Ultimate Guide To Buy To Let: Part Three

This is part three of a four-part series, forming the Ultimate Guide to Buy to Let. Click here to read part two which discusses property types, as well as your responsibilities as a landlord.

Should I Use An Agent? How Much Will It Cost?

While using a letting agent isn’t essential, it is certainly recommended. They will take on most of the potential stresses and strains that can come with owning an investment property. They will advertise your property for you and find prospective tenants. They also make sure tenants are vetted properly with suitable referencing services. They can do credit checks, collect deposits and also draw up tenancy agreements making sure that both you and the tenant are covered legally. You can also have them collect rent payments on your behalf, chase up late payments and pursue any legal action that may be required.

If you do decide to manage your property with a letting agent then Aspen Woolf can provide an excellent, professional service that will cater for all your needs. Whether you just want someone to find a tenant and set up the original letting agreement, or if you want an ongoing service, Aspen Woolf’s dedicated team is here to help. They can take the hard work out of running your own property and provide your tenants with a professional service.

Their fees vary depending on the type of service you require as well as the type and size of the property. A one off “let only” type of service will cost in the region of two to four week’s worth of rent, whereas a full management service may cost around 10-15% of your expected monthly income.

While all letting agents are required to publish details of all their fees and charges, it is always worth checking the small print. Aspen Woolf ensure that all fees are disclosed upfront so there is no need to worry about any hidden charges. It is worth noting that when your agreement comes to an end, you are free to negotiate the deal or choose another provider if you wish.

Buy-To-Let Tax Implications

Whenever buying a property in the UK you will incur tax charges. The most notable of these is Stamp Duty. Below are details of the current rates for Stamp Duty Land Tax Charges in England and Northern Island for the tax year 2017/2018. These figures include the 3% increase which may be applied when multiple residential properties are owned. Please check with a tax advisor for confirmation of local rates if outside this area or for subsequent tax years.

Property ValueSDLT Rate
£925,001-£1.5 million13%
£1.5 million +15%

Your rental income from a buy-to-let property is tax deductible, therefore it must be declared on your self assessment tax returns. This will be charged in line with your income tax band (20% for basic rate, 40% for higher rate and 45% for additional rate). You will be able to claim back for various expenses such as property repairs and maintenance which can help bring you overall tax bill down.

If you sell your property for more than you paid for it, after you have paid all stamp duty and solicitor’s fees etc, then you have sold it at a profit and will be liable for Capital Gains Tax. You will get an individual allowance of £11,300 to off set against any gains you may have. You will pay tax of either 18% or 28% of any amount above the individual allowance, dependant on any income or other capital gains you may have.

NB: Figures are correct as of tax year 2017/2018. Always speak to a tax advisor regarding any issues relating to tax charges.

buy to let tax house coins money

How To Cope With Losing Buy-To-Let Tax Relief

Due to the recent economic climate, the government has been put under immense pressure to try and alleviate the dominance of landlords in the rental sector. One of their main responses to this that affects landlords directly is reducing mortgage interest tax relief.

As of this year (2017/2018) they have applied rules which mean that landlords in the higher tax brackets will only be able to claim tax relief at the basic rate of 20%. These rules will be phased in over the next few years and will be fully phased in by 2021.

The former “Wear and Tear” allowance is being replaced by a system whereby tax relief can only be claimed when furnishings are fully replaced.

One way to cope with these additional pressures is to place your property portfolio in a limited company. This course of action is becoming increasingly popular because any interest is then classed as a business expense. This means it is fully deductible against any income you may have and with corporation tax being reduced to 17% in 2020 these actions are only looking to get more popular with property investors.

Whether or not this approach will be suitable for you depends on a number of factors. Individual circumstances such as how many properties you own and how long you plan to keep them for will all affect the outcome. If you withdraw any money from a limited company for personal use you will also be hit by tax deductions.

There are other possible options available, such as switching to a shorter fixed-rate mortgage as these offer a lower rate of interest. You could even transfer your property’s ownership to a spouse or partner who is in a lower tax band.

To decide which course of action will be best for you, it is always best to seek advice from a qualified tax advisor. Obtaining advice will always make sure you stay within legal guidelines while also remaining as tax efficient as possible.

retirement pension investment house property coin fund

Buy-To-Let As A Retirement Option – How Does It Stack Up Against A Pension?

As with many things, this really depends on your personal circumstances. In fact, there is no reason why you even have to pick one over the other. If you can find a way to combine the two, you could be setting yourself up for a lucrative retirement, making buy-to-let investment popular with older investors in particular.

Thanks to new pension rules, people over the age of 55 have more freedom to withdraw funds at their own convenience. If you have a buy-to-let investment already in place by retirement, this ability to release funds can be a real bonus. It can help see you through periods when your property is vacant and even help with renovation or refurbishment of your property. Another plus is the ability to lessen the tax burdens of your property.

Pensions do come with tax burdens of their own, especially if you are looking to withdraw the whole amount as a lump sum. A less than stable economic climate means that the government could possibly change the pension rules at any time which can have an effect on your security long term.

This potential for insecurity means that buy-to-let investments remain popular. It is not advisable to cash in your entire pension to buy an investment property, but rather access funds that can help to renovate and improve an already established property and hopefully acquire greater rental yields and a better quality of tenant.

Click here to read part four of the Ultimate Guide to Buy to Let for some great tips, UK buy to let hotspots, and advice on what your goal should be – good rental returns or capital growth.