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With almost one in three homes in the capital now rented, London remains a magnet for buy-to-let investors drawn by strong rental demand and the city’s long-term growth potential. However, as any seasoned investor knows, a healthy return hinges not just on capital appreciation and rental yield, but also on how tax-efficiently a portfolio is structured.
Whether you’re purchasing your first buy-to-let or expanding an established portfolio, understanding the tax implications of different ownership models is essential to maximising returns. Here, we break down the key taxes and outline the most common holding structures to help you invest wisely.
1. Stamp Duty Land Tax (SDLT)
The first cost landlords encounter is SDLT, which is significantly higher for investors than for owner-occupiers. Buy-to-let purchasers pay a 3% surcharge on top of standard rates. Those buying through a limited company face the same surcharge and, in some cases, additional taxes.
Current SDLT Bands for BTL Properties:
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Up to £125,000 – 5%
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£125,001 to £250,000 – 7%
- £250,001 to £925,000 – 10%
- £925,001 to £1.5 million – 15%
- Over £1.5 million – 17%
Overseas buyers face an additional 2% surcharge. Properties bought by companies for over £500,000 and not rented out may also be subject to the Annual Tax on Enveloped Dwellings (ATED).
2. Rental Income: Income Tax vs Corporation Tax
Rental profits are treated differently depending on how the property is held:
- Individuals pay income tax based on their overall earnings:
- 20% (basic rate) ◦ 40% (higher rate)
- 45% (additional rate)
- Limited companies pay corporation tax:
- 19% on profits up to £50,000
- 25% on profits above £250,000
Though company rates appear lower, extracting income as salary or dividends can trigger additional tax charges. On the plus side, companies can fully deduct mortgage interest, whereas individuals have this relief limited to the basic rate.
3. Capital Gains Tax (CGT)
When selling a rental property, CGT is due on any increase in value:
- Individuals:
- 18% for basic rate taxpayers
- 28% for higher or additional rate taxpayers
- Annual CGT allowance: £3,000
- Companies:
- Treated as part of corporation tax at the applicable rate (up to 25%)
- No CGT allowance applies
4. Inheritance Tax (IHT)
Regardless of ownership structure, properties passed down through inheritance are subject to IHT. The current threshold is £325,000, with assets above this taxed at up to 40%. While trusts and corporate vehicles can assist with succession planning, careful structuring is key to minimising exposure.
5. Choosing the Right Structure
There is no universal answer.
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Individual ownership may suit first-time or small-scale landlords looking to take advantage of personal allowances and keep things simple.
- Limited company ownership could benefit higher-rate taxpayers or those building larger portfolios, due to lower headline tax rates and full interest deductibility.
Each has distinct pros and cons, and the right choice will depend on your income, growth ambitions, and long-term plans.
Final Thoughts
Investing in London property remains a compelling opportunity — but structuring your investment correctly is crucial to maximising net returns and avoiding unnecessary tax liabilities. Seeking independent financial and legal advice is strongly recommended before making any decisions. At Winkworth, our expert local offices can guide you through every step of the property investment process — from sourcing the right property to preparing it for the rental market. If you’re considering a buy-to-let in the capital, contact your nearest Winkworth office to start your journey with confidence.
Source: PrimeResi and Benhams
