20%) tax credit. Company structures are treated differently, so your accountant should compare scenarios. 
  • Capital Gains Tax (CGT)
    When you sell or gift an investment property, CGT may be due on the gain after your annual exempt amount (£3,000 for 2025/26) and any reliefs. Rates for residential property are currently 18% (basic-rate taxpayers) or 24% (higher/additional-rate taxpayers). Current CGT rates and bands are set out here: Capital Gains Tax rates.

For larger portfolios, inheritance tax (IHT) planning also becomes important, as the nil-rate band remains frozen at £325,000 (plus up to £175,000 residence nil-rate band where applicable), meaning more estates are caught.

3. Common pitfalls for UK property investors

Even experienced investors fall into avoidable traps:

  • Relying on aggressive schemes
     HMRC has warned repeatedly about marketed tax schemes around property incorporations and hybrid structures. These can lead to back-tax, interest and penalties. 
  • Missing reporting deadlines
    HMRC has tightened enforcement around CGT on property disposals, with a noticeable increase in penalties for late or missing reports. 
  • Poor record-keeping
    Without clear digital records of rents, repairs, finance costs and legal fees, you risk overpaying tax or failing to justify reliefs during an enquiry. HMRC expects accurate records for rental businesses; see the wider guidance on what counts as a UK property business. 

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