Which is best – buy-to-let or shares?

Becoming a buy-to-let landlord has traditionally been a popular way to invest money for the future.

Many buy-to-let (BTL) landlords rely on their property portfolio as a source of retirement income.

But in recent years, the popularity of property investment has declined as the government imposed higher costs and tighter restrictions on landlords.

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In 2016, the then Conservative government added a 3% surcharge to stamp duty for properties other than your main residence. In October 2024 the current Labour government increased this to 5% on top of standard stamp duty rates if buying a new residential property means you’ll own more than one property.

Changes to tax rules also mean higher-rate taxpayers can now only claim 20% tax relief on their mortgage interest payments, rather than 40% or 45% (you can get around this by using a limited company although that comes with its own set of complications).

On top of these changes, borrowers now have to contend with higher mortgage rates than in the decade or so since the financial crisis, as the Bank of England has raised interest rates to combat high inflation. Although rates are currently on a downward trajectory – in August the Bank of England cut interest rates to 4%, taking the cost of borrowing to the lowest level for more than two years.

According to Moneyfacts, the average interest rate on a two-year fixed buy-to-let mortgage in September stands at 4.88%. The average five-year fixed BTL is 5.21%

Two years ago the rates were much higher. According to Moneyfacts the average interest rate on a two-year fixed buy-to-let mortgage in August 2023 was 6.7%, and was closer to 8% on some mortgages.

What is the return on a buy-to-let property?

A good property rental yield in the UK is considered to be between 6% and 8%, says NatWest. But that’s a crude figure based purely on the purchase price, ignoring stamp duty and any legal fees.

Add in insurance, repairs and maintenance, fees to letting agents and voids (times when the property is empty and not producing any rental income) and your expected yield starts to fall.

In reality, many landlords find their rental income covers their expenses but produces very little on top of that.

Of course, there is capital growth to consider, too – the old adage that you “can’t go wrong with bricks and mortar”.

The average UK house price has risen from £186,435 in September 2015 to £269,079 in June 2025, according to the latest figures from the Land Registry – an increase of 44%.

But when you come to cash in that gain by selling the buy-to-let property, you will have to pay capital gains tax as well as the other charges that come with buying and selling houses. The government reduced the capital gains tax-free allowance in April 2023 from £12,300 to £6,000, before being further reduced to £3,000 from April 2024, meaning a landlord will pay more tax on any profit from house price growth when selling-up.

Energy performance certificates (EPC) are mandatory for anyone selling a home and you must have ordered one before your property is placed on the market. These range from £35 to £150 plus VAT; the typical price according to The Advisory, which offers house selling advice, is £75 plus VAT, so let’s place the cost of your EPC at £90.

Estate agent fees range between 0.75% and 2.25% plus VAT of your property’s final sale price. The majority of traditional high street estate agents, which are used by around 95% of all house sellers, won’t charge you if they don’t sell the house but the average fee sits around 1.42% including VAT. On the sale of a £269,079 property (the current average price of a house according to the Land Registry), this would amount to £3,823.

Conveyancing solicitor fees range from £550 to £1,000 so for an estimate’s sake, lets place the average at £750.

If you’re selling while you’re still paying off your mortgage you’ll also have to pay a mortgage exit fee (costs range between £50 and £300) and an early repayment charge, which is between 1% and 5% of your loan amount.

You also have to factor in removal costs, which will vary depending on the number of things you have to transport and whether you do the packing yourself, the distance you’re moving and your home’s accessibility. If you want to reduce removal costs you could hire a van and do it yourself. Also consider the cost of things like cleaning, repairs, and redecorating.

If you’re selling a property that’s not your primary residence you’ll have to pay capital gains tax. This will be calculated based on how much your property has increased in value throughout the time you’ve owned it. You can deduct the cost of any improvements plus the costs of buying and selling the property.

So based on a £269,079 property you’d be paying £90 for your EPC, £3,823 in estate agent fees, and £750 in conveyancing fees. This takes the average cost of selling a house to £4,663 excluding any mortgage charges, removal fees and decorating charges.

How has property performed over the past 20 years?

