Property investments can be a fantastic way to earn a second income. But with the government hiking taxes on British landlords, it’s becoming increasingly difficult to succeed with a buy-to-let strategy.
Yet there are other ways to invest in UK real estate. And one such method only takes a few hundred pounds to get started, with all income potentially entirely tax-free. Here’s how.
An easier, tax-efficient way to invest in property
With high-yielding real estate investment trusts (REITs), it’s possible to start earning a chunky tax-free second income overnight.
These unique businesses trade like any other stock on the London Stock Exchange. That means compared to a buy-to-let property, it’s far more straightforward to start putting money to work.
But REITs are a special type of investment. The underlying business owns and manages a portfolio of real estate assets, generating rental cash flows each month, the bulk of which is returned to shareholders via dividends after covering expenses.
Dividends in the UK are indeed taxed. But when REITs are held inside a Stocks and Shares ISA, this tax disappears. And the result is an indirect real estate passive income stream that HMRC can’t touch.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Which property stocks should investors buy?
Here in the UK, there’s a long list of REITs to pick from. But one that currently stands out in April 2026 is Primary Health Properties (LSE:PHP).
As the name suggests, the REIT owns and manages a portfolio of healthcare-related real estate, primarily GP surgeries. In fact, the company is one of the UK’s largest healthcare landlords with over 1,100 properties in its portfolio.
Digging deeper, most of these facilities are leased by the NHS, resulting in a revenue stream that’s ultimately backed by the UK government.
That’s translated into a remarkably reliable rental income, resulting in 30 years of continuous dividend hikes. And at a share price of around 92p, the yield sits close to 7.8%.
In terms of money, that means for every £100 invested, Primary Health Properties will generate £7.80 in a passive second income that’s almost entirely guaranteed by the government.
What’s the risk?
Having the UK government as the largest tenant is quite advantageous. But it’s also a double-edge sword. It’s no secret that the state of the UK public finances is a mess. And if political priorities shift or budgets are cut, Primary Health Properties’ predictable cash flow could start to suffer if expiring leases don’t get renewed.
Another weak spot is debt. With the bulk of profits paid out to shareholders, the company is highly dependent on debt to expand its empire. That’s not a problem when interest rates are low. But when rates are high, suddenly enormous chunks of cash flow get gobbled up. And that means, less money is available for dividends.
For now, the company is generating enough profit to cover shareholder payouts. But the margin is thin. And if interest rates start rising again while leases expire, dividends could be put on the chopping block.
This risk is why the yield is so high. And investors will need to consider this potential scenario carefully before snapping up any shares. Yet with such a long-track record of financial diligence, Primary Health Properties could be worth mulling over for investors seeking a second income from UK property.
