Guide to tax rates, tax relief, tax changes & allowances in the 2024/25 tax year

As the new tax year commenced on April 6, new obligations will shape property portfolios for months to come. We’ll outline the key points investors, landlords, and brokers need to know about the 2024/25 tax year, as well as how MFS can assist them for the months ahead.

It needs to be remembered though, that tax is a complicated area. As nice as it would be to have a singular “UK property tax”, it simply doesn’t exist. What investors owe to HMRC will be dependent on their circumstances, applicable perks or tax allowances, and specific investments. As such, to get a complete picture, investors should seek the services of accountants, and/or other tax experts.

Tax considerations

1. Stamp Duty

For the 2024/2025 tax year, the following rates are applicable for Stamp Duty:

Jeremy Hunt, in his Spring Budget[1], revealed multiple dwellings relief for stamp duty land tax would be abolished on dwellings in England and Northern Ireland. This will affect all transactions from June 1, 2024[2].

Enveloped properties, those that are residential and are bought by companies[3], that are purchased for over £500,000 will face a levy of 15%. First time buyers purchasing a property less than £425,000 won’t pay any stamp duty. If the property costs between £425,001 and £625,000, 5% will be levied, with 10% paid on the portion that exceeds £625,001, where applicable.

Stamp duty for commercial property is 0% up to a value of £150,000. Between £150,001 and £250,000, 2% will be charged, with 5% levied on portions over £250,000.

Let’s have a look at an example. If a landlord buys a home valued at £450,000, they wouldn’t pay any tax on the first £250,000. Instead, they would pay 5% tax on the remaining £200,000. As such, they would pay £10,000 in stamp duty.

Moreover, for landlords or investors who are purchasing another property, holiday home or buy-to-let property (i.e. any property they don’t plan on living in on a permanent basis) for more than £40,000, they pay an additional 3% on each tier of stamp duty in England and Northern Ireland. There are different rates in Wales and Scotland.

As such, the stamp duty rates for buy-to-let landlords in England look like this in the 2024/2025 tax year:

For overseas buyers, there is a 2% surcharge in addition to the normal rates, as well as a 3% buy-to-let surcharge. Therefore, foreign buyers of holiday homes or buy-to-let properties will pay 5% more than the standard rate for UK nationals[4].

It’s worth noting that the stamp duty threshold will drop to £125,000 from March 2025[5]. There is a free-to-use stamp duty land tax calculator available on the government’s website which can help investors work out what they may need to pay.

2. Capital Gains Tax 2024

Capital Gains Tax (CGT), which is charged on the profit earned from the sale of an asset that has increased in value, may be levied on investment properties. The profit, or gain, may be taxed if it’s from the sale of BTL properties, business premises, land, inherited property etc[6].

The CGT allowance, which is how much can be earned before the tax is levied, is £3,000 for individuals in the 2024/2025 tax year. For trustees, it’s £1,500.

For residential property sales, higher rate taxpayers (those who earn between £37,701 and £125,140) will pay 24% in CGT, where it’s due. There is a lower rate of 18% for gains that fall within the basic rate band (those who earn up to £37,700).

Broadly, a property investor is liable to CGT on the difference between the original cost, plus any enhancement expenditure and the sale proceeds[7].

3. Tax Rates

Personal tax thresholds have been frozen until 2028[8]. This translates to a real terms tax increase for many.

The threshold for National Insurance [9]and Inheritance Tax has also been frozen. The inheritance tax threshold, for example, stays at £325,000 with a rate of 40% until 2028.

Additionally, the threshold for the highest tax rate was cut recently.  To clearly outline the different thresholds for the amount of tax that landlords will pay on their rental property income in 2024/25, we have created the table below.

Please note, however, that while we are focusing primarily on property income, income from wages, self-employed profits, pensions, benefits-in-kind, reimbursed expenses, and redundancy payments can all be counted as taxable income.

What’s more, these tax rates primarily concern those who are investing as individuals. But landlords can also invest in buy-to-let property via limited companies, partnerships, and other corporate structures. Should they invest through a company, the profit they’ll make will be liable to corporation tax instead, which from April 2024 has risen from 19% to 25%[10] for businesses with profits over £250,000.

Those with profits of between £50,000 and £250,000 get marginal relief, while companies with profits under £50,000 continue to pay corporation tax at 19%.

How investors are taxed will be dependent on their unique circumstances and setup. As such, they will need to work with a tax advisor to fully understand what’s owed.

4. Mortgage interest tax relief and tax credits

Before April 2020, landlords were able to deduct their mortgage expenses from their rental income. With this tax relief they could lower their tax bills by as much as 40%. Since then, Section 24 of the Finance Act 2015 brought few tax changes upon landlords. Buy-to-let landlords can claim a tax-credit that’s based on 20% of their mortgage interest payments.

As such, higher or additional rate taxpaying landlords are no longer able to claim mortgage tax relief, as the credit only refunds tax at the 20% basic rate. It could also push some landlords into a higher tax bracket. This is owed to the fact that they’ll need to declare the income that was used to pay their mortgage as well.

Indeed, these mortgage restrictions apply only to individuals, so landlords who purchase their buy-to-let properties through a limited company are exempt, and therefore pay tax on profit rather than income.

5. Dividend Allowance

For the 2024/25 tax year, the dividend allowance is £500. This could affect those who receive dividends from a property investing company. The applicable rates are:

• 8.75% for basic rate taxpayers
• 33.75% for higher rate taxpayers
• 39.35% for additional rate taxpayers

Economic trends

The 2023/2024 tax year was defined by several macroeconomic trends that contributed to a cost-of-living crisis.

But, inflation is slowing and is expected to continue to do so[11], GDP is rising [12] and interest rates may start falling over the coming months[13]. Meanwhile, borrowing costs are falling, and house prices could become more affordable in 2024[14].

Regardless of what’s on the horizon, confidence is still there in the property market. Many landlords plan to expand their portfolios this year[15], while there is also positive headwind being seen in the commercial world[16], and auction scene[17].

How to navigate the new financial landscape

There could still be challenges for landlords, investors, and brokers to navigate in 2024/25. To fully manage their UK property tax obligations, they’ll likely need to work with accountants, financial planners, and other experts. While MFS are not tax advisors, we will be there to support property investment plans continuously.

As the economic landscape becomes more complicated, it will be increasingly important for investors to find financial solutions and products that best match their needs. The specialist finance market embraces the kind of flexibility that high-street lenders and big players shy away from. At MFS, we can move quickly and adapt where things go wrong, which is common during times like these.

To help borrowers in unique or complex circumstances, we do not rely on a tick-box criteria for assessing bridging loan and buy-to-let mortgage enquiries. Instead, we take the applicant and the property into consideration. We view their full picture, judging their case on its individual merit.

Moreover, once we agree to terms, we do not change our rates at any point during an application process or bridging term. We present all our charges from day one. This ensures there are no hidden fees or nasty surprises, allowing borrowers to invest with confidence.

To find out more about how MFS could assist landlords, investors, and brokers in the 2024/2025 tax year, please head to our website.