Buy-to-Let Property Finance
A buy to let mortgage is a type of loan for property investors; it differs from a residential mortgage because it is taken out with the intention of renting out to a tenant.
Buy to Let a good investment
With rental incomes steadily increasing over recent years letting out a property can be a good way to bring in a regular income. If you can find the right property and the right mortgage it is possible to make a rental yield of around 5 – 10% depending on where you’re based
From April 2016 stamp duty rates for buy to let properties will change – this buy to let stamp duty calculator helps you work out how much you would need to pay before and after the changes come into effect. At the moment buy to let properties and second homes are subject to the same stamp duty rates as other properties, but from April 2016 onwards a 3% surcharge on top of the current rates will be due.
Income tax is payable on rental income you receive – the rate at which you have to pay will depend on how much rent you’re earning, as well as how much other income you have. You’re required to declare your total rental income on a self assessment tax return each year. The form also gives you an opportunity to disclose costs such as mortgage interest, letting agency fees and legal bills, which you can deduct from your income. Maintenance costs may also be allowable – but for repairs rather than improvements.
Capital gains tax
While any profit on the sale of your main residential home is tax-free, there may be capital gains tax to pay on profits from the sale of buy-to-let properties. Capital gains tax is currently payable at either 18 per cent or 28 per cent, depending on your total taxable income, but everyone is allowed a certain amount of gains each year before tax becomes payable. The capital gains tax allowance in the 2015-16 tax year is £11,100.
Just like everything else you own, any buy-to-let property you own (the value minus the outstanding mortgage on the property) will count towards the value of your estate for inheritance tax purposes. Inheritance tax is payable at 40% on the value of an estate above a set threshold.