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Ultimate Guide to Buy-to-Let Investments in the UK by UpperKey

Diving into the world of buy-to-let investments in the UK? UpperKey's comprehensive guide sheds light on the intricate landscape of property investments, emphasizing the shift from amateur to professional landlords. As the market evolves, so do the challenges and opportunities.

From understanding the tax benefits of company structures to navigating the maze of stamp duty and capital gains tax, this guide is a beacon for both seasoned and budding investors. Whether you're strategizing for maximum rental yield or deciphering the complexities of mortgages, UpperKey offers invaluable insights to ensure you're well-equipped in your investment journey.

Is it better to buy to let through a company?

Buying to let through a company can offer tax efficiencies, especially with corporation tax rates being lower than income tax rates for higher earners. Additionally, mortgage interest can be deducted as a business expense. However, it's essential to consider the additional administrative responsibilities and costs associated with running a company.

Why are more landlords setting up companies buy-to-let?

More landlords are setting up company structures for buy-to-let due to potential tax benefits, especially after changes in tax relief on mortgage interest for individual landlords. Operating through a company can also offer limited liability protection and more flexible profit distribution options.

What are the benefits of a Ltd company buy-to-let?

Benefits of a Ltd company buy-to-let include potential tax efficiencies, the ability to claim full mortgage interest as an expense, limited liability protection for landlords, and flexibility in profit management and reinvestment.

What are the disadvantages of buy-to-let limited company?

Disadvantages include potentially higher mortgage rates, additional administrative responsibilities, costs associated with setting up and running a company, and potential complexities when extracting profits from the company.

Is it worth setting up a limited company for one buy-to-let?

Setting up a limited company for a single buy-to-let can offer tax advantages and limited liability protection. However, it may not always be cost-effective due to setup costs, administrative duties, and potential higher mortgage rates. It's crucial to consult with a financial advisor to determine the best approach based on individual circumstances.

What is the most tax efficient way to buy-to-let?

The most tax-efficient way to buy-to-let often involves operating through a limited company, as it allows landlords to offset mortgage interest against rental income and benefit from lower corporation tax rates. However, individual circumstances vary, so consulting with a tax specialist is recommended to determine the best strategy.

Need for careful analysis and understanding of the changing dynamics in the buy-to-let market to assess profitability
Assessing profitability in a changing market.

The amateur landlord is now in decline

The market has long since been split into two. A buy-to-let was once considered a canny investment for the amateur landlord with a little extra money. The complications that the current market brings means that the amateur landlord is backing off and heading for alternative options.

This trend is leaving the marketplace wide open for the professional landlord. They’re the ones with the understanding and experience to make it work, after all, even with tighter figures and stiffer regulations.

Are you positioned to make a profit from a buy-to-let property?

There’s more than ever to understand about turning a profit from a buy to let property. The market changes in recent years have hit the potential landlord harder in his or her pocket thsan ever.

The rules are changing too, making the investor’s life even more difficult. Is it still worth the time and effort required to turn a profit? Or are there easier ways to earn higher returns on the same financial investment?

Despite low-interest rates, which make buy-to-lets appear attractive at first glance, the rise in stamp duty and the loss of mortgage interest tax relief, and much more, tell quite another story.

How to get a buy to let property to work for you?

To make a buy-to-let property work for you, research the rental market, choose a profitable location, ensure the property is well-maintained, set competitive rental prices, screen tenants thoroughly, and stay updated with landlord-tenant laws and regulations.

We hope the following information provides a little insight into the dos and don’t's of a buy-to-let investment, what you really should consider, and into some of the pitfalls.

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Plan a realistic and accurate budget

If you’re only estimating what you can afford to spend, then you’re heading for trouble. There is an abundance of consideration to make when it comes to financing your buy-to-let project; now, more so than ever.

If you haven’t got much experience in this market already, then it pays to do your research. You could take advice from those with property and letting experience. Alternatively, you could create an all-inclusive checklist to cover every eventuality. You must make educated plans into whether you can make a real profit from the market in your current situation.

It’s not only acquiring the property that will carry significant costs. All buildings require constant attention and maintenance. As a landlord, more often than not, that’s going to be your responsibility, not your tenant’s.

It’s imperative to hold an adequate slush fund. However well you plan, you haven’t got a crystal ball; there will always be issues that slip through your net.

How long does it take to let a property?

The time it takes to let a property varies based on location, market demand, property condition, and rental price, but on average, it can range from a few days to several weeks or even months.

What can you do about poor paying tenants?

To address poor-paying tenants, landlords can communicate with them to understand the issue, set up a payment plan, send formal reminders, utilize deposit funds, consider mediation, or, as a last resort, initiate eviction proceedings in accordance with local laws and regulations.

How will you manage accidents and unforeseen events when renting your property?

To manage accidents and unforeseen events when renting your property, it's essential to have comprehensive insurance coverage, conduct regular property inspections, establish clear communication channels with tenants, set aside an emergency fund for repairs, and be familiar with local regulations and tenant rights to handle situations legally and efficiently.

There are no guarantees, no matter how well you’ve researched your market, so make sure you plan for all eventualities.

