For many, many years, buy-to-let was considered an incredibly sound investment and a great way to generate income. The process of letting was relatively straightforward and the profits garnered could be quite considerable.
However, changes to regulations and requirements over previous years have made it increasingly more complex to operate in the realm of buy-to-let, and increasingly less lucrative. So today, we’re going to be taking a look at the current state of affairs in regard to buy-to-let properties, and considering whether or not they are still a good investment.
How has buy-to-let changed?
Changes to mortgage interest relief and the introduction of a surcharge on stamp duty for second homes have created a fair amount of uncertainty amongst landlords, leaving a good deal of individuals wondering whether or not buy-to-let is still worth it.
Most notably, changes to the tax system have made it increasingly less profitable to let properties. In 2016, the UK government introduced a 3% surcharge in stamp duty on additional properties, and 2017 marked the beginning of a steady reduction in mortgage interest relief and general cost relief with Section 24.
This relief had been central to account management for landlords in previous years, enabling them to deduct the interest they pay on their mortgage from their taxable income. The changes will not necessarily impact basic-rate taxpayers, but will most likely affect higher or top-rate taxpayers.
However, as landlords are now currently required to declare the income used to pay their mortgage on their tax return (under the previous system, they were able to declare rental income after deducting mortgage repayments), those who are on the basic rate of tax could be pushed into the higher rate.
Investing as a limited company
If you’re thinking about becoming a landlord in 2022, you may wish to consider purchasing your buy-to-let through a limited company.
For those in the higher tax bracket, you could be liable to 40% tax on your income if your property is set up in your personal name. If you set up a limited company, however, you’ll be subject to the lower rate of corporation tax and your mortgage interest will be treated as a business expense.
If you are considering setting up a limited company in order to invest in a buy-to-let, it’s imperative that you speak with a financial advisor. Here at The Mortgage Brokerage, our team is fully equipped to provide you with the very best advice on buy-to-let mortgages.
Can buy-to-let still be a good investment?
To put it simply, buy-to-let can absolutely still be a good investment.
When executed carefully, this type of investment can deliver fantastic returns. It is important, however, to bear in mind that these returns may not necessarily happen quickly.
As the costs to invest are pretty high, strong returns can take a little longer than other financial investments.
If you are clear on your investment objectives, and the likely timeline for investment returns while choosing a strong property to let, there’s a strong chance you will receive healthy returns over time.
Plus, if you opt to set up a limited company, you may be able to improve your revenue.
It’s important to remember that property investment entails the benefit of delivering two types of return, enabling you to tap into income and capital growth at the same time. Whilst some of the recent changes have rendered buy-to-let less attractive to some investors, it is still profitable when done carefully and correctly. Despite the fact that rental yields have declined, the capital growth aspect of this type of investment can be incredibly lucrative.
If you are wondering whether buy-to-let could be for you, our knowledgeable brokers can help. Simply get in touch today.
