Is Buy to Let No Longer a Good Idea?

Property is an attractive investment in 2025. It feels tangible, brings social status and offers a degree of security (shelter).

Investors often have experience buying, selling, and improving property, which makes it seem more accessible than many other types of investments.

Not only does it provide capital appreciation, but it also serves as a source of income. However, recent UK legislation in recent years has made property investing (e.g. buy to let) less attractive,

The intention is to prevent landlords from pricing homeowners out of the market in many areas. However, the knock-on effect could be worse. What if investors no longer view property as a good investment? Would this spell the end of the buy-to-let property market?

Probably not, but there are a few things you should consider if you are thinking about a property investment.

Tax

Property rental income has always been subject to taxation, but the tax landscape has become increasingly harsh in recent years.

It used to be possible to claim full tax relief on any expenses, including mortgage interest, fees, repairs and maintenance. Now, landlords can no longer deduct mortgage interest from rental income to reduce taxable profits. Instead, a 20% tax credit is applied to mortgage interest payments. This change primarily affects higher-rate taxpayers, as they can no longer receive tax relief at their marginal rate on mortgage interest.

This change may not be a deal-breaker, but it does reduce profitability for many landlords.

Additional property is also subject to Capital Gains Tax (CGT), and it is harder to “shield” your gains from the taxman.

For instance, shares can be held inside an ISA, where asset disposals are free from CGT. By contrast, a basic rate taxpayer will face an 18% CGT on any gains from an additional property sale (outside of their CGT-free allowance). For a higher-rate taxpayer, it is 24%.

Capital Gains Tax is not payable when you sell your main residence.

Holding property through an investment company can address some of the tax issues, but this decision can have big knock-on effects for your wider financial plan. It is best to seek financial advice if you are considering this option.

Stamp Duty

The standard rate of stamp duty varies between 0% and 12%, depending on the value of the property.

There used to be a 3% surcharge for additional properties. However, this has been increased to 5% as of 31 October 2024, which is significantly higher than the effective rate of stamp duty on a typical rental property.

If you already own a rental property, you will be affected by the surcharge if you buy a new main residence.

This does not apply if you replace one main residence with another, provided this takes place within 36 months. However, it takes effect if you buy a main residence without selling. For example, if you are:

• Moving back to the UK from abroad
• Moving from a rental property or parents’ home
• Moving out of a partner’s home in the event of a break-up
• Buying a new property before selling your existing home, although in this case, the surcharge will be refunded upon sale

If you own a property abroad, buying a home in the UK will trigger the surcharge.

It is also worth pointing out that even owning a share of a property has an impact. This applies either if you already own the shared property (for example, partial ownership of a holiday home) or if the shared property is the second purchase.

The only exception to the rule is where the second property is valued at £40,000 or under. Investing in lower-value properties, such as one-bedroom flats outside major cities, may help mitigate higher SDLT liabilities, provided each property falls below the relevant thresholds.

This is particularly the case as the rental yield is usually higher on lower-priced properties, when taken as a percentage of the capital value.

Please note that, as of 1 April 2025, the nil-rate band has reverted to £125,000.

Previously, First-Time Buyer Relief allowed first-time buyers to pay no SDLT on properties up to £425,000. This threshold has been reduced to £300,000 from 1 April 2025.

Liquidity

While property could be considered one of the more stable asset classes, a major risk is liquidity. If things go wrong and you need to sell, it may take several months before you see any cash.

If the market is heading downwards, you may need to sell at a reduced price rather than wait for things to recover.

The best way to address this is to maintain an emergency fund, which will reduce the likelihood of needing quick access to money. It would also be sensible to diversify so that property does not comprise your entire portfolio.

Performance

Historically, equities have outperformed property. They may be more volatile, but they are also easier to sell, cheaper to buy, and allow the income yield to be reinvested, compounding the returns.

Of course, the statistics are based on property funds, whereas most personal investors have a particular property in mind. The perception is that they have more control, understand the local market, and can add value through improvements.

But surely, property fund managers are already doing this on a wider scale? Is it realistic to expect a better result?

The key point is to know where you can add value. This can take many years of experience.

However, an advantage of the private investor is that if their financial plan is in order, they are less likely to need to sell in the event of a downturn.

They do not have investors panicking and demanding their money back. They can simply rely on their other investments for a while and sell when things improve.

Tenants

While HMRC regulations and wider market forces are somewhat predictable, tenants are less so.

First of all, it may take time to find a suitable tenant. Secondly, you need to ensure that the tenant will look after your property, pay rent on time, and not be a general nuisance.

Tenants’ rights have improved in recent years. Whilst this is a positive step forward, it can make things difficult if you do need to remove them.

For instance, the Renters’ Rights Bill 2025 abolished “no-fault evictions”. As such, you can no longer evict tenants without a valid reason.

It is essential to seek legal advice and maintain adequate insurance coverage.

Property investment is certainly not for everyone, but it remains viable if you are prepared for the additional costs, have liquid cash available, and are willing to treat it like a business.

Please do not hesitate to contact a member of the team if you would like to find out more.

The content in this article was correct on 9 June 2025.

You should not rely on this article to make important financial decisions.

Teachers Financial Planning offers independent financial advice on savings, pensions, investments, protection and mortgages for teachers and non-teachers. 

Your home is at risk if you do not keep up the payments on your mortgage. 

Please use the get advice button below to arrange an informal chat with an adviser and see how we can help you.