In the past buy to lets (BTLs) have been a great idea. Buy a property, rent it out and then not only do you benefit from the rental income but also from any capital growth on your property over time. And let’s face it – there is a preconception that property prices always go up in this country.
So why don’t I love buy to lets? Why do I actively discourage clients from buying them? Why are they not the “great” investment that they used to be?
Successive governments have changed the rules on buy to lets.
- You used to be able to offset any mortgage interest so you could pay less tax  – now you can’t
- You used to pay the same stamp duty on buy to lets as your home, now it is 3% more.
- You used to pay capital gains tax at 10% for basic rate taxpayers and 20% for higher rate taxpayers when you sold the property, now it is 18% and 24%
- The tax free capital gains tax allowance used to be ÂŁ12,200 per year, now it is ÂŁ3,000
Not only that, what about:
- You get taxed at your highest income tax rate on the rental income
- Periods without a tenant
- Repairs and redecoration due to time or tenants not looking after your property very well – are you doing it yourself or paying a company to manage it for you?
- Gas and electrical checks and energy efficiency certificate
- Insurance – buildings and rental
- Subject to Inheritance Tax when you die
- If you want to take any of the money out of the property, you have to sell the whole thing, you can’t just sell a bedroom.
Pensions on the other hand give you tax relief on the way in, up to your highest rate, are very tax efficient when invested, give you 25% tax free cash when you come to take them out, with the rest subject to income tax, you can take money out of them when you need it in regular amounts or bigger chunks, and they are free of inheritance tax. This is why I love pensions 🥰!!
Pensions and investments are way better than buy to lets in my opinion as they do not have the hassle and costs of property and can return you more money in the long run.
So please think carefully before buying a second property and consider whether it is the right thing to do for you, or whether it just sounds nice and you “understand” houses. Talk to me if you want to go through the numbers comparing the two options.Â
