With multiple changes taking place in the buy-to-let market, we explain five things every landlord – whether existing or prospective – should know.
Buy-to-let is constantly in the news the moment, with much of the focus on a series of policies brought in by Chancellor George Osborne.
These changes are designed to cool the market, and they’re certainly shaking things up. So, whether you’re a landlord or are considering investing in buy-to-let property in the near future, here are five things you should do:
1. Check your tenant has the Right to Rent
Under the controversial new Right to Rent policy, which came into effect this week, landlords now have to check whether their tenants have the legal right to live in the UK.
If you can’t prove you’ve made the checks and are found to be letting to a tenant who is living in the UK illegally, you could face a fine of up to £3,000.
However, if you use a letting agent to manage your property, there’s a good chance these checks will be already included in your contract.
- If you’re thinking of becoming a landlord and need some impartial advice on buy-to-let mortgages, call Which? Mortgage Advisers on 0808 252 7987
2. Get ready for the stamp duty changes
From 1 April, anyone buying a property as a second home or buy-to-let investment will face a significant stamp duty hike, with a 3% surcharge being added to each band.
The charge applies on all properties purchased for over £40,000, and will also apply in Scotland (where stamp duty is known as land and buildings transaction tax).
The changes could add a significant amount to your bill. For example, if you buy a £200,000 property from April onwards, your stamp duty bill will be £7,500, an increase of £6,000 on the current charge of £1,500.
Find out more: buy-to-let stamp duty calculator from Which? Mortgage Advisers – compare how much you’d pay now with the charge you’ll face from 1 April
3. Protect your tenant’s deposit
You are legally required to protect your tenant’s deposit using one of the registered tenancy deposit schemes. It’s free, and you’ll have to get it done within 30 days of receiving the deposit.
If there’s a dispute at the end of the tenancy, the scheme operator will act as an arbitrator to decide whether some or all of the deposit should be returned to the tenant.
Find out more: tenancy deposit protection – everything you need to know
4. Work out how landlord tax relief changes will affect you
Landlords can currently deduct mortgage interest costs from their property income before calculating their tax bill.
From 2017, the amount of tax relief allowed will be gradually reduced until 2020, when costs will only be deductible at the basic rate. This will leave higher-rate taxpayers worse off.
From April this year, the rules on wear and tear allowance are changing too. Under the current rules, landlords with furnished properties can deduct 10% of the annual rent from their profits before paying tax on them, regardless of whether they’ve spent any money on furnishings.
Under the new rules, landlords will only be able to deduct actual expenditure on furnishings.
Find out more: allowable expenses for landlords – find out what you can claim
5. Learn more with Which? Money
In the March issue of Which? Money magazine, we’ll be expertly assessing the potential returns from buy-to-let property compared to other forms of investment, to help you decide where to put your money.
You can try Which? Money, the UK’s best-selling personal finance magazine, for just £1 for two months – and this will also give you access to one-to-one help from the Which? Money Helpline.
- Using a letting agent – the pros and cons of property management
- Landlord insurance – make sure you’re covered
- Becoming a landlord – great tips for first-time landlords
Your home may be repossessed if you do not keep up repayments on your mortgage.
Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.