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UK Buy to Let: Ten Things People Need to Know

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The buy-to-let industry is one that a lot of people dream about. Purchase a property, rent it out to other people, and watch the cash flow in. Then purchase more houses, and people can give up their regular jobs as here, they have their own lucrative or profitable buy-to-let business.

The big question is: Is it really that easy to start this type of venture? Being a landlord can be pretty expensive and time-consuming. Not only that, people risk getting caught by the changes in government rules as politicians will attempt to get more tax out of these landlords.

There are also distinct differences between purchasing properties for yourself and purchasing properties for long-term investments that you plan to rent out. That is why before people pour their entire life savings into a farmhouse, here are some things they need to know.

Check out this site for more info about UK property tax.

It can be time-consuming and stressful

The merit of buy-to-let has faded dramatically in recent years, after various government measures made the industry a less attractive investment compared to what it used to be. As a matter of fact, a lot of landlords have decided to drop out or sell their properties, as new charges, as well as the loss of relief, have made their profits dropped significantly.

Investing in this kind of business can carry a lot of risks and is only suitable for individuals who have financial cushions to soak up hidden and unforeseen costs. It can be very nerve-racking and can take up a lot of people’s time, money, and energy. It is a wrong type of investment for some individuals, and they are better off spending their hard-earned money elsewhere.

Stock market funds that people buy easily on the Internet and are appropriately managed are a lot simpler to deal with compared to buy-to-let, where they will have to apply for mortgages, purchase properties, respond to various calls about the flooded living room or bathroom, and dealing with some hard-to-deal-with tenants. On the other hand, there’s still money to be made in this industry and owning an actual business and being their own boss when it comes to how they manage their properties, can be very exciting.

There are always new tax rules, people need to learn

In 2006, the government imposed a three-percent stamp duty tax on buy-to-let properties and second-hand houses in Northern Ireland, Wales, and England. The government has since announced a stamp duty holiday in Northern Ireland and England: property buyers will not pay any levy on houses that are worth £500,000 and below, from July 2020 to June 2021.

Check out https://www.moneyadviceservice.org.uk/en/articles/everything-you-need-to-know-about-stamp-duty to find out more about stamp duty.

From June 30 to September 30, tapering means no stamp duty will be charged on residential properties bought for £250,000 and below. People purchasing an additional house can benefit from these changes in rules. They will not pay the regular stamp duty rate, which is usually kicked in at two percent of transactions worth £125,000 and below, rising to five percent of any amounts £250,000 and above – but purchasers will still need to pay the three-percent levy.

If you purchase a rental flat worth £400,000, expect to pay the three-percent stamp duty tax, which costs around £12,000. In contrast, people purchasing the flat as their primary residence would not pay a single penny in tax. These new rates for houses in Northern Ireland and England are as follows:

£500,000 and below – 3%

The next £425,000 or the section from £500,001 to £925,000 – 8%

The next £575,000 or the section from £925,001 to £1.5 million – 13%

The section above £1.5 million – 15%

In Scotland, second-hand property owners, as well as buy-to-let landlords, need to pay an additional four percent in stamp duty tax.

Investors have also been affected by more changes in tariff laws. Until recently, private buy to let investors could deduct interest payments on their mortgage from their rental income when computing for their levy liabilities. It is known as mortgage interest relief.

In April 2017, a new system was implemented, and since April 2020, landlords need to pay income tax on their rental incomes, regardless of how much of it was swallowed by the property’s mortgage interest. Buy-to-let landlords will be able to benefit from the recent twenty-percent tariff credits on their interests, a rule that makes changes neutral for a lot of investors in the basic brackets.

Some landlords will lose out by being pushed into higher brackets because of how the new levy will be calculated. Investors who pay income tax at forty percent or forty-five percent will be paying more than before the changes in taxation laws.




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