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Is investing in buy-to-let properties still profitable in 2023?

Is the golden era of buy-to-let investments coming to a close? Let's take a deep dive into buy-to-let investments.

7 min read

At Hello Mortgage we get asked the question 'Should I invest in a Buy-to-Let this year?' Wouldn't it be nice to own a property, rent it out and then just sit back while the money comes pouring in? For many of us, this is only a dream. But with some careful planning and research, you can make that dream come true! You may assume that we would tell you buy-to-let is a breeze; however, this couldn't be further from the truth. The reality of our business dictates that it's anything but convenient and straightforward.

Nonetheless, we strive to ensure that you have the proper insight. With 3% stamp duty surcharges plus a plethora of new laws and regulations to comprehend, it's no surprise why some landlords feel apprehensive.

With the increased tax drag in 2023, investing in a Buy-to-Let property can be quite daunting. Not only do you need to save up a hefty 25% deposit, but it's also difficult to decide whether this is the right move for you or not. As such, taking those first steps may seem overwhelming and confusing.

It's time to take an in-depth look and discover if buy-to-let is still a lucrative investment for 2023.

As a landlord, what kind of tax are you required to pay?

Since 2016, anyone acquiring a second property must pay an extra 3% stamp duty tax.

By investing in a £300,000 property, investors incur an additional £9,000 when compared to those purchasing for their own use.

Scotland has implemented a 4% stamp duty surcharge on second homes and rental properties, making it more expensive for non-residents to purchase a property.

Section 24 of the Housing and Planning Act 2016 has rendered private landlords unable to use mortgage repayments as a means of reducing their tax liabilities.

In April 2020, the Government altered tax relief for individual landlords. All rental income earned by buy-to-let landlords must now be taxed, regardless of mortgage interest costs. Private landlords with a mortgage can no longer deduct their entire interest expenses from their income tax returns. Instead, they get to enjoy a 20% credit on taxes for the property rent.

As a consequence, landlords now pay their taxes based on the amount of income they receive from renting out their property instead of how much profit remains after paying mortgage interest. If you are considering establishing a limited company, then rejoice! Mortgage interest is seen as an operating cost and can be used to offset your taxes. Taking advantage of the ability to subtract expenditures from profits, you can minimise your company's corporation tax if it is owned by a limited company. If you're considering this option, be sure to get professional financial advice from a certified tax specialist.

What impact will the adjustments to the Capital Gains Tax have on individuals and businesses?

Recent changes to Capital Gains Tax have been enacted, meaning there are now new rules and regulations for investors. As a result, buy-to-let investors are subject to an increased tax burden when they decide to sell their investments. For higher-rate taxpayers, the Capital Gains Tax rate on residential property stands at a whopping 28%, whereas it is set at 18% for basic-rate taxpayers. This should be contrasted with other assets where the respective percentages are lower:18 and 10%. Chancellor Jeremy Hunt has announced that the tax-free allowance for capital gains tax will be diminished from £12,300 to £6,000 in April 2023 as part of his recent Autumn Statement. It is important to keep this alteration in mind moving forward if you rely on or plan on relying on any form of income related to capital gain. Subsequently, the following year will witness a further reduction to £3,000 from the existing £6,000 level. In the next few years, landlords will confront a harsh reality when they put their property on sale: they'll be obligated to fork over more capital gains tax due to the decreased threshold of this tax-free allowance.

Is establishing a limited company the right decision for you?

If you're contemplating becoming a landlord next year, one essential question to ask yourself is whether it would be beneficial to buy-to-let through a limited company. If you are in the upper tax bracket, any income earned from your property may be subject to a 40% personal taxation rate if it is registered under your personal name.

England, Northern Ireland & Wales Income Tax Rates

 Tax Band


 Tax Rate

 Basic Rate

 £12,570 to £50,270


 Higher Rate

 £50,271 to £150,000


 Additional Rate

 over £150,000



Scotlands income tax rates slightly differ from the areas mentioned above and can be identified in the table below.

Tax Band


Tax Rate

 Standard Rate

 £12,570 to £14,667


 Basic Rate

 £14,667 to £25,296


 Intermediate Rate

 £25,296 to £43,662


 Highest Rate

 £43,662 to £150,000


It is important to note that the number of buy-to-let mortgages available for limited companies tends to be lower when compared with those accessible by private individuals. This can make it difficult and expensive to obtain a mortgage, as you will need an accountant's help in filing your annual accounts.

Are there any financial advantages to forming a limited company in regards to inheritance tax?

Landlords can substantially reduce their inheritance tax bill by purchasing property through a limited company if they intend to pass on the portfolio to children or family members.  For expert advice on Buy to Lets and Limited companies, speak to one of our friendly advisors.

How hands-on do you want to be?

Undoubtedly, buy-to-let investments necessitate a little bit of attention and effort. You must research the property you want to purchase and then oversee your investment from that point on.

If you wish to purchase a property, not only must you be prepared for the buying process and any refurbishment that may need to take place, but also deciding if what comes next is worth it; enlisting a letting agent to manage your asset.

So, is buy-to-let worth it in 2023?

Though investing comes with a certain degree of risk, if you take the long-term approach and view it from an overall perspective, buy-to-let can be incredibly advantageous for you. While it's not an overnight money-making machine, those who invest in this venture with a clear view of the potential income can make a great living. Despite some recent changes that have reduced the allure of buy-to-let for some investors, it remains a viable and profitable investment opportunity when done correctly. Even though rental yields have dropped, it is still essential to remember that capital growth plays an equally important role in making a buy-to-let investment profitable. Although rental income remains critical, capital appreciation can be the difference between success and failure when investing in property.

What next?

One of the first things you to ensure is that if you are not a cash buyer, can you obtain a buy-to-let mortgage? At Hello Mortgage we search the entire market to find you the best mortgage suited to your needs and requirements. Book a call with one of our friendly and knowledgeable advisers today!

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