How to beat Rachel Reeves’ buy-to-let crackdown – the little-known tax reliefs to maximise your returns

Landlords knew they were in for a bruising when the Chancellor stood up at the Dispatch Box to announce the Budget.

Ominous rumours had been swirling for weeks about a possible capital gains tax (CGT) raid on the sale of buy-to-let and second homes.

Comments from Prime Minister Sir Keir Starmer at the weekend suggesting that landlords don’t fit in his definition of ‘working people’ also led to fears they would be targeted with tax hikes.

As such, a number of the 2.3 million landlords in England sold off residential investments in the months leading up to the Budget in a bid to lock in a lower rate of CGT while still available. However, their worst fears were not realised and property CGT rates were left untouched.

Instead, Rachel Reeves went for a stamp duty raid.

Buyers of second homes, including landlords, now need to stump up 5 per cent stamp duty – up from 3 per cent – in a move that brokers warn could push landlords out of the buy-to-let sector.

For many it could prove the last straw. Landlords are already facing the reality of the Renters’ Rights’ Bill, which will see the end of no-fault evictions for the 11 million or so private tenants.

On top of that, recent new rules mean landlords must attain an energy performance certificate (EPC) at band C by 2030, which will require landlords with properties that don’t meet that minimum to implement energy efficiency measures that could prove costly.

The knock-on effect of the stamp duty rise handed to landlords will be widely felt. The cost may end up being borne in part by tenants if the surcharge squeezes supply and pushes up demand and rental costs.

Landlords spooked by the Chancellor’s announcement have already pulled out of deals after they were suddenly forced to find thousands of pounds more to complete sales.

Jack Tutton, of SJ Mortgages, says: ‘Within an hour of the Budget we had two landlords withdraw from their purchases, despite being close to completion.

‘Prospective buyers who are planning to let the property are generally the ones supporting the bottom of a chain. I am sure more will follow as landlords cannot stomach yet another increase in the tax they need to pay.’

The tax increases are sizeable. For example, a landlord buying a £300,000 property will now pay £17,500 in tax, up from £11,500.

However, a buyer purchasing the same property to live in would pay £2,500 in stamp duty.

Stamp duty is payable on residential properties that cost more than £250,000. Rates begin at 5 per cent and increase to 12 per cent depending on the value of the property. First-time buyers don’t pay stamp duty on properties valued at less than £425,000.

The changes are disastrous, according to Mike Cook, chief mortgage officer at specialist lender Market Financial Solutions.

He says: ‘Successive governments have battered landlords, but we need landlords to provide homes. All of this gets passed to the working person. We need to encourage people not to put their investment into a savings account. Demand is huge and rents go up.’

Indeed, the word landlord may conjure up images of wealthy tycoons, but most are so-called ‘dinner table’ investors who are looking to increase their savings rather than secure a salary.

Ben Beadle, chief executive of the National Residential Landlords Association, says: ‘Many landlords have one or two properties – they are not property tycoons. They are just people who work hard.’

Mr Beadle says measures are needed to address the real problems in the market. The mass exodus of landlords in recent years has only furthered the imbalance between supply and demand, which has put a real strain on housing supply.

Some 21 people are competing for every rental property, according to property portal Zoopla. According to figures from 2021-2022 some 4.6 million households in England were in the private rental sector.

Extra costs borne by landlords will be passed on to tenants, according to 62-year-old Vanessa Warwick, from Guildford in Surrey, a mid-sized portfolio landlord and co-founder of Property Tribes – a forum for private landlords.

She says: ‘The problem is that when landlords’ costs go up, like any other business, it does filter down to tenants.

‘I was dreading the Budget and watched it with trepidation. But the stamp duty change is a real sting in the tail – it will discourage landlords from expanding.’

The Budget contained one silver lining for landlords, as Ms Reeves froze CGT rates on the sale of properties at 18 per cent for basic rate taxpayers and 24 per cent for higher and additional rate taxpayers.

Ms Warwick can see buy-to-let buyers renegotiating downwards any offers on properties to make up the 5 per cent surcharge.

