Stamp duty costs
Prior to April 2016, property investors paid the same amount of Stamp Duty Land Tax (SDLT) as residential buyers. But that’s no longer the case, and anyone buying a second property is now liable to pay standard rate SDLT + 3%. So if you’re purchasing a property for £200,000, as a residential buyer you’d have to pay £1,500 in Stamp Duty. But as a buy-to-let investor, you’d have to pay an SDLT bill of £7,500.
Managing “void” periods
A “void” period is the landlord’s term for the time a property stands empty - without a paying tenant. And unless you’re super efficient or very lucky, void periods are generally part and parcel of a landlord’s life. This means you should build a sensible void period into your buy-to-let business model, and you should maintain a healthy financial buffer to cover mortgage repayments when there’s no rent coming in.
Letting agency costs
Many landlords, and particularly inexperienced ones, employ the services of a property agent to manage the tasks of finding, interviewing and vetting tenants. But some landlords also employ an agent to manage the property on an ongoing basis. This means that the agent and not the landlord becomes the tenant’s first point of contact - so if the boiler breaks down in the middle of the night, it’s the responsibility of the agent to sort the problem. Of course, such a service comes at a price, so it’s important to consider whether you’re up to the job of managing your own buy-to-let, or whether you’d prefer to outsource the task to a professional.
Landlords’ tax breaks disappearing
For many years, landlords have enjoyed generous tax relief on mortgage interest payments. For example, a higher rate income tax payer could claim tax relief on interest payments at the highest rate of 40%, and an “additional rate” tax payer could claim tax relief at 45%. But things have changed, because in 2017 the government brought in new rules to cap the amount of tax relief at the basic rate of 20%. The changes are being phased in over a 4-year period, with the full impact coming into effect in the tax year 2020/2021.
Just like any home, a buy-to-let property will need regular maintenance to keep it in good condition. So you’ll need to factor in some reasonable costs for upkeep. But as a landlord, you’ll have additional responsibilities, like making sure your rental property is safe and free from health hazards. You’ll be legally required to ensure that all gas appliances are safely installed and maintained by a Gas Safe engineer. Plus you’ll have to pay a registered engineer to carry out annual gas safety checks on each appliance and flue.