Now let’s look at what you could have made in property over the last 20 years. If your property has increased from £146,635 in September 2005 to £269,079 in June 2025, you’ll have capital growth of £122,444 before costs and tax.

For someone earning £30,000 a year with a £3,000 capital gains annual exempt amount, the tax due after selling the property would be £27,451, according to calculations by wealth manager Quilter.

This is based on a chargeable gain of £119,444 (after the annual exempt amount), and then £20,270 of the gain taxed at the basic rate of 18% (which equals £3,649) and £99,174 of the gain taxed at 24% (which equals £23,802).

As well as (hoped for though not guaranteed) capital growth in the intervening years between buying and selling a property, the advantage of a BTL is the rental income.

Quilter crunched some numbers for MoneyWeek on assumed rental income over the past 20 years.

Using a 5% gross rental yield on the 2005 purchase price (£146,635) you’d get £7,331.75 a year. Multiplied over 20 years brings in £146,635 total gross rent. Deducting 30% to account for letting agent fees, maintenance, insurance, and voids gives a £102,645 net rental income over two decades.

So the net outcome of investing in property over the past 20 years is:

Capital gain after tax and costs: £90,331

Add net rental income: £102,645

Overall return: £193,000 over 20 years

How has the stock market performed over the past 20 years?

Compare all that to putting around £100,000 into the stock market back in 2005.

Over the past 20 years UK equities have increased in value by about four times, according to Quilter’s calculations, and global equities by eight times. That’s based on the the MSCI UK Index and MSCI All Country World Index respectively,

Based on monetary returns alone, stocks have been the better buy compared with building a rental portfolio.

If an investor had placed £100,000 in the MSCI UK Index 20 years ago rather than buying a rental property, the investment would be worth £408,900 today. That’s before tax. The same investment in the MSCI All Country World Index would be worth a whopping £796,200.

But again, this isn’t always going to be the case. If you have a property that skyrockets in value and you sell it at the right time you might find you’ve made a far more significant gain.

Equally, if you decide to sell equities at the wrong time you could suffer a painful loss.

Capital gains tax applies to investments too, of course, unless you have put them in a tax-free wrapper such as an Isa or Sipp.

There is also the amount of work to consider. Investing can be as much work as you make it. Picking stocks is tough and involves a lot of research, but putting your money in a FTSE 100 tracker involves about as little effort as it is possible to make.

Being a buy-to-let landlord can be very labour-intensive too, even if you farm out much of the day-to-day business to a letting agent. A landlord has a host of legal responsibilities from gas and electrical safety certificates, and even regulations covering what furniture you can use.

And if you don’t vet your tenant properly and it turns out that they do not have the “right to rent'' in the UK, you could face five years in prison or an unlimited fine.

The stock market also has its ups and downs but based on the maths, even despite the risk, equities have been the better buy over the past two decades on average.

Jonathan Raymond, investment manager at Quilter Cheviot, said: “Over the past two decades, buy-to-let has delivered respectable returns, but the numbers show it’s been outpaced by the stock market, particularly global equities.

“While property offered a total return of around £193,000, the same investment in global equities could have grown to nearly £800,000. That’s a striking difference, and it highlights the power of compounding and diversification over time.”

That said, many investors are still drawn to bricks and mortar. Property feels tangible, you can see it, touch it, and in some cases, live in it. For some, that sense of control and familiarity is worth a lot.

But it’s also a more hands-on investment, with ongoing responsibilities, costs, and exposure to tax and regulatory changes. Buy-to-let also offers the potential to enhance returns through leverage, with mortgage borrowing amplifying gains, though it also introduces ongoing costs and risks, particularly from interest payments and rate volatility.

Equities, on the other hand, offer a more passive and tax-efficient route, especially when using ISAs or pensions. But they’re not without their own challenges.

“Over the same 20-year period, global equities experienced one major drawdown of around 50% during the 2008/09 financial crisis, and several other falls of 20% or more. Investors need a strong constitution, and a long-term mindset, to stay the course through those periods of volatility,” said Raymond.

“Ultimately, it comes down to personal preference, risk appetite, and how involved you want to be in managing your investments.”