How Landlords Turn Small Deposits into Dynastic Wealth

This used to work well, but successive governments have destroyed it.

What started off as an alternative to a pension, relatively profitable, fairly hands off, has become increasingly less profitable and an easy target for any government or council in need of more funds.

If I was starting now I would avoid the PRS, it is way too much risk and hassle for relatively low rewards. I might consider commercial properties – same gearing principle.

Otherwise, I would stick to tracker funds, a bit of crypto and gold/silver, etc. These are much easier to realise and move to the next generation and so on.

Reply to the comment left by Ryan Stevens at 19/09/2025 – 11:45
Ryan, I completely understand where you’re coming from. The PRS today is very different from what it was 10 or 20 years ago, and successive governments have certainly made it less attractive as a passive ‘pension alternative’. Many landlords feel the same way.

What I’ve tried to highlight in this article is that, for those who do remain invested in property, the gearing principle still works. However, it magnifies both the growth and the inheritance tax exposure. That’s why so many experienced landlords are now looking at how to restructure, not just whether to continue.

I think your point about commercial property and even alternative asset classes is really valuable. It shows that the same principle of compounding applies, just in different sectors. For those sticking with residential property, the challenge isn’t whether the maths works, but how to protect the gains from HMRC.

I’d love to hear whether others feel the same, i.e. would they still invest in the PRS today, or would they look elsewhere?

Mortgage payment plus tax plus expenses plus potential of the council teaming up with the tenant to result in £30k fines?

There’s your risk assessment

Reply to the comment left by Darren Sullivan at 19/09/2025 – 14:12
Darren, you’re absolutely right that landlords need to factor in risks like mortgage costs, taxation, compliance obligations and, in some cases, enforcement action. The PRS has become more complex and less forgiving over time, and nobody should underestimate that.

What our analysis shows, though, is that when you take a long-term view of recycling equity, compounding growth, and balancing risk against reward, property can still outperform many other asset classes. The real danger is growing a business successfully, only to lose 40% of it to HMRC through inheritance tax because the structure wasn’t properly thought through.

That’s why this isn’t just about leverage or gearing in isolation, but about pairing growth with the right framework to protect it.

Section 24 and SDLT was enough to knock it on the head for me so we stopped at 4. It would take too long to cover the extra costs of that with equity accrual I think…and the income in the meantime wouldn’t make it worthwhile.

Now, if the properties were incorporated it would be a different story …however, that process is prohibitively expensive for me at the moment so I guess the government gets what it wants – I’m stuck contributing AND providing housing…AND being a convenient scape goat to blame for the housing crisis!

I’m left weighing up the benefits of incorporation Vs waiting around for 3 years and hoping for the best…if we choose to incorporate or S24 is reversed, the philosophy you refer to will be the way we proceed!

Reply to the comment left by Candyman1980 at 19/09/2025 – 14:59
Candyman1980, I really feel your pain here. Section 24 and SDLT have pushed many landlords into exactly this dilemma. Expanding in your own name is unattractive, but incorporation can also be prohibitively expensive if you’re not eligible for Section 162 Incorporation Relief or the Sum of Lower Proportions SDLT relief.

One possible route some landlords in your position have explored is selling part or all of an existing portfolio to crystallise the CGT, then re-investing through a Family Investment Company from day one. Buying either a mixed-use property, or a block of six or more residential units in a single transaction, means you could access the lower non-residential SDLT rates at the point of purchase. That way, growth is captured in the right structure from the outset, without the barriers that prevent so many from incorporating later.

With the benefit of hindsight and the knowledge you now have, there may also be opportunities to buy better. Many landlords are ‘throwing in the towel’ at the moment, and in some cases ‘throwing the baby out with the bathwater’. That can mean higher yields and stronger growth prospects for those prepared to restructure and re-enter strategically.

It’s a tough balancing act, but your comment highlights why structure, timing and selectivity are just as important as leverage and growth.

so if you cash in your chips at 159m and pay of the debt then how much cgt will you have to pay?
does your spreadsheet show this please?

Reply to the comment left by david porter at 19/09/2025 – 17:42
David, technically yes, if you cashed in at £159m and paid off the debt, there would be a very significant CGT bill to contend with — but that’s not really the point of this exercise.

The whole idea behind recycling equity is that you don’t sell and trigger CGT, you compound growth over decades and then structure things so that the wealth passes efficiently down the bloodline.

Why on earth would you want to give HMRC a huge slice mid-way through the journey, when the real opportunity lies in keeping the chips on the table and letting them work harder for the next generation?

I’m investing for my future so that I can move to the med with a beautiful young lady!
Not for my family!

Surely there’s a dilemma. If a property is sold for say £200000 then after CGT, legal fees, stamp duty etc I wouldn’t be able to afford to buy it back as it would be out of my reach! So, is it wiser to keep hold simply as a static investment??