January 11, 2024 2:17 pm

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Nikka Sulton

The recent alterations to mortgage interest relief and the introduction of a stamp duty surcharge for second homes have prompted prospective landlords to reevaluate the attractiveness of buy-to-let investments. The impact of these changes in tax laws on landlords’ profits raises a fundamental question: In light of these adjustments, does buy-to-let still retain its status as a lucrative and reliable source of income?

Navigating the evolving landscape of property investment requires careful consideration of the shifting regulatory framework. While changes in tax policies have indeed posed challenges to landlords, the overall viability of buy-to-let investments remains contingent on a nuanced assessment of individual circumstances, market dynamics, and the potential for returns. Understanding these factors is crucial for making informed decisions and optimizing the benefits that the property market can still offer to those willing to adapt to the evolving landscape.


How has buy-to-let changed?

Property price growth has experienced a recent slowdown, amplifying the risk associated with buying to let. The market landscape has become more challenging due to governmental interventions. In 2016, the introduction of a 3% stamp duty surcharge on additional properties, including second homes and buy-to-let properties, added financial pressure.

Another significant change occurred in 2017, with the government reducing mortgage interest relief. Previously, landlords could deduct their mortgage interest before tax, offering higher-rate taxpayers 40% relief. However, the new system provides a flat-rate tax credit of 20% on mortgage interest, affecting those in higher or top-rate tax brackets. This alteration may result in higher tax bills for affected landlords.

Furthermore, landlords now face the requirement to declare the income used for mortgage payments on their tax return. Unlike the previous system where rental income could be declared after deducting mortgage repayments, this new approach may lead to an apparent income rise, potentially pushing some landlords from the basic rate to the higher rate and consequentially increasing their tax liabilities.


How have buy-to-let profits changed?

The elimination of mortgage interest relief has presented a significant challenge for landlords, particularly those in higher tax brackets. With the removal of the full 40% tax relief on mortgage payments, landlords are now facing a halving of their tax benefits. This impact is especially pronounced for individuals with interest-only mortgages, a common arrangement in the industry. The changes have created substantial hurdles for landlords subject to higher tax rates.

To understand the practical implications, let’s consider a specific scenario. Take a landlord who pays £500 per month in mortgage interest while earning £1,000 in rent. Under the altered tax system, the adjustments have a tangible effect on their overall tax liability. This shift in the tax landscape has prompted landlords to reassess the financial viability of their properties and navigate the evolving challenges in the buy-to-let market.

Navigating the evolving landscape of the buy-to-let market requires landlords to carefully consider the impact of recent tax changes. As mortgage interest relief is no longer available, landlords, especially those with interest-only mortgages and higher tax obligations, must adapt to a new financial reality. The changes underscore the need for landlords to reassess their investment strategies, taking into account the evolving regulatory environment and its implications for profitability in the property market.

Before 2017
From 2020
Annual rental income £12,000 £12,000
Annual mortgage interest £6,000 £6,000
Taxable annual income £6,000 £12,000
Tax credit of mortgage interest 0% (£0) +20% (+£1,200)
Tax bill (lower rate) £1,200 £1,200
Tax bill (higher rate) £2,400 £3,600


Is buy-to-let still a worthwhile investment?

The decision on whether buy-to-let is a viable investment goes beyond tax considerations and hinges on your investment goals and financial needs. Evaluating the pros and cons can guide your decision-making process.


Advantages of buy-to-let

  • You’ll earn rental income (though possibly less than in previous years). In some areas of the UK, such as Liverpool, Glasgow and Leicester, rental yield is as high as 8%, while other areas are around the 3% mark.
  • At the same time, you could generate capital growth as your money grows as your property value increases.
  • You can take out insurance to cover against loss of rental income, damage and legal costs.

Disadvantages of buy-to-let

  • Your tax bill will be higher than it once was, eating into your profits.
  • If you don’t have the right insurance in place, you might not generate an income if the property is unoccupied.
  • If property prices fall, your capital will reduce. And if you have an interest-only mortgage, you’ll need to make up for any shortfall if the property sells for less than you bought it for.
  • You’ll need to factor in the costs of stamp duty, insurance and wear & tear.
  • Being a landlord is a big responsibility. 
  • Lots of people choose buy-to-let as a retirement income, often taking tens of thousands of pounds out of their pension pot to do this.


If you are looking into this possibility, it is vital you speak to a financial adviser first. Touching your pension pot can have big implications and potential tax penalties.


How do I get started with buy-to-let?

Becoming a landlord typically involves five practical steps:


Step 1 – Financial Planning:

Speak with a financial adviser to determine your investment capacity and expected returns. Consult a mortgage broker to secure the best deal or a mortgage in principle, ensuring readiness for property offers.


Step 2 – Property Acquisition:

Find and secure a property, which may be quicker for rental properties. Allocate a sufficient timeline for the acquisition process, usually spanning several months.


Step 3 – Insurance Arrangement:

Obtain insurance coverage, including buildings insurance, to safeguard against unforeseen expenses like tenant injuries, property damage, and rental income loss.


Step 4 – Tenant Procurement:

Select tenants through an agency or private search based on your preferred level of involvement. Even with known tenants, establish a legally binding contract to avoid potential conflicts.


Step 5 – Hands-on Management:

Buy-to-let is hands-on; regularly review your mortgage, perform necessary property maintenance, and optimize your buy-to-let income for tax efficiency, with assistance from an accountant.


What are some good alternatives to buy-to-let?

Buy-to-let offers a steady income and potential long-term gains but involves high maintenance and illiquidity. Exploring alternatives may align better with your investment goals:


  1. Real Estate Investment Funds:

Consider real estate investment funds for property market exposure without the hands-on involvement. Pool funds with others to invest in commercial properties through publicly traded investment companies. While offering an average return of 10%, these are long-term investments, providing more liquidity than direct property ownership.


  1. Bonds:

Bonds present a stable, low-risk investment option, with varying levels of risk. Investors lend money to borrowers (often governments or large organizations) and receive fixed interest over a specified period. Government bonds and corporate bonds in the UK offer returns around 5%, with flexibility in choosing investment durations ranging from one to ten years.


  1. Peer-to-Peer Lending:

Explore peer-to-peer (P2P) lending platforms to directly offer loans to small businesses and individuals. By eliminating intermediaries, P2P lending often yields higher returns compared to cash savings or bonds. However, it comes with elevated risks as your investment lacks protection from the Financial Services Compensation Scheme. This option suits investors seeking increased risk for potentially higher returns, allowing for smaller investment amounts compared to property.



Shares are considered high-risk investments, marked by volatility leading to value fluctuations. Over the longer term, shares typically offer returns between 8 and 10%, making them potentially rewarding for patient investors. Unlike property, your money isn’t tied up for an extended period. However, brace yourself for market fluctuations and avoid investing funds needed in the short term.



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