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Updated: Dec 5, 2021

Considering buy to let investment or have a property that you are considering letting? Our overall advice to you before you do anything else is to TALK TO US .

You are no doubt going to have many questions, thoughts and ideas running through your head. We are here and we want to help. We always offer free advice and guidance on all aspects of property letting and management with absolutely no commitment on your part to use our ongoing services.

Of course we hope that in talking to us, you will find that our vast knowledge of the industry together with our enthusiastic and friendly approach too much to resist and will want to continue your investment journey with us!

Pop in and see us, email us, call us - we would love to hear from you.

Ten top tips for Buy to Let

The essential advice for property investors

1. Research the market on Buy to Let

2. Choose a promising area to invest in property

3. Do the maths on Buy to Let

4. Shop around and get the best Buy to Let mortgage

5. Think about your target tenant

6. Don't be greedy, go for rental yield and remember costs

7. Look further afield or doing a property up

8. Haggle over price when investing in property

9. Know the pitfalls of Buy to Let

10. Consider how hands-on a landlord you want to be

How to Calculate Rental Yield for UK Properties

To work out rental yield you apply this simple rental yield formula:

Rental yield = (Monthly rental income x 12) ÷ Property value

We’ve broken down how you use this formula to calculate rental yield below:

1 Take the monthly rental income amount or expected rental income and multiply it by 12

2. Divide it by the property’s purchase price or current market value

3. Multiply this figure by 100 to get the percentage

Tax on Buy to Let and how to cut your bill

Becoming a Buy to Let landlord can mean reaping a decent return, but it will also add to your tax bill.

If you can find a property in a decent location with good tenants then then you should be able to build up a good income from rent.

But the taxman will want to know about any returns you make. If you don't declare your income properly or capital gains when you sell, you could be in trouble.

We run through the taxes associated with Buy to Let.

Some of these taxes and allowances have changed, so make sure you are up to date with them.

The taxman and Buy to Let

The taxman has taken a greater interest in people renting our homes in recent years. 

While many may have got away with doing so and not paying tax in the past, they are much more likely to be caught out now.

There is something you need to know about mortgages that makes it obvious you have been letting a property.

To purchase a buy-to-let you need a different type of mortgage to the type you would get for your own home.

Lenders will also want to know if you have begun renting out your existing home because this is usually not allowed under the terms and conditions of a residential mortgage. Often you will have to move to a Buy to Let rate, or get permission to let.

Most banks and building societies offer Buy to Let mortgages. The rates tend to be higher than residential mortgages, which reflects risks such as tenants not paying rent and you defaulting.

Buy to Let is treated as an investment so is subject to income tax on rent and capital gains tax on sale. You will also have to pay stamp duty on the property purchase.

Inevitably there will be those who think they can get away with dodging some of the taxes levied on buy-to-let, perhaps not paying tax on rental income, or a capital gain made. 

In the past some have, but the taxman has cracked down very heavily on this in recent years -actively making landlords a target. 

At the same time, mortgage lenders have also cracked down on those letting property but staying on a residential mortgage. 

You are far more likely to get caught out if you try to skip tax today. 

Stamp duty

The first tax you will need to pay if you are purchasing a property to start a Buy to Let portfolio is stamp duty when you purchase a property, just as you do with a residential home.

The bad news is that stamp duty has been increased for Buy to Let and second homes. A change arrived in April 2016 that added a 3 per cent surcharge to all the stamp duty bands - in some cases this trebles the bill. 

The good news is that you can claim back the stamp duty by offsetting it against any capital gains tax liability when you sell.

Income tax on buy to let

You will have to complete a self-assessment tax return to pay income tax on any rent you receive.

The amount you pay will be determined on your income tax banding, so if you are a basic rate taxpayer you pay 20 per cent, 40 per cent for a higher rate and 45 per cent for the additional rate.

However, currently you can reduce the amount of tax you pay with mortgage interest and by offsetting any ‘allowable expenses’ that HMRC will let you claim for.

You can also currently offset some other things as allowable expenses. These include any arrangement fees for setting up loans for the property.

Any maintenance and costs on the property (but not improvements), letting agent fees, buildings insurance, direct costs of letting, or services such as gardening can also be claimed for.

Check with an accountant or HMRC if you are unsure what to claim for. 

Capital gains tax (CGT)

When you come to sell your Buy to Let property, there will be capital gains tax to pay on any profit.

Lettings relief 

A further element called lettings relief can further reduce your CGT bill.

Lettings relief applies where the property has at some point been an individual's only or main residence 

Letting relief is worth the lowest of three amounts: private residence relief already claimed, the value of the increase in capital gains which occurred during the period when the property was being let, or £40,000.

When combined with the annual CGT allowance, these two reliefs can often take bills down to zero. This means a good accountant can be highly beneficial, in such cases.

Offsetting stamp duty and estate agent's fees 

You can reduce your CGT bill by deducting some of the expenses associated with buying and managing a property.

You can offset costs such as the stamp duty paid when you purchased the property as well as solicitors’ fees, estate agent’s fees to market the property, refurbishments costs that are capital in nature and have not been offset against the rental income and surveyors' fees if a survey was carried out when you purchased the property.

You may also be able to offset losses on other property against your capital gains tax bill.


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