Property investment in the UK runs through four main routes: buying a home to let, buying shares in a real estate investment trust (REIT), holding an open-ended property fund, or lending to property projects through crowdfunding and loan notes. Costs, tax, borrowing and the time it takes to sell decide most of the result.
The tax gap is widening for individual landlords. From 6 April 2027, rental profits in England, Wales and Northern Ireland are taxed at new property rates of 22%, 42% and 47%, two points above the rates on earnings, according to the HMRC technical note published with the Autumn Budget 2025. Figures in this guide are as at 9 October 2026.
How big is UK property investment?
Letting is the most direct form of property investment UK individuals make. HMRC counted 2.88 million unincorporated landlords, 99% of them individuals, declaring £58.99 billion of property income in the 2024 to 2025 tax year, an average of £20,500 each; about 1.3 million declared £10,000 or less (HMRC, 28 August 2026).
Prices are rising slowly and rents faster. The average UK property price was £273,000 in July 2026, up 1.4% on a year (HM Land Registry and ONS). Average UK private rent was £1,400 a month in August 2026, up 3.8% on a year, a provisional estimate (ONS). Past performance is not a guide to future returns.
The four routes
Buy-to-let
You own the building and carry every cost, from repairs to empty months, and most buyers borrow. Regulation adds to the work: in England, the Renters’ Rights Act, which received Royal Assent on 27 October 2025, abolishes section 21 evictions, makes all tenancies periodic and limits rent increases to once a year (government guide).
REITs
A REIT is a company, usually listed, that owns rental property. HMRC describes it as a vehicle that gives investors “broadly similar” returns to owning property directly: the REIT is exempt from UK tax on the income and gains of its property rental business and must pay out 90% of its rental profits as measured for tax (HMRC Investment Funds Manual). You buy the shares on a stock exchange, so you can sell on any trading day, but the price moves with the market and can sit well away from the value of the buildings. Our REITs explainer covers the regime.
Open-ended property funds
These funds pool investors’ money to buy buildings, creating and cancelling units as money moves in and out. The mismatch is plain: a building can take months to sell, while units have usually been dealt daily.
The regulator is blunt: “Repeated lengthy suspensions in the sector show that AFMs [authorised fund managers] cannot always maintain the promise of quick liquidity” (FCA CP26/35). Its consultation, published on 8 October 2026 and open until 11 December 2026, proposes that non-UCITS retail schemes with at least 50% in inherently illiquid assets have no more than one dealing day a month for redemptions, with at least 90 days’ notice (FCA). We cover it in our report on the 90-day notice plan.
Crowdfunding and loan notes
Property crowdfunding lets you lend to, or take a stake in, a single development or company, often for small sums. The FCA calls loan-based and investment-based crowdfunding “high-risk investments” and says investors “won’t have access” to the Financial Services Compensation Scheme (FSCS) (FCA). It also warns that unlisted loan notes and mini-bonds “are often used to finance property developments”, and that if the seller is unregulated you are unlikely to be able to complain to the Financial Ombudsman Service or claim from the FSCS (FCA statement, 26 September 2025).
The routes compared
| Buy-to-let | REIT shares | Open-ended property fund | Crowdfunding and loan notes | |
|---|---|---|---|---|
| What you own | A building, usually with a mortgage | Shares in a property company | Units in a fund that owns buildings | A loan to, or stake in, a project or company |
| Cost of buying in | Stamp duty with the 5% surcharge (England and Northern Ireland), legal and survey fees | 0.5% stamp duty on existing shares in UK companies, plus dealing charges | No stamp duty on units bought from the fund manager; fund and platform charges | Platform fees; terms vary by deal |
| Selling | Usually months; you need a buyer | Any trading day, at the market price | Dealing can be suspended; FCA proposes monthly dealing and 90 days’ notice for funds mainly in illiquid assets | Often no market before the loan or project ends |
| Tax on rental income outside a wrapper | Property rates of 22%, 42% and 47% from 6 April 2027 (England, Wales and Northern Ireland) | Property income distributions taxed as property income; other dividends taxed as dividends | Depends on the fund; property income distributions are taxed as property income | Depends on the product |
| Stocks and shares ISA | No | Yes, if officially listed on a recognised stock exchange | Yes, if the fund offers redemption at least fortnightly | Check the product |
| Compensation | None for a fall in value | FSCS covers a failed regulated firm holding your investments, up to £85,000; not falls in value | As for REIT shares | FCA: no access to the FSCS for crowdfunding |
Sources for the table: stamp duty from gov.uk and gov.uk; tax treatment from the HMRC technical note; ISA rules from HMRC guidance for ISA managers, gov.uk and HMRC, which confirms REIT property income distributions are paid gross to ISA managers and pension schemes; compensation from the FSCS and the FCA.
