Is buy-to-let still worth it in 2021?

Forewarned is forearmed so let's take a deep dive into buy-to-let investing...

Any prospective buy-to-let investor should be aware of some key things...

‘Should I invest in buy-to-let?’ is a question we get asked all the time. Many of us dream of the day we can buy a property, rent it out, and then sit back and watch the cash roll in. Given the nature of our business you might expect us to turn around and tell you that buy-to-let really is just that easy…

But the truth is, we want you to be armed with the correct knowledge. With the introduction of 3% stamp duty surcharges, and a seemingly endless range of new legislation and regulation to contend and comply with, it’s understandable why some landlords feel unsure.

In 2021 buy-to-let incurs a far bigger tax drag than before. To add to this, saving a chunky 25% deposit can be pretty tough. Understandably, it can be difficult to know where to start and whether or not buy-to-let is for you.

So let’s take a deep dive to explore whether buy-to-let is still a good investment in 2021.

What tax do you pay as a landlord?

Since 2016, anyone buying a second property is subject to an additional 3% of stamp duty tax.

That means on a £300,000 purchase, a property investor will pay £9,000 more than someone buying their own home. In Scotland, second homeowners and buy-to-let landlords have to pay an extra 4% in stamp duty.

Discover your potential rental income now

Whether you’re ready to start letting out a property or just curious to know what you could earn, try a 60-second valuation today.

Section 24 means that private landlords can no longer offset mortgage payments

The Government has made recent changes to individual landlord's tax relief. Since April 2020 buy-to-let landlords have had to pay income tax on the entire rental income, regardless of how much is taken by mortgage interest. Instead, this has been replaced with a 20% tax credit, meaning private landlords with a mortgage can no longer offset mortgage interest costs in full against income tax bills on rent.

As a result, landlords now pay tax on rental income based on revenue rather than their profit after mortgage interest is paid. For those of you thinking of setting up a limited company, you’ll be glad to know that mortgage interest is treated as a business expense. That means if your property is owned by a limited company, you can minus the cost before paying corporation tax. If this is something you are considering, it's always smart to obtain financial advice from a registered tax expert.

What are the implications of the Capital Gains Tax changes?

There have been recent tweaks to Capital Gains Tax. This means that buy-to-let investors also face a heftier tax bill on profits when they sell up. The Capital Gains Tax rate on residential property is 28% for higher rate taxpayers and 18% for basic rate taxpayers versus 18% and 10% on other assets.

Should you set up a limited company?

One of the big questions you might want to ask yourself, if you’re thinking of becoming a landlord in 2021, is whether or not to purchase your buy-to-let through a limited company. If you’re in the higher tax bracket, you could be paying 40% tax on your income if your property is set up in your personal name. For this reason, Ranjan Bhattacharya – an investor and property mogul with over 35 years experience in the industry – is convinced that landlords should look to set up a limited company. This means you’ll pay the lower corporation tax – which currently sits at 19%. There are however whispers that this is likely to rise to 25% by 2023 which will affect your profits again.

Tax Band

Income

Tax Rate

Basic Rate

£12,501 to £50,000

20%

Higher Rate

£50,001 to £150,000

40%

Additional Rate

over £150,000

45%

On the other hand, the number of buy-to-let mortgages on offer for limited companies tends to be lower than for private individuals. You may find it more difficult to arrange a mortgage, and you'll also have to file annual accounts – which is done by an accountant – and this can also be pretty costly. 

Are there inheritance tax benefits of a limited company?

Landlords planning to pass their property portfolio down to children or family members could avoid large amounts of inheritance tax by buying the property through a limited company. You’ll need to speak to an expert for individual personalised advice on this.

Are there good buy-to-let mortgage deals at the moment?

If you’re looking to buy a property to rent it to other parties and you’re not a cash buyer, you will likely need a buy-to-let mortgage. The good news is, there are some fantastic mortgage deals to be had at the moment, with attractive rates.

As each application is assessed individually by the lender and based on your personal circumstances, a mortgage appointment with a Countrywide Mortgage and Protection Consultant is highly recommended. They can help you every step of the way to build your property portfolio. Please note, Countrywide Mortgage Services do not provide advice in relation to tax and capital gains, therefore you would need to seek independent advice on this.

Have a look at some of the great buy to let mortgage deals on offer at the moment with Countrywide Mortgage Services. 

How hands on do you want to be?

There’s no doubt that buy-to-let investments require a little time and effort. You’ll need to research and buy the property and then manage the investment from then on.

You need to be willing to go through the buying process, do any improvement work, furnish the property, and then decide whether or not to instruct a letting agent to then manage it for you…

What are the benefits of using a letting agent to manage your property?

Regulations are a huge factor to consider. You need to keep safe and legal and one of the best ways to ensure this is by using an expert letting agent. For example, landlords currently need an Energy Performance Certificate (EPC) with a minimum rating of E. You also need to conduct electrical safety checks every 5 years and gas safety checks each year. Sometimes having an agent there to handle these intricacies can be really beneficial. It gives you peace of mind, reduces your workload and frees up your time.

So, is buy-to-let worth it in 2021?

No investment is without risk but if you take a long-term view of it, buy-to-let can work for you. It’s not a get rich quick scheme but there is a good income to be made if you go in with your eyes open. Although some of the recent changes make buy-to-let less attractive to some investors, if done right, it still remains profitable. Whilst rental yields have declined, it's important to remember that although rental income is important, capital growth is also a factor that makes investing in property very lucrative.

What’s next?

One of the first things you need to ensure is that you’re getting the right price for your rental property. Your best bet is booking a valuation with one of our lettings experts who can give you an idea of rental income, answer any questions that you may have and also give you an idea of how you can increase your yield.

Alternatively, grab a 60-second valuation now using our online algorithm. You can do this on a property you currently own or on a property you’re thinking of turning into a buy-to-let. It will give you a good idea of what you could be earning in rental income.

How much rent could I get?

All we need is a postcode and 60 seconds of your time

A fee will be payable for arranging your mortgage. Your Consultant will confirm the amount before you choose to proceed.

Countrywide Mortgage Services and Countrywide Insurance Services are trading names of Countrywide Principal Services Ltd which is authorised and regulated by the Financial Conduct Authority (Firm Registration Number 301684). Registered Office: Countrywide House, 6 Caldecotte Lake Business Park, Caldecotte Lake Drive, Milton Keynes, MK7 8JT. Registered in England no. 01707341.