Buy To Let Buying To Let & Becoming A Landlord

Date Published:

06/06/2008

More on being a landlord...

How To Get A Buy To Let Mortgage

Once you've decided on a property, there are plenty of buy to let mortgage schemes available to potential landlords via buy to let specialists or mortgage brokers. 'You need a deposit of least 20 per cent of the value of the property and a good credit history,' says Malcolm Tarling.

How To Calculate Your Buy To Let Mortgage

But before you can decide on the size of your mortgage you need to work out the figures carefully. 'Calculate your expected rental income against the cost of the mortgage and allow for all the overheads involved, for instance, if you're buying a flat you'll have to factor in service charges and ground rent. You'll also have to pay buildings insurance to protect your property against fire and flooding and contents insurance if you furnish the property. Expect to pay around 10 to 15 per cent of rent received if you take on a letting agent to provide tenants and manage your property,' Tarling adds.

Buy To Let Insurance

For more information on buying buildings and contents insurance, visit the insurance watchdog's websitewww.fsa.gov.uk or compare building and contents policies on insurance comparion websites.

How Much Will Buy To Let Cost Me?

You will also have start-up costs when buying the property including forking out for a mortgage valuation and any mortgage set-up fees, legal fees including punitive stamp duty (1 per cent on the sale price of properties worth between £125,000 and £250,000), and ongoing maintenance costs. ARLA says a typical letting term is 17 months and the average property is vacant for a month, so the association recommends setting aside funds to cover the mortgage when the property is vacant. An emergency fund is also essential to cover costs such as replacing the central heating boiler.

For further help on all aspects of becoming a landlord read Information for Landlords on the Association of Rental Letting Agents (ARLA) website.

What Are The Buy To Let Tax Issues?

There are a number of tax implications to consider when buying a second property says Hannah Ricci of Moneywise. The first is income tax. 'Any rental income generated from the property will be added to your other income and taxed as the profits of a business,' she says.

You should also consider capital gains tax (CGT) and inheritance tax (IHT). 'When you come to sell the property, any profit you have made above the individual annual allowance of £9,200 will be subject to CGT of up to 40 per cent. It is possible to cut capital gains by living in the second property for a period of time. Owning a second property could also make you liable for IHT or increase your bill,' she adds.

There are a number ways to mitigate your tax liability and it's worth speaking to an independent financial adviser for advice. You can find one in your local area at www.unbiased.co.uk. For further information on tax on property and rental income visit the government's website.

The views represented in this article are those of the author and not of Channel 4. The purpose of the article is to provide general information only and does not constitute financial, investment, legal or other advice.You should not rely on any information provided in this article and you should always seek out independent professional advice relevant to your own particular circumstances.