What are the responsibilities of a Buy-to-Let landlord?
At the start of your investment journey, especially as a professional Buy-to-Let landlord, it’s vital to be aware of your legal and financial responsibilities – especially towards your tenants. Getting the fundamentals right at the start of your investment will put you in good stead going into the future, mitigating issues you may find down the line.
There are a few different tenancy agreements but the most common is an assured shorthold tenancy (AST). These contracts represent the legal right for a tenant to live in the property – whether it’s a fixed duration or on a rolling basis.
BTL Service Charges
There are some costs associated with your purchase that would need to be covered including the survey fees, solicitor’s fees, letting agent fees, administration fees, tax fees and Stamp Duty Land Tax. Maintenance costs will also need to be considered.
As with most investments, having insurance can give you peace of mind. Landlord insurance isn’t a legal requirement but taking out a policy can help protect you. Building insurance is necessary if you have a buy-to-let mortgage and also acts as protection for your investment, mitigating issues further down the line.
Register with a Tenancy Deposit Scheme
A legal requirement if you have a BTL property in England or Wales – You must by law, put the deposits in a scheme within 30 days of the start date of the tenancy agreement.
Landlord Legal Responsibilities:
As a landlord, it’s vital that you comply with all of the legal requirements asked of you. These can include the following so be sure to check that you’re compliant:
- Ensure the property has an Energy Performance Certificate
- Protect a tenants’ deposit in a government-approved scheme
- Gas, Fire and Electrical Appliance Safety
- Drawing up a Tenancy Agreement
Also, consider the following points:
The amount of rent you can charge is based on many different elements, including market trends that are out of your control.
No one can guarantee a certain rental income, only predict based on average and past performance.
If you can’t find tenants, you run the risk of having void periods where you can not cover your mortgage repayments. Similarly, if house prices crash, so will the value of your property. Ensure that you understand why buy-to-let is often seen as a long-term investment, markets fluctuate and generally, investors will be more interested in securing steady rental income.
Major repairs or difficult tenants can increase your costs – having a ‘rainy day fund’ can help mitigate expensive issues further down the line.
BTL Tax Implications
Stamp Duty Land Tax – Stamp Duty Land Tax applies to properties that cost over £125,000. It’s applicable everywhere except Scotland, where stamp duty does not apply – instead, you’ll pay Land and Buildings Transaction Tax. SDLT/LBTT applies to both freehold and leasehold properties, regardless of whether you use a mortgage or buy outright.
Since April 2016, residents looking to buy a residential buy-to-let property have had to pay an extra 3% on top of their current stamp duty band at purchase, initially lowering some of the demand for what has steadily become an incredibly popular investment asset.
Income Tax – You’ll also pay income tax on any rental income you accrue. Rental income is added to any other income you earn during the year, from employment or savings for example.
Landlords can claim certain expenses to offset against rental income, reducing your tax bill. In the past, this has included mortgage interest payments.
As of April 2019, landlords can offset a small amount of their mortgage interest payments against their income for one more year before it’s phased out entirely. Right now, 25% of mortgage interest payments can be offset against rental income, while 75% will qualify for the new 20% tax credit.
As of April 2020, 100% of the rental income will qualify for the new 20% tax credit. This means your taxable income is liable to rise, impacting your tax bill especially if you’re a higher or additional rate taxpayer.
Capital Gains Tax (CGT) – Finally, if you sell your buy-to-let property (this doesn’t apply to a primary home) and make a profit, you’re liable to pay Capital Gains Tax. You can offset certain expenses against CGT, including maintenance improvements such as replacement windows.