The last few years have seen a lot of change for buy-to-let mortgages and landlords. The government introduced the changes in an attempt to stop landlords buying properties that would otherwise be bought by first-time buyers and effectively pushing them out of the market. And it seems to have worked: at the 2007 peak, there were over 180,000 buy-to-let mortgages approved. In 2020, this figure fell to around 70,000. Is there any real investment value left in buy-to-let? 

Stamp Duty 

The first increase affects anyone purchasing to buy-to-let: stamp duty. It is 3% higher across the board than standard stamp duty. On a £180,000 flat, for example, stamp duty is now £9000 as opposed to the standard rate of £3600. The rules are slightly different for let-to-buy properties (where you move out of your main property without selling and purchase another to live in) as well as those with attached granny annexes. 
 
 
 
Joint tenancies are becoming more common for married couples. It is popular as both of those who hold a stake in the home have a 100% stake in the property’s value. For legal purposes they act as a single owner and have equal stake in the property. 
 
If one of the stake holders were to die, the ownership would immediately revert to the other. It is not possible to leave a share in a house to another in the event of death and so this is a form of tenancy generally shared between spouses or significant others. 
 
While this method is most popular for married couples, some mortgages allow up to four people to take out a joint mortgage – this might apply to a group of friends or to allow an individual to get help paying for a house from family members. 
Property value 
Standard Stamp Duty 
Buy to Let Stamp Duty 
£0 - £125,000 
0% 
3% 
£125,001 - £250,000 
2% 
5% 
£251,000 - £925,000 
5% 
8% 
£925,001 - £ 1,500,000 
10% 
13% 
£1,500,000 + 
12% 
15% 
COVID-19 UPDATE 
There are temporary Stamp Duty reductions until 31st March 2021. Click here to be redirected to the Governments website for latest information. 

What expenses can you claim? 

A landlord will incur expenses, from agent fees to property upkeep to finding tenants. It’s vital to keep a track of all expenditure – but be aware not everything can be claimed. The general rule of thumb is that costs associated with the running and maintenance of the property can, including insurances, fees, ground rent – but check first. The allowances are also different for furnished vs unfurnished properties. 

Wear and Tear Allowance vs Replacement of Domestic Items Relief 

If the property is fully furnished, you can claim relief on ‘Domestic Items’ that are only being replaced and no longer being used – so not when initially furnishing the property, for example. Only like-for-like costs can be claimed, so not fancy upgrades. Or if you do upgrade anything, you can only claim the proportionate like-for-like value back. Domestic items include such things as beds, carpets and white goods. This has replaced the ‘Wear and Tear Allowance’ which saw landlords able to claim up to 10% of their net annual rent each year, regardless of whether or not items were replaced. 

Mortgage Tax Relief 

Landlords used to be able to deduct expenses from rental income, such as all mortgage interest paid, to work out taxable profit. However, this is in the process of being phased out and is due to end in 2020. It will then be replaced by a flat 20% tax relief on any interest paid – obviously a great deal less than the old 100%. 
 
This won’t affect those landlords in the 20% basic tax bracket but could have a significant impact on those in the higher (40%) tax bracket. The changes might even result in some being moved to the higher tax bracket, due to an increase in profit and therefore taxable income, which in turn can have further cost implications, including the high income child benefit charge. 

Next steps 

There are undoubtedly financial pros and cons to being a landlord. If you are concerned about any changes to buy-to-let or want to find out if it’s still a profitable income stream, take advice from an independent mortgage adviser. There are many variables that affect landlords and buy-to-let properties and it’s always worth doing your homework before making any costly decisions. 
Tagged as: Buy to Let, Landlord
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