The Chancellor also failed to extend the stamp duty holiday.

Buyers have been enjoying a temporary relief on stamp duty since 2022 after then-Chancellor Rishi Sunak raised the prices at which properties are liable for the tax. These thresholds are set to fall to their original levels by the end of March, compounding the pain for buy-to-let investors.

FOUR tips to boost buy-to-let returns

1. Choosing the right location can reap higher rewards

Although high interest rates have squeezed landlords’ yields, there are still hotspots across the UK where you can get a good return on an investment.

The top spot in Zoopla data released in April went to Sunderland, with an average gross rental yield of 8.96 per cent. Next up is Aberdeen with an average 8.03 per cent yield, Burnley with 8 per cent and Dundee with 7.96 per cent.

Locations in Scotland and the North dominate the top ten spots on the list. See zoopla.co.uk/discover/property-news/best-buy-to-let-locations/ for the full list.

2. Buy property through a limited company

Private landlords are taxed on their rental profit as income tax, along with other earnings.

But landlords who buy a property through a limited company are liable for corporation tax instead, which is levied at a flat rate of 25 per cent. Record numbers of landlords have already raced to open limited companies this year to make the most of the tax advantages.

Between January and September, 46,449 buy-to-let companies were set up, a rise of 23 per cent on the same period last year, according to analysis of Companies House data by the property firm Hamptons.

This trick may not make a huge difference for a basic rate taxpayer – but higher and additional rate taxpayers, who are taxed at up to 40 and 45 per cent respectively, can see enormous savings.

Limited companies allow landlords to offset interest on mortgages against rental income. This lowers the tax bill. Experts say buying through limited companies is a complex area so financial advice is essential.

3. Use every little-known tax relief to your advantage

Make the most of every tax relief available. For example, when you’re filing a tax return you can deduct expenses from your rental income. Allowable expenses include property maintenance and repairs, insurance, ground rents or service charges or any letting agent fees.

You can also claim property allowance, which is up to £1,000 tax-free property income each tax year. However, if you claim for property allowance you cannot then claim for a deduction for your personal expenses.

Make sure you fully understand the tax rules to keep on the right side of HMRC.

4. Pounce on good mortgage rates while available

Landlords have been punished by sky-high interest rates over the past few years as borrowing costs have rocketed, but rates are finally falling.

The average two-year buy-to-let residential mortgage rate was 5.39 per cent on Thursday, while a five-year fix sat at an average of 5.09 per cent, according to Moneyfacts Compare.

But there are rates as low as 3.79 per cent with Allied Irish for those with a 40 per cent deposit willing to lock in for five years, according to brokers L&C Mortgages.

Use tools such as My Mortgage Alert so you can be sure you’re always notified of the best deals.

And use a broker to find the best product available. They can watch out for better rates and products on your behalf and keep you fully updated.

I’ll try to offset tax surprise 

Landlord Sarah Dawood says the stamp duty change caught her by surprise.

‘I wanted to expand my portfolio but now there’s another tax on providing good-quality housing,’ she says. ‘It means people like me are having to rethink how far their money is going to go.’

Sarah, 46, a mother-of-two who lives in Essex, has built up her six-property portfolio since 1998 – and has never sold any of them, instead preferring to hold on to the assets.

Ms Dawood says despite the hike in stamp duty, she is going to look at it as an opportunity: ‘How can I make it work for me? Perhaps I can pick up something which can offset the increase in stamp duty I’ll have to pay, like a reduced run-down property or buy at auction.’

In the West Midlands, Paul Ojelay is another landlord now thinking twice about his plans for his portfolio.

The 49-year-old financial planner, the owner of Money Adviser LLP, has three residential properties in the UK.

He has two sons he would like to get on to the property ladder, and says that he had hoped they would become landlords like him – but this plan is now unlikely.

‘I won’t be looking to expand now. And I’m reluctant to sell my existing properties as it would be hard to buy another one.’

Mr Ojelay says he had his eye on a property in his street, and was going to attend its auction, ‘but with this stamp duty increase it’s not worth taking the risk with renovating it and trying to make any profit’.