Stamp Duty, CGT, and the Rest: The Full Cost of Exiting the Rental Market in 2025
Selling Up? Understand the Real Cost Before You List
You’re not alone. Thousands of UK landlords are considering selling their rental properties in 2025, driven by rising costs, shrinking margins, and increasing regulatory pressure. But before you rush to market, it’s worth understanding the full financial picture — because the real cost of exiting isn’t just in property prices. It’s also in what you may owe to HMRC.
Today’s landlords are not just property owners. They’re taxpayers under pressure. And those planning to exit the market face a complex web of capital gains tax (CGT), stamp duty surcharges, and other lesser-known charges that can significantly reduce net returns.
This guide outlines the key tax rules in 2025, their impact on your bottom line, and the strategies some landlords are using to manage their exposure.
The Government’s New Approach: Pressure from All Angles
Owning buy-to-let property was once considered a route to long-term, passive income. But recent policy changes have shifted the landscape:
Mortgage interest relief restricted: Since the full implementation of Section 24, individual landlords can no longer deduct mortgage interest from their rental income. Instead, a 20% tax credit is applied, regardless of your personal tax band.
Stamp duty surcharge: A 3% surcharge applies to additional properties, including most buy-to-let purchases. Higher rates apply if the property is purchased via a company.
Section 24 impact: Many landlords now report increased tax bills on paper profits they never actually received, especially those with highly leveraged portfolios.
Stricter reporting: Landlords must now report and pay CGT within 60 days of selling a residential property. New digital reporting requirements under Making Tax Digital also add admin pressure.
These factors have combined to erode rental profitability and increase exit tax liabilities.
Exit Taxes: What You Really Pay When You Sell
1. Capital Gains Tax (CGT)
CGT is the most significant cost many landlords face on sale.
The CGT annual exemption is now £3,000 per person (2025/26 tax year). This has dropped from £6,000 in 2023/24 and £12,300 in 2022/23.
Higher-rate taxpayers pay 28% on gains from residential property.
Basic-rate taxpayers pay 18%, but gains may push them into the higher band.
The CGT must be reported and paid within 60 days of completion.
Example:
Property purchased for £200,000, sold for £320,000
Gain = £120,000
Less CGT allowance (£3,000) = £117,000 taxable gain
CGT at 28% = £32,760 owed (before legal and agent fees)
2. Stamp Duty Surcharge (If Reinvesting)
If you plan to reinvest in another property:
A 3% surcharge applies to most second-home purchases.
This surcharge stacks on top of standard stamp duty rates.
Applies whether you buy as an individual, through a company, or trust.
3. Income Tax on Final-Year Rental Income
You’ll still be liable for tax on rental income earned in the year of sale. Mortgage interest restrictions continue to apply unless the property is held in a company. Advance payments may be due via Self Assessment.
Long-Term Impact on Returns
Shrinking tax allowances and rising compliance costs mean many landlords now find their effective tax rate much higher than anticipated. Factors include:
Tax on profits not received (due to mortgage interest restrictions)
Lower CGT allowances exposing more of the gain to tax
Administrative drag from digital filing, reporting deadlines, and tighter rules
For portfolio landlords, selling even a small portion of assets can create six-figure tax liabilities.
Smart Exit and Restructuring Strategies
There are legal ways to reduce or defer some of these costs. Common strategies include:
1. Incorporation
Transferring your portfolio into a limited company could:
Restore full interest relief
Allow rental income to be taxed at corporation tax rates (currently 19–25%)
Offer more flexibility in income distribution and planning
Caution: Incorporation may trigger CGT and stamp duty unless structured correctly. Professional tax and legal advice is essential.
2. Use of Trusts
Trust structures (e.g., discretionary or life interest) can:
Support inheritance tax planning
Create long-term family wealth structures
Provide future income distribution flexibility
Trusts are complex and must be tailored carefully to avoid unintended tax charges.
3. Switch to Furnished Holiday Lets (FHLs)
If your property meets FHL qualification rules (minimum availability and letting periods), you may:
Regain access to full mortgage interest relief
Qualify for Business Asset Disposal Relief (10% CGT on sale)
Claim capital allowances on furnishings and equipment
This path requires commitment and compliance with the FHL criteria.
4. Overseas Investment
Some landlords are now shifting capital into overseas markets where:
Rental yields may be higher
Tax systems can be more favourable to non-residents
Popular destinations include Portugal, Greece, and parts of the Caribbean. However, UK tax rules and double tax treaties must still be followed. Offshore holdings require full disclosure under UK law.
Your Next Move: Review, Rethink, Restructure
Thinking of selling in 2025? Here’s how to prepare:
Review your portfolio. Identify assets with poor returns or higher exposure to CGT.
Estimate your tax position. Use up-to-date CGT calculators and check thresholds.
Seek specialist advice. Not all accountants are property tax experts.
Explore your options. Company structures or letting changes may reduce liability.
Don’t Just Exit. Evolve.
The market has changed. But with the right advice and planning, you don’t have to be caught off guard. Whether you’re planning to sell or restructure, being proactive could save you tens of thousands — and put you in a stronger position for the future.
Disclaimer
This article is for general information only and does not constitute financial, tax, or legal advice. Tax rules and regulations may change, and their impact can vary based on your personal circumstances. Before taking any action, you should seek independent advice from a qualified professional. The examples given are for illustrative purposes only.
