Buy to Let and tax explained, plus further information, advice and help available from Shire Direct!
Buy to Let is where a purchaser buys a property with the intention of renting it out on a commercial basis rather than living in it.
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On this page we take a look at Buy to Let and tax implications along with how Buy to Let works, the Buy to Let Market, things you should be aware of, and details of how we may be able to assist you with a Buy to Let mortgage.
Table of Contents:
What is Buy to Let?
Buy to Let is the purchasing of a property with the intention of it being rented out on a commercial basis. As such it will be considered as an Investment Property for tax purposes.
There is an array of mortgage products specifically designed for the Buy to Let market. Currently, buy to let mortgages do not generally fall within the definition of regulated mortgage contracts, and are therefore not covered by the Financial Services Authority's regulations, unless:
- The loan is secured on the borrower's home, or
- A member of the borrower's immediate family will be living in the property at the time of completion. (It is interesting to note that this rule only applies to those living in the property at the time of completion, and so if a member of the borrower's family moves in subsequently, the mortgage remains unregulated).
The Buy to Let market
Thinking of entering the Buy to Let Market?
There are many success stories of ordinary individuals who have chosen to invest in the Buy to Let market rather than investing their money with a Bank or Building Society. Many have seen their wealth grow tremendously as they gradually built-up a substantial portfolio of properties.
If you are thinking of entering the Buy to Let market and buying a property as an investment, you should take care to choose areas where rental demand is likely to be at their strongest. These will generally be in locations with good transport links and amenities.
You should be aware that many financial commentators consider that the last few years have seen a vast oversupply of properties for renting in some regions, and are concerned that buy to let owners could suffer substantial financial losses if house prices fall.
Ensure you carefully choose the right property for letting purposes, and then prepare it to a standard to match your target tenant. Remember the logistics of your investment and the difficulties of managing it if you live some miles away!
You must also be aware of your legal responsibilities regarding safety to your Buy to Let property, both externally and internally, including compliance with fire regulations and the professionally qualified annual checking of gas boilers and heaters.
Buy to Let and Tax implications
Firstly, it is a legal requirement that you declare the rental income to HM Revenue & Customs. From a taxation aspect, you should bear in mind that you can usually offset the following expenditure against your rental income:
- mortgage interest charges
- water rates
- council tax
- the cost of repairs and maintenance
- wear and tear
It's a good idea to run your letting business through a separate bank account, and keep detailed records, accounts and receipts. Ensure you make a tax provision so that when your Income Tax Assessment arrives, you've got the money to pay it!
Remember too that your liability to Income Tax will run at 40% of your net profits received on income from letting's. And on selling your property at some future date, you will be liable to pay Capital Gains Tax (CGT) on the uplift in price.
Can Shire Direct assist me?
It is obviously very important that you have the most suitable mortgage for your circumstances, and this will involve considering not only the interest rate, but also charges, and method of repayment, taking into account that it may be more prudent to consider an interest only basis.
It's worth discussing the various options open to you with one of Shire Direct's qualified mortgage advisors. They will carefully assess your circumstances, needs and aspirations, and discuss issues such as whether ownership should be single or joint ownership, it can be messy to change later on.
So, if you are interested in the Buy to Let Market then please don't hesitate to contact us if you think our skills in arranging this type of mortgage facility would help you. Remember, our professionally qualified mortgage advisors are available until 10.00pm everyday, and will be delighted to provide you with an in-principle decision - whatever your requirements. So why not call us on FREEPHONE 08000 282 281, or alternatively contact us online anytime, we'd love to hear from you!
The overall cost for comparison is 9.8% APR.
The actual rate available will depend upon your circumstances. Ask for a personalised illustration. APR variable and based on a usual case. Most customers are likely to receive a lower rate or the same rate as our overall cost for comparison rate - learn more about APR.
There are no upfront broker fees.
However, a fee may be charged on successful completion. An indication is that on conforming cases (straightforward applications with no or minimal adverse credit) a fee may be charged of up to 1% of the amount advanced, typically £795 and will depend on your circumstances.
For non-conforming cases (where case research and processing may be more complex due to adverse credit or unusual circumstances), a fee may be charged of up to 3% of the amount advanced, typically £1,995.
THINK CAREFULLY BEFORE
SECURING OTHER DEBTS AGAINST YOUR HOME.
YOUR HOME MAY BE REPOSSESSED
IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
Adding existing debt to your mortgage will increase the repayment term and overall cost.
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