To Buy to Let or Not to Buy to Let

For years, property was seen as the golden ticket to building long-term wealth. Buy-to-let investors could enjoy steady rental income, watch their properties appreciate, and feel a sense of security from owning something tangible.

But fast-forward to 2025, and the buy-to-let (BTL) landscape looks very different. Tax changes, higher interest rates, stricter regulations and shifting tenant expectations have left many landlords wondering: is it still worth it?

Let’s explore the pros, cons, and the future outlook for buy-to-let in today’s market.

1. The Buy-to-Let Boom – and What’s Changed

The rise of buy-to-let began in the late 1990s, when new mortgage products made it easier for individuals to invest in property. For over two decades, it was an attractive proposition — rental yields were healthy, house prices climbed consistently, and low interest rates made borrowing cheap.

Then came the turning point.

• 2016: A 3% Stamp Duty surcharge was introduced for second homes and investment properties.
• 2017–2020: Section 24 of the Finance Act gradually removed higher-rate tax relief on mortgage interest, meaning landlords could no longer deduct all their finance costs from rental income.
• 2020 onwards: Tighter EPC requirements, higher compliance costs, and the rise of mortgage rates after years of ultra-low borrowing changed the game entirely.

The result? Profit margins have shrunk, and the once-passive income stream now feels more like a part-time job.

2. The Pros of Buy-to-Let in 2025

Despite the headwinds, buy-to-let hasn’t lost all its appeal. For some investors, particularly those with little or no borrowing, property can still play a valuable role in a diversified portfolio.

✅ Tangible, long-term asset
There’s comfort in bricks and mortar. Unlike market-linked investments, a property is something you can see, touch and manage directly.

✅ Ongoing rental demand
The UK continues to face a housing shortage. With affordability pressures keeping many people out of homeownership, rental demand remains strong, especially in major cities and university towns.

✅ Potential for capital growth
Property prices don’t rise forever, but over time, well-chosen properties in desirable locations have historically appreciated faster than inflation.

✅ Inflation hedge
Rental income and property values often rise alongside inflation, offering some protection against the erosion of purchasing power.

✅ Estate planning opportunities
With the right structure, for example, using a limited company or trust, buy-to-let properties can be managed efficiently within a broader estate plan (though professional tax advice is essential).

3. The Cons – and Why Many Landlords Are Re-thinking Their Strategy

The days of effortless profit are gone. The combination of rising costs and tightening regulations has led to a noticeable exodus of smaller landlords.

❌ Reduced tax relief
Since the Section 24 changes, landlords can no longer deduct their full mortgage interest from rental income. Instead, they receive a 20% basic-rate tax credit, which means higher-rate taxpayers pay significantly more tax than before.

❌ Higher borrowing costs
With mortgage rates still elevated compared to the past decade, the profitability of leveraged BTL portfolios has fallen sharply. For some, rental yields barely cover mortgage payments.

❌ Stamp Duty surcharge
The extra 3% on additional properties has made expanding a portfolio far more expensive, particularly in the South East, where property prices are already high.

❌ Capital Gains Tax (CGT)
When you sell a rental property, gains above your annual allowance (currently £3,000) are taxed at 18% (basic rate) or 24% (higher/additional rate). You must report and pay CGT on UK residential property within 60 days of completion.

❌ Compliance and admin burden
Landlords face ongoing costs for maintenance, safety checks, and tenant compliance (e.g., Right to Rent, deposit schemes, EPCs). The upcoming EPC “C” requirement for rental properties adds another layer of pressure.

❌ Less liquidity
Selling a property can take months, unlike investments that can be sold quickly if your circumstances change.

4. The Tax Angle: What Investors Need to Know in 2025

Tax is now one of the biggest factors in deciding whether buy-to-let is worthwhile. Here’s a summary of the key considerations:

🔹 Section 24 Mortgage Interest Relief Restriction
Landlords can no longer deduct mortgage interest as a business expense. Instead, they get a 20% tax credit, meaning those in the 40% or 45% tax bracket effectively pay tax on income they haven’t really earned in cash terms.

🔹 Corporation Tax for Limited Companies
Some landlords now hold property within limited companies to benefit from lower corporation tax rates (19%–25%). While this can improve after-tax returns, extracting profits personally (via dividends) can reduce the overall advantage.

🔹 Capital Gains Tax
For UK residential property, CGT is 18% for basic-rate taxpayers and 24% for higher/additional-rate taxpayers. The Annual Exempt Amount is £3,000 (2024/25 and 2025/26). If CGT is due, you must report and pay within 60 days of completion via the UK Property CGT return.

🔹 Inheritance Tax (IHT)
Property forms part of your estate for IHT purposes, meaning it may attract 40% tax on death if the total estate exceeds the nil-rate bands. Professional advice is vital if your goal is to pass wealth to the next generation.

🔹 Future changes?
There’s growing speculation about future reforms to property taxation. The government could tighten reliefs further or introduce new measures around capital gains or wealth taxes. No changes are confirmed, but investors should stay alert.

5. What Are the Alternatives?

For those put off by the complexity and cost of buy-to-let, there are several ways to build wealth without becoming a landlord.

Stocks & Shares ISAs
Tax-efficient, accessible, and flexible, ISAs let you invest up to £20,000 a year (2024/25) with no tax on gains or income. Funds can offer exposure to property, global equities, or bonds, providing diversification.

Pensions
Contributions benefit from tax relief, and investments grow free of capital gains and income tax. For higher-rate taxpayers, pensions are often far more efficient than property.

Property funds or REITs
If you still like the idea of property exposure, Real Estate Investment Trusts (REITs) allow you to invest in property markets indirectly, without the hassle of tenants, maintenance, or tax complexity.

Diversified investment portfolios
A mix of assets: cash, bonds, shares, and perhaps property funds can often deliver steadier long-term returns with more liquidity and less stress.

6. So… To Buy to Let or Not to Buy to Let?

There’s no one-size-fits-all answer. Buy-to-let can still make sense for some, especially cash buyers, experienced landlords, or those seeking long-term capital preservation.

But for many, the balance has shifted. Property investment now requires careful financial planning, not just enthusiasm for bricks and mortar. Understanding how tax interacts with your personal income, pension planning, and wider goals is key.

If you’re considering entering or exiting the rental market, it’s worth reviewing your overall financial strategy first. The best investment decision isn’t always about the asset; it’s about how well it fits into your bigger financial picture.

Final Thoughts

The days of “easy money” in buy-to-let are over, but that doesn’t mean property no longer has a role. For some investors, it still offers a sense of control and tangible value. For others, the stress, cost, and tax drag outweigh the potential rewards.

Before you make your next move, take time to review your goals, your time horizon, and your cash flow needs. Sometimes, the smartest investment decision isn’t to follow the crowd, but to build a portfolio that truly works for you.

Disclaimer

This article is for information only and does not constitute financial or tax advice. Tax treatment depends on individual circumstances and may change in the future.