Buy-to-Let Property Investment vs Pensions

March 14, 2023

Which investment option is right for you?

If you’re a UK-based individual looking to invest for your future, you may consider a buy-to-let property investment or a pension. Both options have advantages and disadvantages, so it’s important to understand the differences and decide which is right for you.

Buy-to-Let Property Investment:

  • Typically requires a large upfront investment, such as a deposit and other associated costs (e.g. legal fees, surveys, etc.).
  • Allows for gearing, which means that you can borrow money to invest in the property, potentially increasing your returns but also increasing your risk.
  • Involves ongoing costs such as mortgage payments, maintenance, and management fees.
  • Potential for rental income, which can be subject to taxes and fluctuations.
  • Property values may appreciate over time but are subject to market fluctuations.
  • Capital gains taxes may be payable upon property sale at 18% for basic rate taxpayers and 28% for higher rate taxpayers*.
  • Property investment is subject to legal and regulatory requirements.
  • Inheritance tax may apply to the value of the property upon death at a rate of 40%.

*The capital gain is added to your income and then taxed at the appropriate rate (18% or 28%). Consequently, even basic-rate taxpayers can end up paying 28%.


  • Allow you to save for retirement in a tax-efficient way.
  • Contributions may be tax-deductible up to certain limits.
  • Your employer may also contribute to your pension.
  • Your pension fund can be invested in a range of assets, including stocks and shares, bonds, and property.
  • Growth on your pension fund is generally tax-free.
  • Upon retirement, you can choose to receive an income or withdraw the funds as a lump sum.
  • Your pension income is subject to income tax.
  • Pensions can be passed on to your heirs tax-free if you die before age 75.

Example Scenario:

Consider an example scenario to see how these investment options affect your estate.

  • A married couple with children have a property portfolio worth £1m in addition to their own home and other assets worth a £1m, so a total estate of £2m excluding pensions.
  • If they were to pass away, their estate would face a £400,000 inheritance tax bill (40% of £1m) on the property portfolio alone.
  • If the same couple had a £1m pension and £1m in other assets, they would have no inheritance tax bill upon death, a £400,000 saving!


  • Buy-to-let property investment can offer potential rental income and property value appreciation but requires a large upfront investment and ongoing costs. Gearing can increase returns but also risk, and capital gains tax may apply to the sale of the property at 18% for basic-rate taxpayers and 28% for higher-rate taxpayers. Inheritance tax may also apply to the value of the property upon death at a rate of 40%.
  • Pensions can provide tax-efficient retirement savings with potential employer contributions, a range of investment options, and flexibility in how you receive your pension income. Pensions can also be tax-free to your heirs if you die before 75.
  • Both options have their own advantages and disadvantages, and it’s important to consider your personal circumstances and financial goals before making a decision.

Disclaimer: This blog is for informational purposes only and should not be construed as investment advice. It is important to seek professional advice before making any investment decisions.