Buy-to-let or Pension: What’s Really Worth It in 2025?

The answer depends on your own individual circumstances but it also isn't as simple as it used to be. Let’s take a closer look.

Buy-to-let or Pension: A Quick Comparison

Legislation to Know (2025)

Buy-to-Let Property

• Stamp Duty: 3% surcharge on second properties.
  
  
• Capital Gains Tax: 18% (basic) or 24% (higher rate) on gains when sold.
  
  
• Mortgage Interest: No longer deductible. Now a 20% basic rate tax credit only.
  
  
• Renters Reform Bill: Abolishing Section 21 (“no fault” evictions), extended notice periods, rent increase limits, and stricter penalties for poor property standards.
  
  
• Ltd Company Ownership: Offers full mortgage interest relief and lower corporation tax (19 - 25%), but profits are taxed again if withdrawn as dividends. No confirmed changes yet - but growing HMRC scrutiny.
  
  

Pensions

• Tax relief on contributions remains generous:
  
  
  • Basic rate (20%) added at source.
  • Higher rate taxpayers can reclaim an extra 20-25% via annual self-assessment.
  • This is applicable on personal relief at source contributions – tax relief is different for a net pay scheme.

What If You Had £48K to Invest?

Let’s compare two options for a higher-rate taxpayer.  The following scenarios have been included for example purposes only and do not constitute advice. 

Option 1: Buy-to-Let £150,000 property

• £37,500 = 25% deposit on a £150,000 property.
• £8,000 stamp duty
• £2,500 assumed other buying costs, including legal costs

Money.co.uk – The cost of buying a home explained - 22 January 2025 - https://www.money.co.uk/mortgages/cost-of-buying-and-moving-home

• £48,000 needed upfront
• Mortgage (interest-only, 75% LTV): £112,500. Assume 5.23% interest → £5,880/yr interest (illustrative of current market levels).
• Rent: 5.60% yield = £8,400/year gross rent.

Money.co.uk –https://www.money.co.uk/mortgages/cost-of-buying-and-moving-home

• Expenses: ~30% of rent = £2,520/year.
  
  

The BLA - How much does it really cost to let a property 2024 

• Net rent: £8,400 - £2,520 - £5,880 = £0/year cash flow
• You will be liable to income tax at higher rate every year as only 20% of interest would be deductible, so assumed annual income tax liability for a higher rate taxpayer:

(£8,400-£2,520-20%*£5,880)*40%=£1,881.6

• Property value growth at 2.5% annually.

Savills – Revised Mainstream House Price Forecasts:  2024 – 2028 -  7 May 2024

• After 10 year property value £192,013
• Mortgage still: £112,500
• Equity before sale costs & CGT: £79,513 (also remember annual income tax bill and missed growth on it)

Option 2: Pension

• £48,000 contributes into a relief at source scheme
• Basic tax relief of 20% added to the pension automatically to make up a total pension contribution of £60,000
• Higher rate taxpayer can reclaim tax on a further 20% of £60,000 = £12,000.
• This extra £12,000 is not added to the pension automatically — it is reclaimed via self-assessment as a tax refund.
• £60K invested into a relief at source pension scheme
• £12K reclaimed via self-assessment can be spent or invested into ISA (an individual can invest up to £20K into ISA in 2025/26 tax year and it will grow free of income tax and capital gains tax)
• Grows at 5.9%* annually, compounded.
• The Financial Conduct Authority sets maximum growth rates that can be used in projections. These rates, after allowing for the effects of inflation, are -0.10%, 2.90%, and 5.90% each year.
• After 10 years: £60,000 grows to £106,441 inside the pension
• Growth is tax advantaged inside the pension
• Under current legislation tax-free lump sum of 25% (up to £268,275, or potentially higher if lifetime allowance protection is held)

Flexible withdrawal options from age 55 (rising to 57)

• We would assume you spend additional £12,000 reclaimed via Self-Assessment
  
  

10-Year Net Value Comparison

After 10 years:

• Pension: Grows to ~£106,441. (If the example figure of 5.9% is achieved).
• You also had £12,000 reclaimed via Self-Assessment which you could invest into an ISA, so potential from even more growth.

• BTL: Equity before sale costs & CGT: £79,513 (also remember annual income tax bill of £1,881.6 and missed growth on it)

• Capital Gains Tax (CGT): 18% for a basic rate tax payer or 24% for a higher or additional rate tax payer on gains (after £3,000 annual CGT allowance)
• Less flexible as you can’t sell just a part of it
• Maintenance costs and void periods can eat into returns
• Less liquid and more hands-on than a pension
• Reduced mortgage interest relief: You can no longer deduct interest fully—only a 20% credit applies (in the example we used you also would have an income tax liability on the rental income, as only 20% of the interest paid would be deductable)

To summarise…

Pension may be more suitable on:

• Liquidity (once accessed but would be dependent on where invested)
  
  
• Tax efficiency
  
  
• No tenant, maintenance, or compliance risk
  
  

BTL may be more suitable but only if:

• You get above-average yields.
  
  
• Capital growth significantly outpaces inflation.
  
  
• You use leverage wisely—but that also adds risk.
  
  

Conclusion: Buy-to-let Still Has a Place - But It’s Not as attractive Anymore

In 2025, investing in a pension takes less time and admin and more tax benefits for higher earners. BTL has become more of a high-effort investment strategy, suitable only for those with time, appetite for risk, and access to good properties.

If you’re sitting on cash or equity and unsure which route makes sense for your long-term goals, it’s worth running a personal cashflow model.

Want to see your own numbers? Book a no-obligation health check of your finances and we will walk you through it.