3 taxes you could face if you invest in UK property

Before you invest in UK property, it’s crucial to understand the potential tax implications of doing so.

This could help you to:

• Accurately estimate investment returns
• Manage cash flow and budget effectively
• Avoid unexpected bills and costly mistakes
• Use available tax reliefs to maximise net returns
• Ensure compliance with legislation and regulations
• Compare property investments with other asset classes, such as stocks and shares.

So, if you’re thinking about adding property to your investment portfolio, keep reading to discover three key taxes you could face.

1. Stamp Duty Land Tax

Stamp Duty Land Tax (SDLT) is usually payable on all residential property purchases over £125,000 (2025/26), unless you qualify for first-time buyer’s relief.

However, different rates apply to investment properties and second homes, compared to a primary residence.

If buying a house or flat means that you’ll own more than one property, you’ll usually pay a 5% surcharge in addition to the standard SDLT rate. What’s more, the surcharge applies to the entire purchase price of the property.

The example below shows how much SDLT a UK resident might pay on an investment property worth £300,000, based on the rates for England and Northern Ireland in 2025/26. Rates vary in Scotland and Wales, and non-UK residents may incur an additional surcharge.

As you can see, SDLT can be a significant cost – £20,000 in this example. So, it’s important to factor this into your calculations when estimating your return on investment.

There are separate rates for non-residential and mixed land and property. In 2025/26 these are:

Source: Gov.uk

Some properties are exempt from the additional SDLT rate, including:

• Any home you buy to replace your primary residence
• Properties worth less than £40,000
• Caravans and mobile homes
• Houseboats.

However, the surcharge will apply if you own just a share in another property that exceeds the £40,000 threshold.

Likewise, if you own other properties outside the country, these will be taken into account. For example, if you have a share in a holiday home in France worth £60,000, you’ll usually incur the surcharge on any additional property you buy in the UK.

2. Income Tax on rental income

You’ll usually be charged Income Tax at your marginal rate on any profits arising from rental income generated from buy-to-let or commercial properties.

The Income Tax bands for 2025/26 (excluding Scotland) are as follows:

Source: Gov.uk

You may be able to claim the Property Allowance, which is a tax exemption of up to £1,000 for those who earn an income from land or property.

Or, if you let a furnished room in your main home, you could benefit from the Rent a Room Scheme and earn up to £7,500 in rent before any Income Tax is due. However, you cannot use this tax exemption in addition to the Property Allowance. Moreover, this scheme does not apply to second properties.

Until April 2025, furnished holiday lets attracted certain preferential tax reliefs, but these were abolished in the 2024 Spring Budget. Now, all income from properties is treated the same for tax purposes.

Read more: Is buy-to-let still worth it in 2025? Key considerations if you’re thinking of investing

3. Capital Gains Tax

You’ll usually pay Capital Gains Tax (CGT) on any profit you make when selling a second home or investment property. This is determined by calculating the difference between the purchase price and the selling price, after accounting for allowable expenses and reliefs.

The amount of CGT you’ll pay depends on your Income Tax band. After the chancellor increased the main CGT rates in her 2024 Autumn Budget, in 2025/26 these stand at:

• 18% for gains (or parts of gains) falling no higher than the basic rate band when added on top of income
• 24% for gains (or parts of gains) falling above the basic rate band when added on top of income.

These rates apply to both residential and non-residential gains, excluding your home.

The Annual Exempt Amount could help to reduce your CGT bill – each person is entitled to an annual exemption of £3,000. So, if you jointly own an investment property, you could benefit from a combined CGT exemption of £6,000.

It’s also worth checking whether your property qualifies as a business asset. If so, you may be able to claim Business Asset Disposal Relief (BADR), which could reduce your CGT rate to 14%. However, rental properties do not qualify for BADR; you must show that you’re running a trading business.

Get in touch

As you can see, without careful planning, tax on property investments in the UK could quickly erode your returns.

So, if you’d like help exploring different investment options and learning how to manage your wealth tax-efficiently, our financial planners in Bristol can help.

Email helpme@aspirellp.co.uk or call 0117 9303510.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate tax planning.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

The Financial Conduct Authority does not regulate buy-to-let (pure) and commercial mortgages.