Make sure you’ve covered all of the costs

It’s far too easy to miss that vital step that will sink your dream of making a profit. We’d always suggest that new investors talk to a conveyancing solicitor or a licensed conveyancer. They are ideally situated to explain the legal aspects of buying a property and renting it out.

You should also talk to your accountant to make sure you’re informed of the many tax implications.

Buy to let mortgages

Buy-to-let interest rates are low right now, but that won’t last forever. You need to take into account the likely changes and high introductory fees for a buy-to-let mortgage, and how they’ll affect your total profit.

Stamp duty

The law changed in 2016 regarding stamp duty on second homes. Stamp duty is a government tax, with thresholds and rates dependant on location and property value. The threshold for stamp duty in England is £125k, Scotland £145k and Wales £180k. The rate for first properties scales from 2–12% depending on the property price—from £125k to those over £1.5m. The rate for second properties ranges from 3–15%. That’s a simple to spot surcharge of 3% on top of the rates for first property purchases.

Do companies pay stamp duty on buy to let?

Yes, companies purchasing buy-to-let properties in the UK are subject to Stamp Duty Land Tax (SDLT) and often pay a higher rate compared to individual buyers, especially if they own more than one property.

Agent fees for Buy-To-let

If you’re not going to manage the tenancy yourself, then you must also consider the agent’s costs. Each agent will have their own rates when it comes to finding tenants, collecting rent, holding deposits and dealing with the typical day-to-day issues. As always, shop around to find the best option for your situation. And be sure to factor it into your expected profit margins.

Capital gains tax

Many buy-to-let investors utilise interest-only mortgages, planning, eventually, on selling the property to cover the cost of the original investment.

However, you will have to pay capital gains tax on second properties, so you must be prepared for this and factor it into your budget.

The CGT rates on properties range from 18–28%, depending on your income tax rate. The tax is based on the gains and not the selling price of the property.

You can claim against all legitimate costs included in the buying and selling of the property. For example, you can offset the fees, stamp duty and any improvements you made while you owned it. There is also a tax-free allowance you can claim.

Yield over gains?

A buy-to-let investor will be looking to make the best rental yield possible. The yield is the percentage of rent against property value—but be careful. The price of the property you agree with the seller won’t be the total amount you pay for it after taking into account the sum of the many associated fees.

A reasonable yield should be over 5%. If you can achieve more than 7 or 8%, then you’ve obviously done your homework.

If for any reason (and there can be many) the yield falls to a point where your return fails to reach the necessary target, your best hope could be capital growth. This is the rise in the value of the property over a mid- or long-term period, and the profit you’d achieve.

Shopping around for a buy to let mortgage

Rates and charges will vary from lender to lender. Yet, a low rate isn’t always your best option.

You’ll need to consider the pros and cons of each mortgage type, and then the additional set-up fees. High fees can mean that an attractive low-interest-rate would mean a worse deal.

We’ll be looking much further into how to buy a buy to let property in future guides.

Make sure you’re insured

Your insurance has to cover much more than a typical building insurance policy. You’ll have to make accommodations for some level of contents insurance, depending on how you’re operating the letting, and of course, you’ll need the specialist cover for Landlord Insurance.

You should also consider insurance that covers the times when your tenants fail to pay their rent, and even the costs of evicting problem tenants. If you were left to cover or pay these hefty costs yourself, it could be the straw to break the camel’s back.

Keep everything legal

You’ll be legally required to hold your tenants’ deposits. There are 2 government-backed deposit protection schemes: insurance and custodial.

If you hire an agent to manage the letting, they should take care of matters. If you don’t, then this is down to you to provide a legal contract and the facility.

Research your market – and your tenants

Choosing a tenant to put into your property is going to be dependant on the type of property you plan to buy. How to find a buy to let property suited to your budget, probable tenants, and necessary yield, can be a complicated challenge in itself.

The needs of a young professional couple, a family, or a house full of students are all very different. They’ll all be looking for different features from the property and location. These are the same considerations when choosing the right property to invest in.

After all, the most desirable house in the nicest neighbourhood doesn’t always bring the most profit.

Your yield might be much higher on a student house than a family home. A house in multiple occupation (HMO) may not be as glamorous as a home in the suburbs but could be a much better investment.

Depending on your investment type and personal situation, you may need to take advice on such things as can a landlord live in a buy to let property or about new legislation regarding agency fees.

An HMO can achieve a strong yield due to its number of accumulated rents. An HMO will have at least 3 tenants, sharing bathroom, kitchen and toilet facilities. Often located near to universities and colleges, their presentation need only be basic and requires less maintenance and upkeep than a pricier, better-positioned property.

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The Pros and cons of buy-to-let according to UpperKey

· Long-term property investment has steadily been and is still expected to be a safe bet for investors.

· Many postcodes are still seeing high growth in rental and sales values. The savvy investor will be watching for the locations that are about to boom and make an early move to guarantee the best return.

· Rents will rise, and the rental market will continue to grow. Fewer people than ever are able to buy their own property, resulting in a robust rental market.


· The costs, taxes and legislation an investor has to factor into their process are more stringent than they have been for years.

· New landlords will be required to pay more tax. The 3% load on stamp duty is set to make a significant impact over the previous taxation level.


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