Buy-to-let and second homes: time for a rethink?

For decades, investing in property has been a go-to strategy for building wealth and generating income in the UK. Buy-to-let properties or owning a second home were often seen as a reliable way to create long-term financial security, whether supplementing income during working life or supporting a more comfortable retirement. But in today’s climate, many landlords and second-home owners are beginning to question whether the benefits still outweigh the challenges.

The reality is that the landscape has shifted dramatically. What was once a tax-efficient, stable investment is now subject to a range of pressures that are squeezing profitability and testing investor confidence. While property remains a tangible asset with potential long-term value, the short-term headwinds are increasingly difficult to ignore.

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Rising tax and Regulatory pressures

One of the most significant changes has been the removal of full mortgage interest tax relief for private landlords. Before April 2020, landlords could deduct mortgage interest from their rental income, significantly reducing their tax bill. Now, however, this relief has been replaced with a 20% tax credit, which is far less favourable, particularly for higher and additional rate taxpayers. This change alone has increased tax liabilities for many, particularly those with large mortgages or multiple properties.

Alongside this, property investors face higher rates of stamp duty on second homes, frozen personal tax allowances until at least 2028, and increased scrutiny around rental income in tax calculations. For some, rental income that previously sat comfortably within a lower tax band is now pushing them into higher brackets, often unintentionally. As these thresholds remain static while incomes and rents rise, more landlords are being caught out.

The cost of borrowing has risen

The picture becomes even more challenging when you factor in rising interest rates. Over the past two years, the Bank of England has raised the base rate in response to inflationary pressures. This has caused mortgage rates to jump significantly from the historic lows that many landlords had become accustomed to. For those coming off fixed-rate deals, the cost of borrowing has risen sharply, compressing net rental yields and in some cases, turning previously profitable properties into break-even or even loss-making ventures.

Data from the NRLA (National Residential Landlords Association) and other property bodies has shown a growing number of landlords reconsidering their future in the market. Some are scaling back their portfolios, while others are choosing to exit the market entirely, citing diminishing returns, higher costs, and increasing administrative burdens.

Upcoming legislation

New and upcoming legislation is also adding to the pressure. The government’s plan to tighten energy efficiency standards for rental properties is looming, with all new tenancies expected to meet an EPC rating of C or above by 2028, and existing tenancies by 2030. The cost of upgrading older properties—particularly those with traditional construction—can be substantial, and non-compliance risks fines of up to £30,000. Combined with routine maintenance, licensing requirements, and ongoing tenant management, the once 'passive' nature of property investment now looks much more involved.

Higher stamp duty and local tax changes

Announced in the Budget 2024, second home buyers are hit with a 5% surcharge for stamp duty, on top of the existing stamp duty rates.

Current stamp duty rates are:

Rates for a single property

You pay SDLT (Stamp Duty Land Tax) at these rates if, after buying the property, it is the only residential property you own. You usually pay 5% on top of these rates if you own another residential property.

Source: gov.uk

And another blow landed on the 1 April 2025. In an effort to discourage vacant second homes, several councils across the UK have introduced higher council tax rates on these properties—doubling the charges in some areas. While intended to free up housing stock and reduce the strain on local communities, the financial impact on second-home owners is undeniable.

Exploring your options

Faced with all of these challenges, many landlords are reviewing their options. Some are exploring the benefits of transferring properties into limited companies, which may allow for a more favourable tax treatment on mortgage interest and profits. However, this route isn’t without complications. Company mortgage rates are typically higher, and the costs of transferring properties—such as stamp duty and legal fees—can be significant. It’s not a one-size-fits-all solution, and the right approach will depend on an individual’s broader financial goals and circumstances.

Another avenue being considered is changing ownership of properties to a lower-earning spouse to minimise the overall tax burden. This strategy can be effective in some situations but must be carefully structured to avoid unintended tax consequences, especially around capital gains or future inheritance.

There is also a growing interest in diversifying away from property altogether. For those who have built up substantial equity, selling one or more properties and reinvesting the proceeds into a broader, more tax-efficient investment portfolio could be an option. Investment portfolios can be tailored to individual goals, risk tolerance, and tax planning needs. They can also provide greater flexibility and liquidity, unlike bricks and mortar.

Taking stock of your Financial Plan

It’s clear that the days of easy property profits are behind us, at least for the time being. That’s not to say property doesn’t still have a place in a diversified investment strategy—but relying on it as the cornerstone of a retirement or income plan may no longer be as robust as it once was. The combination of tax changes, regulation, interest rates, and property-specific risks mean that today’s landlords need to be far more strategic.

If you're currently weighing up your options, now may be the right time to seek independent financial advice. We can help you assess the viability of your property investments within the context of your broader financial plan. We can also identify opportunities to reduce tax, spread risk, and ensure your portfolio aligns with your financial goals—whether that’s maximising income, protecting capital, or planning for retirement.

At The Private Office, we work with clients who have £100,000 or more in investible assets to create bespoke financial strategies. As a chartered firm of independent advisers, The Private Office can help you understand your position, explore alternative investments, and develop a plan that’s tailored to your future.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. 
The information provided in this article is based on the current allowances and legislation and is subject to change.

The Financial Conduct Authority (FCA) does not regulate tax advice or Buy to Let advice.