Residential Property purchase or Investment Portfolio?

It’s generally accepted that the UK population is growing, whilst our building rate is not sufficient to meet demand. This is exacerbated by the fact that the number of people per household is falling due to a rise in divorce in the over 65s[1] and fewer families choosing to live inter-generationally.[2] This means that the rental market generally remains buoyant.

The UK residential property market has enjoyed excellent growth over the years, with house prices outstripping inflation by around 3% a year from 1955 to 2018.  However, the UK stock market has grown faster still, producing returns over 6% above inflation, on average, over the same period.[3] These figures don’t take rental or dividend yields, or other costs, into account.

Some landlords, or potential landlords may feel concerned that relatively high rents stop others being able to get on the property ladder. However, there are things they can do to act responsibly:

  • Join a trade body like the National Landlord’s Association (NLA) or the Residential Landlords Association (RLA).
  • Rent out to those on Housing Benefit. This can be done directly or via a local Housing Association. Tenants on benefits can actually be reliable, more likely to keep on top of rent payments and look after the condition of the property because they often lack alternate options should problems arise.[4]
  • Offer longer contracts than the common Assured Shorthold Tenancy (AST) agreements. Research from Shelter shows that over two thirds of tenants would like to stay longer than the 6 or 12 month AST agreements usually offered to them.[5]
  • If they can afford to, they may choose to rent out their property at a discounted rate, and only increase the rent by inflation.
  • Keep the building in good repair and respond promptly to any queries from the tenants.

Happy tenants generally stay for longer periods and this subsequently reduces costs in agreeing tenancies with multiple successive tenants.

Below we consider the pros and cons of property purchase vs an investment portfolio:




Investment Portfolio


Can be hard to sell; large sum held in one asset

Usually easy to sell all or part. Regulated firms are subject to liquidity rules to ensure investments are suitably liquid for the owner’s circumstances

Capital Gains Tax

(Tax rates differ for basic, higher & additional rate taxpayers)

18% / 28%

Property is sold in one amount rather than portions. Tax must be paid on gains exceeding the annual CGT allowance of £12,300

10% / 20%

Can utilise CGT allowance annually for gains that are realised within the tax year

Tax on Income

Tax of 20/40% is charged on rental income, depending on your income tax rate.

Where investments pay a dividend these are taxed at 7.5% / 32.5% / 38.1%, depending on your income tax rate.


Dealing with tenants; maintenance, repairs, decoration and insurance – this could be handed over to a management company for a fee

Commit time to finding and arranging a suitable investment. Or, find and meet a financial adviser and/or investment manager that you trust. Some will manage your investments on an ongoing basis, reducing effort required from you.


Conveyancing Fees

Survey Fees

Letting Agents’ Fees

Stamp Duty

Second home tax via Stamp Duty – typically 3%

Repairs & Refurbishment

Carbon monoxide, EPC & other safety checks

Landlord’s insurance

Mortgage if relevant

Initial Advice Fees, if applicable.

Fees for ongoing advice and ongoing investment management, if applicable. These can be taken from the investment itself if there is sufficient value in it.

There may be modest set-up or purchase charges and dealing charges upon exiting the investment.


Potential periods of property being vacant

Possible costs if tenants don’t adhere to their agreements – e.g. tenants who can’t/won’t pay; who damage the property; who refuse to vacate after notice. Potential legal costs may be incurred.

Illiquidity: You need to sell but can’t

Interest Rates on any mortgage may rise

Investment volatility - you could lose more than you originally invested.

Changes in tax-efficient allowances by Government


Please note that this document is intended for information purposes only and it does not constitute a personal recommendation or inducement to invest. Recipients must satisfy themselves that any action they take is appropriate in the light of their own personal circumstances. You should seek independent financial advice first if you have any doubt that the financial planning options explained in this document are suitable for you.

All taxation rates and allowances quoted are correct at the time of writing, however can be subject to change. Further information about taxation rates, allowances and protections are available at


[1]   Source: ONS 2017

[2] Government Office for Science Jul 2015

[3] Source: Hargreaves Lansdown   “Property versus the Stockmarket” August 2019

[4] Source:

[5] Source:



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