Gross yield versus net yield
Gross yield is a year’s rent divided by the price. Net yield takes off running costs. The example uses hypothetical round numbers for a home in England let by an individual in the 2027 to 2028 tax year: it shows the method, not a forecast or a typical case.
| Hypothetical buy-to-let, £250,000 price | Amount | Working |
|---|---|---|
| Rent if let all year | £14,400 | £1,200 a month for 12 months |
| Gross yield | 5.76% | £14,400 divided by £250,000 |
| Rent received with one month empty | £13,200 | £1,200 for 11 months |
| Letting and management fees | £1,584 | 12% of rent received |
| Repairs, insurance and safety checks | £1,900 | £1,200 plus £400 plus £300 |
| Net rent before mortgage and tax | £9,716 | £13,200 minus £3,484 of costs |
| Net yield on the price | 3.89% | £9,716 divided by £250,000 |
| Stamp duty at the higher rates | £15,000 | 5% on the first £125,000 plus 7% on the next £125,000 |
| Net yield on the total cost | 3.64% | £9,716 divided by £267,000 (price, stamp duty and £2,000 of fees) |
Now add a 75% interest-only mortgage of £187,500 at a hypothetical 5%. Interest is £9,375 a year, leaving £341 of cash before tax. Because of the restriction on finance costs, tax is worked out on the £9,716 before interest and then reduced by 22% of the interest from 2027 to 2028 (HMRC). A landlord whose rental profit falls in the basic rate band would owe £75.02 (22% of £9,716 is £2,137.52, less £2,062.50) and keep £265.98. A landlord paying 42% on all of it would owe £2,018.22 (£4,080.72 less £2,062.50), turning £341 of cash profit into a loss of £1,677.22.
The costs of buying
Stamp duty land tax (SDLT) applies in England and Northern Ireland; Scotland has land and buildings transaction tax and Wales has land transaction tax (gov.uk). If the purchase means you will own more than one home, SDLT is charged at the standard rates plus 5%, a surcharge that rose from 3% on 31 October 2024 (HMRC). The standard bands are 0% up to £125,000, 2% to £250,000, 5% to £925,000, 10% to £1.5 million and 12% above (gov.uk). The higher rates apply to purchases of £40,000 or more, and companies must pay them on residential property they buy, subject to limited exceptions (HMRC guidance).
Listed property shares cost less to buy into: purchases of existing shares in UK-incorporated companies usually carry 0.5% stamp duty or stamp duty reserve tax, while units bought from a fund manager are exempt (gov.uk). On £10,000 of REIT shares, that is £50.
Tax on rental profit
Individual landlords cannot deduct mortgage interest and other finance costs from rental income. They get a tax reduction at the basic rate instead, a restriction phased in from 6 April 2017 and fully in place from 6 April 2020 that landlords call section 24. The reduction is 20% of the lowest of the finance costs, the property profits and adjusted total income. Any unused amount carries forward, and it cannot create a refund (HMRC).
Three things change from 6 April 2027 for landlords in England, Wales and Northern Ireland (HMRC technical note). Property income is taxed at 22%, 42% and 47%. The finance cost reduction rises to the property basic rate of 22%. And property income is taxed after other income but before savings and dividends, with the personal allowance set against other income first. The rates are set by section 7 of Finance Act 2026; section 8 lets the Scottish Parliament and the Senedd set their own. Our guide to landlord tax from April 2027 works through examples and the devolved position.
Gains on selling a let property are taxed at 18% within the basic rate band and 24% above it (gov.uk), after the £3,000 annual exempt amount (gov.uk). Tax on the sale of UK residential property must be reported and paid within 60 days of completion (gov.uk).
Liquidity, concentration and borrowing
A single buy-to-let is a concentrated holding: one building, one area, often one tenant and usually a mortgage, and a quick sale may mean a lower price. REIT shares can be sold the same day but can fall sharply in a sell-off. Crowdfunded loans and loan notes are usually locked in until they end.
Borrowing works in both directions. With a 25% deposit, a 10% fall in the value of a £250,000 home removes £25,000, which is 40% of the £62,500 deposit (hypothetical arithmetic).
Where property fits
Property is one asset class among several, and a buy-to-let often adds to the exposure you already have through your own home. Our guide to building a diversified portfolio explains how property sits beside shares, bonds and cash. The FCA’s September 2025 warning on unregulated firms singled out loan notes that fund property developments; our guide on how to spot an investment scam sets out the checks.
