What to Consider With Buy-to-lets

Buy-to-let property remains a popular investment choice, offering the promise of a steady income and a foothold in the investment market. However, alongside the potential rewards come legal, financial and practical considerations that are often overlooked. From legal obligations to unexpected costs, there are several important factors that prospective landlords should carefully consider before taking the plunge.

Higher Stamp Duty Land Tax

If you already own another property, for example the one in which you live, then you may have to pay a Higher Rate (additional 5%) of SDLT on completion of the additional property. Even if you don’t own another property and you are buying a BTL as your first property, this is still likely to attract higher tax on the basis that you would not be able to use your First Time Buyer exemption as this only applies to properties in which you intend to live.

Higher Income Tax

From a tax perspective, rental income is considered additional to your existing income from other sources such as your main job. As a result, it is likely that your Income Tax will rise once you start earning rent. For this reason, many BTL buyers form a Property Owning Company. This is because, in some instances, Corporation Tax payable by the Company could be less than the Income Tax for a BTL owner.

Restrictive Covenants

Some property owners are restricted as to what they can do with their own properties, and this is normally done by way of restrictive covenants being imposed on their legal title. This is more common with leasehold flats than freehold houses. Some leases prohibit the owner from letting out their flat to someone else. Although this is less common in freeholds, some newer developments have restrictions in them such as against using a property for short term lets such as those through Airbnb.

In light of these potential risks, we would recommend that you contact a Solicitor prior to buying a BTL property to see whether any of these are likely to affect you.

Owning a BTL property has many advantages and benefits, however it also comes with potential risks, and things you must consider.

The Residential Property team at Thompson Smith and Puxon are here to guide you through the process, providing clear, tailored legal advice to suit your individual circumstances. To discuss purchasing a BTL property, please contact us by emailing enquiries@tsplegal.com, or by calling 01206574431.