Key considerations when comparing property and alternative options for retirement income
For most buy-to-let (BTL) investors, rental income has historically been an integral part of their planning as a source of retirement income. Bricks and mortar were easy to understand and rental income was a relatively stable source of income.
However, over the years, successive governments have targeted private landlords through increasingly stringent tax and regulatory changes, with the most recent Autumn Budget on 26 November 2025 continuing this trend with the income tax rates applicable to rental profits each increasing by 2% to 22%, 42% and 47% from 6 April 2027.
The combination of higher interest rates and tax increases means that, for many BTL investors, property may now be their lowest-yielding asset.
The changing property landscape
Since 2017-18, landlords in the UK have no longer been able to fully offset mortgage interest against rental income:
This means that landlords now pay income tax on their gross rental income without a deduction for mortgage interest and then deduct an amount from their tax liability equal to 20% of their mortgage interest, which significantly impacts higher and additional-rate taxpayers.
Although unfavourable, many landlords continued to hold buy-to-lets, given the low-interest rate environment at the time helped offset the impact of these changes. During this period, it was common for two-year fixed buy-to-let mortgages to be c2.9%.
However, following the 2022 mini-budget, interest rates peaked at around 6.84% for a five-year fixed BTL mortgage, more than doubling the interest rate burden on landlords.
Example
Using the following worked example, this drastically changed the profitability of leveraged BTL investors (as an additional rate taxpayer):
This example ignores the capital growth in the value of the property so only considers the income yield. Although the capital growth is important, buy-to-let properties are illiquid assets so this value is hard to access to fund day-to-day living or retirement expenses.
The example above is also before any general expenses have been taken into account – for example, service charges, agent fees, repairs and maintenance. Once these expenses have been accounted for, a leveraged BTL investment that was previously reasonably profitable could easily move into negative territory.
Alternative investment strategies
Considering that you can have a ‘risk-free’ investment in gilts (provided it is held to maturity) that does not come with the ongoing effort and responsibilities of being a landlord, you could currently earn a nominal yield of c3.5%. However, what most people forget is the tax efficiency of the investment means that you would have to earn a taxable yield of over 6.6% as an additional rate taxpayer to net the same amount after tax (as illustrated below).
Illustration of gilt yield
*Gross equivalent yield
- For illustration purposes only. This is based on current yields, which are subject to daily fluctuations.
- Compared to rental income tax – basic rate (22%), higher rate (42%) and additional rate (47%).
Note: Whether investing in gilts is appropriate for you will depend on your personal circumstances and the advice of your financial planner.
In practice, it is unlikely that you would only invest in gilts, as this is an alternative with known returns (if held to maturity) to compare to the relatively stable yields of rental income. It is important to note that, for the long-term, you would need to diversify your portfolio into asset classes that would produce a real return (i.e., over and above inflation) over time, which is more comparable to the capital growth achieved through increasing property valuations (which gilts would not achieve).
Other considerations
- Changes within the Renters’ Rights Bill – for more details, see our article here.
- Potential upgrades to rental properties by 2030 to achieve a minimum energy performance certificate (EPC) of C.
- Liquidity – in retirement, consideration will be needed on how you will access the equity that you have built up over time to fund your ongoing expenditure.
- Unused tax allowances – you may be missing out on making use of the various tax allowances available to you on an annual basis. For example, it is not possible to crystallise a part of a property every year to make use of your capital gains tax exemption (£3,000 a year), dividend allowance or personal savings allowance etc.
How we can help
With the landscape for BTL investments continuing to evolve, alongside opportunities elsewhere, it is an ideal moment to reconsider your planning going forward. Our specialist real estate team can offer strategic advice across tax, mortgages, financial planning and legal guidance.
If you would like to discuss your circumstances in more detail, please get in touch to arrange an initial meeting.
