Demand from private tenants continues to grow with one in five UK households today being rented. While the Government has imposed tax changes that have reduced profits for many landlords, is Buy-to-Let still a good investment?

Hiten Ganatra, managing director of Visionary Finance, says: “Despite efforts to stem the growth of the Buy-to-Let investment market, many would argue it has shown some serious resilience. “It is still a compelling story for investors.”

If becoming a landlord is on your list of things to do for the New Year then here are the eight things you need to know:

1. Understanding Tax

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Rental income is added to any other relevant income you earn during the financial tax year. You must declare this income on a Self Assessment tax return each year. Certain expenses can be claimed to offset against your rental income and reduce your tax bill. Though landlords will only be able to claim basic rate tax relief on mortgage interest at 20% from April – previously it could be claimed at a higher or additional rate. The property income allowance means property owners can earn up to £1,000 rental income tax free each.

2. Stamp Duty

A 3% additional rate of Stamp Duty Land Tax (SDLT) is now payable on purchases of additional properties such as Buy-to-Lets.

3. Find Buy-to-Let Mortgage Advice

When it comes to finding a Buy-to-Let mortgage, the benefits of using a broker is a no-brainer. While many UK brokers charge a fee, choose a broker that offer their brokerage service completely free like Visionary Finance. They offer a whole of market service which means they have access to over 60 different lenders including all mainstream and specialist Buy-to-Let lenders. This will help to ensure you find the best deal suited to your individual circumstance.

4. Calculate Rental Income

Working out your expected profits is an important guide for calculating if the investment is worth your while. Make sure you factor in stamp duty, solicitors fees, mortgage payments, agency fees and maintenance when you crunch the numbers. You must also be prepared for times when a rental property is empty.

The net yield is calculated after all costs have been deducted – upfront expenses such as transaction charges and stamp duty, and ongoing costs including everything from mortgage repayments on the property to the income tax due on rental income. You can do some number crunching using a Buy-to-Let calculator.

5. Location Matters

Making sure your investment property is in a desirable area will help ensure demand – and a consistent rental income. You shouldn’t buy in an area just because you like it. The numbers need to add up.

The UK’s top cities for Buy-to-Let investment in 2020 are (in order) Birmingham, Manchester, Liverpool, Sheffield, Leeds, Leicester, Nottingham, Oxford, Cardiff and London.

Birmingham came in at number one because growth has outpaced all UK cities outside the capital in recent years, leaving a chronic undersupply of homes. As a result, property price growth has hit 19.3% since 2014 and Knight Frank predicts a further 12.5% increase by 2022. What’s more, the city has rental yields sitting comfortably between 4.4% and 5.3%, according to PropertyData. But do your homework on your preferred location and see how the numbers stack up.

6. Choose Your Rental Wisely

Purchase something that performs well in the chosen market. Having plenty of space is an important feature listed by tenants. Space is important to a tenant because it does not feel they are outgrowing the property and choose to move on elsewhere. Having decent storage will mean tenants enjoy a less cluttered home – and hopefully, they will stay longer. Having equal sized bedrooms will be very important to sharers, while a decent garden is crucial for families.

7. Ownership Options

The cutting of tax relief on mortgage interest for landlords has prompted more to move their properties into a limited company. If the property is owned by a company, all costs, including mortgage interest payments, can be deducted as business expenses.

Profits incur corporation tax at a rate of 19% marking a significant cut to a tax bill for higher-rate taxpayers.

As a landlord, you can draw income in the form of dividends. In 2019-20 the first £2,000 of dividends is tax -free but you pay tax on further withdrawals at 7.5% as a basic rate taxpayer or 32.5% if you fall into the higher rate bracket. 

Setting up a limited company is something to take professional advice on. Getting a mortgage on a limited company-owned property means getting a special deal from a lender. A broker can help you.

8. Don’t Forget About Resale

While investing in residential property is a long-term commitment and Buy-to-Let investors don’t typically enter the market with a view to selling, it’s important to have an exit strategy.

Should your circumstances change and you need to sell up to access your capital at, it’s smart to ensure that the property you buy can sell without any obvious complications. Market conditions are, of course, out of your control.


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