Is it worth Buying to Let in 2018?

There’s no denying that buying to let is big business. We meet a multitude of clients who are looking to invest their money into a second property and even some that are considering expanding their assets with numerous purchases.

Buying to let certainly seems like a good way to make money, traditionally seeing landlords invest their cash into a property whilst also maintaining a steady income via the rent they charge. Although this seems like a winning combination and has been a popular business move for many over the last two decades, new regulations mean that landlords should tread with caution when it comes to making these all important financial decisions.

We would advise anyone who is thinking about investing into or expanding their buy to let property assets to give us a call for professional advice and work towards putting a plan in place that suits you and your circumstances, as well as taking advice from your accountant, but here are a few things to bear in mind…

How have regulations changed for landlords?

Since April 2016, significant changes to personal buy to let ownership have been implemented, leaving many property owners and investors in the dark. An additional 3% surcharge was introduced on Stamp Duty Land Tax for all buy to let properties and second homes, which came a real sting for landlords across the county.

Traditionally, landlords were able to claim tax relief on buy to let mortgage interest amongst other financial costs but as of last year, this is being phased out and in the 2020/21 tax year all income generated from property is fully taxable at the basic rate, a real blow for serial investors.

In light of new regulations, landlords are faced with more hurdles and often difficult decisions – buying to let has a whole new approach in 2018. It’s always been a big business and many of our clients have used the market to successfully invest their money and enhance their assets whilst making a viable income.  Most of our clients assume that they have to own their buy to let property personally, many people don’t realise that there is any other option.

What other options do I have?

In light of regulatory changes, more and more clients are enquiring about alternative options, with Limited Company Ownership being a strong contender. So, what exactly is a limited company? A limited company will act as a Special Purpose Vehicle or SPV whereby they are set up to hold a property and nothing more. Buy to let lenders will loan the money directly to these limited companies, which can reduce the tax charges associated with individual borrowers. There are set up costs for the company but your accountant will help with advice and set up, if it's the right strategy.

What are the pros and cons to limited company ownership?

Ownership through a limited company means that you will be subject to corporation tax rather than income tax, which often comes at a lower rate of 19% and from the next tax year and there is no tax payable on the first £2,000.

You could also use this method to help lower the financial risks involved in buying to let, a limited company can have multi shareholders which mean that costs and liability can be spread more easily than individual ownership. Any losses that you do incur can be offset against total company profits in current of future years as long as the rental business continues. However, selling a property from an individual to a company involves costs that need to be considered.  For example, there are fewer lenders to choose from, and the borrowing options can be more expensive, with higher rates and higher costs.

Ask questions such as ‘how will I get money out of the company?’   Any profits from your company – from surplus rent or from sale proceeds– could be paid to you as a dividend, with normal corporation tax on profits, and normal personal tax on dividends.  The amounts will depend on your circumstances so your accountant will be able to help with those.

When you come to sell the property, whether you own it personally, or whether ‘your’ limited company owns it, you still need a willing buyer with money to complete the deal.

We recommend taking the time to research and consider the pros and cons of this method and we advise seeking financial advice before embarking on a financial venture such as buying to let. Limited company ownerships are still subject to the additional 3% Stamp Duty Land Tax, Inheritance Tax and VAT. Because an SPV is a registered business, running costs may occur and on top of this board meetings must take place and liability is assigned, creating a layer of extra responsibility for landlords choosing to take this route.

It is important to remember that rules governing buy to let are always subject to change.

There may be a fee for buy to let advice, the amount will depend upon your circumstances, typically around £200.

The information in this article is for information purposes only and is not an offer or invitation to enter into any contract. It is recommended that you seek professional advice.

The Financial Conduct Authority does not regulate Tax Advice and Buy to Let mortgages. Your property maybe repossessed if you do not keep up repayment on your mortgage or other loan secured on it.

Here's a little more about our team

Q: What part of the financial planning work do you look after?

A: I manage the Client Support team on a day to day basis, helping to monitor workloads to ensure timescales are met and that the customer is always happy and are informed of progress. I also conduct product research, process all pensions and investment new business and everything else that Flora doesn’t have time to do or doesn’t like doing (it’s a long list)!

Q: What professional achievement are you most proud of?

A: I’ve been in financial services for 15 years, achieved some of the industry qualifications including the Certificate in Mortgage Advice and I am working towards the Diploma in Financial Planning.

Q: Where would you be right now if you weren't at work?

A: At home with Matt, Jake and Lola (dog) or on an adventure watching downhill biking. 

Q: In the film of your life, who would play you?

A: If Jake was female I would choose him, he knows me the best and is a mini me! He has my special power of memory!

Q: Curry or Hot Pot?

A: Curry, even though I’m from Lancashire and should choose Hot Pot

Q: Sherbert or Chocolate?

A: Chocolate, although much less often these days

Q: Lawn or Flowers?

A: Flowers, I’m usually rubbish at keeping them but my greatest achievement is successfully growing poppies this year from seeds my mum first planted over 30yrs ago.

Q: What are you most likely to do whilst being 'on hold'?

A: Read the endless amount of emails that have come in whilst I have been on hold!