How To Avoid Paying Tax On Rental Income In 2025

There are numerous factors to becoming a successful buy-to-let landlord. One that often gets overlooked is tax efficiency. Simply put, tax efficiency strategies are ways for landlords to avoid tax on rental income, optimise cash flow and increase long-term profitability.

As a landlord trying to succeed in 2025’s competitive market, it’s only natural to ask yourself the question ‘how can I avoid paying tax on rental income’, so first things first: do not feel bad about it.

Whilst they are not the most glamorous part of being a landlord, the tax-saving strategies outlined in this article can make a huge difference to your bottom line, and even mean the difference between success and failure as a property investor. So without further ado, let’s take a closer look at how to avoid paying tax on rental income in 2025.

Tax Saving Strategies For UK Landlords

1) Accurate Bookkeeping

The very first tip for landlords and investors is to make sure you have systems and tools in place to accurately track all of your allowable expenses. These should normally include:

• Costs incurred travelling to and from the property
• Advertising and tenant-finding costs
• General management expenses such as phone calls and office supplies
• Safety certificate and inspection costs
• Legal and professional fees (e.g., accountants, solicitors)
• Subscriptions to property-related services and products
• Repair and maintenance costs (not improvements)

With Making Tax Digital for Income Tax being phased in for landlords and self-employed individuals earning over £50,000 per year from 6 April 2026, landlords will need to keep digital records and file quarterly tax returns. There are further staged thresholds (eg. £30,000 → 6 April 2027; planned lowering to £20,000 later).

How Landlord Studio Helps: With Landlord Studio, landlords can automate income and expense tracking, store receipts digitally, and generate tax reports instantly, making tax time effortless. Plus, our direct HMRC MTD integration streamlines quarterly updates.

Find out more about landlord allowable expenses here

2) Setting Up a Limited Company 

Over recent years, there has been a push by many investors to set themselves up as limited companies. This can be a great way to reduce your tax bill, and by investing through a company, you may gain benefits such as:

• Paying Corporation Tax: This is currently 25%, and is paid instead of higher personal income tax rates (40% or 45%) for higher earners
• Mortgage Interest Tax Relief: For individual landlords, mortgage interest relief for buy-to-let was phased out and replaced by a basic rate tax credit (the reform completed by 2020); individual landlords no longer deduct all finance costs from property profits in the same way a company can. By contrast, limited companies can generally deduct mortgage interest as a business expense, reducing their taxable profits (and pay corporation tax on the remainder).
• Tax-free Dividend Allowances: Allowing shareholders to extract income more tax-efficiently. NOte that the dividend allowance was reduced to £500 for 6 April 2024–5 April 2025

New government discussions in 2025 indicate potential future restrictions on limited company benefits for landlords. 

Further Reading: We take a look at the pros and cons of investing in property through a limited company in this article.

3) Maximise Tax Bands: Transferring Ownership to a Spouse

If you or your spouse are in a lower tax bracket, then it might make sense to transfer ownership of rental properties to the lower earner.

• Spouses pay no Capital Gains Tax (CGT) when transferring assets
• If the lower-earning spouse is taxed at 20% instead of 40% or 45%, this can significantly reduce the overall tax burden
• If the property has no mortgage, transfers may not be subject to Stamp Duty Land Tax (SDLT)

Capital Gains Tax was increased to 24% for higher-rate taxpayers in late 2024, so this method is now even more valuable for landlords looking to sell in the future.

4) Claiming Home Office Expenses

One expense that landlords often forget about is the home office allowance. Even if you only own one rental property, you are entitled to claim business expenses associated with a home office.

• Flat Rate Claim: HMRC accepts a £6 per week flat-rate claim for additional home-working costs (£312/year) in many circumstances (employees, some self-employed situations and often accepted for small home-office claims).
• Actual Expense Method: Self-employed people can also use HMRC’s simplified expenses bands or calculate actual business proportions where you can claim a proportion of electricity, internet, heating, and office supplies based on your actual property usage

Landlords who manage multiple properties or spend significant time on admin may benefit more from the actual expense method rather than the flat rate. Keeping accurate records is key.

5) Carrying Forward Rental Losses

Rental losses can be carried forward and offset against rental profits in future tax years. This means if you spend more on maintenance, renovations, or repairs in a single year, those losses can be deducted from your taxable income in following years.

 Example Scenario:

• 2024 Tax Year: £10,000 rental income, £12,000 in expenses → £2,000 loss
• 2025 Tax Year: £10,000 rental income, £8,000 in expenses → £2,000 profit
• Result: The £2,000 loss from 2024 offsets the 2025 profit, meaning zero taxable income.

6) Replacement Domestic Items Relief (RDIR)

From April 2016, the wear and tear allowance was replaced with the Replacement Domestic Items Relief (RDIR). This allows landlords to deduct the cost of replacing furniture or appliances with a like-for-like replacement.

This relief does not apply to upgrading furnishings or buying new items. It can only be used for replacing existing, worn-out items in the property.

Example: If a washing machine breaks, the cost of a new washing machine and disposal of the old one can be deducted from your rental income.

7) Letting Relief - restricted since 2020

Lettings Relief used to be a commonly used way to reduce Capital Gains Tax (CGT) when selling a property that had at some point been your main home. However, the rules were tightened from 6 April 2020.

Lettings Relief now only applies where the owner was living in the property at the same time as the tenant (shared occupancy). If you moved out and then let the whole property, you will generally not be able to claim lettings relief.

If you are able to claim Letting Relief, also note that the amount you can claim is also capped. You get whichever of these is smallest:

1. The amount of Private Residence Relief you already received for living there as your main home,
2. £40,000 (per person, so up to £80,000 for a couple), or
3. The chargeable gain you made during the time it was rented out.

Because the scope of lettings relief is now narrow, relying on rehousing yourself for a short time just to claim relief is risky. Always seek professional tax advice for any CGT planning.

Read more: Private Residence Relief.GOV‍

Capital Gains Tax Planning for 2025

One of the biggest changes affecting landlords in 2025 is the reduction of the CGT allowance from £6,000 in 2023/24 to £3,000 per individual. This means that when landlords sell a rental property, they will face higher tax bills on any profits made.

Strategies to Reduce CGT in 2025:

Use Spousal Transfers: Transfers between spouses are tax-free, allowing you to double your CGT exemption.
Time Your Sales Wisely: If selling multiple properties, spread sales across different tax years to maximise allowances.
Reinvest in Energy-Efficient Properties: Some EPC improvement schemes may offer tax relief for landlords improving rental stock.

Make Sure You're Getting the Most from Your Property

If you’ve tried all the above methods and you’re still wondering ‘how can I avoid paying tax on rental income’, one less obvious answer is to have your property regularly reassessed. This will help you get an updated value on your property, which can help strengthen your hand when it comes to talking to lenders. With exact data on how much equity you hold, as well as an accurate picture of your portfolio performance, you may be able to get lenders to reevaluate your loans, potentially reduce your interest rates, and even qualify for additional loans to increase your portfolio size.

As part of this, it’s essential to have accurate and detailed records of all of your income and expenses throughout the year. Using the Landlord Studio software, you can easily digitise receipts at the point of sale, record income and expenses in real-time using our bank feeds feature and intuitive mobile app, and instantly generate and share any of over 15 professional reports for advanced data insights into your finances.

Final Words: How To Avoid Paying Tax On Rental Income

If you’re considering how to avoid paying tax on rental income, the best way to save on your taxes as a landlord is to employ excellent property management and accounting software and to use a quality accountant and reliable tax advisor. With the right tools and knowledgeable advisors to assist you, you’ll be well on the way to minimising your overheads and maximising profits.

By using Landlord Studio’s property management and accounting tools, landlords can:

• Automate expense tracking to ensure nothing is missed
• Generate tax reports instantly to simplify self-assessments
• Track rental income across properties for better tax planning

Create your free Landlord Studio account today and ensure your rental business is tax-efficient in 2025 and beyond.

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