4 key areas to think about when purchasing a buy-to-let property

Anna Stubbs • June 21, 2023

Purchasing a buy-to-let property is an increasingly popular way to invest in your future and to give you and your dependents some financial security. But starting a property portfolio and becoming a landlord is something that requires plenty of thought before you dive in. We’ve highlighted five important areas to consider when purchasing a buy-to-let property

1. What are the benefits of buying a rental property?

With property seen as a relatively low-risk investment, you may well have thought about dipping a toe into the buy-to-let market. There are certainly several advantages to becoming the owner of a rental property, making it an attractive investment opportunity.

For example:

  • Rental income – your buy-to-let property will bring in regular rental income. This provides a passive income stream to pay off the mortgage and generate some money.
  • Capital appreciation – property values in the UK have historically increased over time, meaning it’s possible for your property to appreciate and deliver a capital gain.
  • A more diverse investment portfolio – investing in property provides diversification to your investment portfolio, which can help mitigate risk and protect your overall wealth.
  • Inflation hedge – property is often seen as an inflation hedge as rental income and property values can increase with inflation over time, protecting your purchasing power.
  • Tax benefits – you can claim tax deductions for expenses related to your property and can also receive a tax-credit, based on 20% of your mortgage interest payments.


2. Should you run your property through a limited company or as an individual?

When you first start building a buy-to-let property portfolio, the chances are that you’ll own your first property as a private individual, rather than through a limited company.


Owning the property as an individual gives you more control over the property and also keeps your costs lower, by removing the need for the admin and legal responsibilities of running a limited company. However, once you start building a portfolio of multiple properties, there are some distinct advantages of setting up a limited company for your property interests.


By owning your portfolio through a limited company:

  • You limit your liability and reduce the risk of any legal issues associated with the property
  • You pay corporation tax on your profits, rather than paying income tax at your personal rate of tax. With CT being paid at between 19-25%, this can be a big tax saving.
  • Interest on the mortgage is fully deductible for tax purposes.


3. How will you fund the purchase of your property?

You’ll need to think about how you’ll finance the purchase of your buy-to-let property. If you're planning to take out finance, it’s worth shopping around to look for the best deal. It’s also vital to calculate whether you can afford the monthly repayments against any money you borrow.

Here are some finance options to consider:

  • Buy-to-let mortgages are designed specifically for purchasing rental properties. Deposits are generally higher and interest rates higher than a regular mortgage.
  • Personal savings can be used to buy the property, if you have sufficient funds in the bank. With no mortgage in place, you remove the cost of high interest rates.
  • Equity release can be used to fund the purchase of a buy-to-let property. This can be done through a remortgage, or through an equity release mortgage.
  • Joint venture allows you to partner with another investor, or group of investors, to purchase a buy-to-let property together. This helps share the cost and risk.
  • Bridging loans can be used to purchase a buy-to-let property while waiting for other forms of finance to become available – although this can be an expensive option.


4. What are the tax and accounting implications of earning income from your property?

It’s important to think about the tax implications of owning a rental property. Any rental income you make will be subject to income tax, and you may also be liable for capital gains tax when you sell the property. It's sensible to seek professional tax advice to make sure you comply with all the relevant tax regulations. A tax adviser can also help you to minimise your tax liability.

As a landlord, you'll also need to keep accurate financial records, including income and expenses related to the rental property. This will help you keep track of your cashflow and calculate your profits and losses accurately.

Talk to us about planning your rental property purchase

Owning a buy-to-let property also comes with certain responsibilities and risks. These can include managing the property, dealing with tenant issues, and dealing with fluctuations in property values and rental demand.

If you want your buy-to-let property purchase to run smoothly, it’s important to talk to a professional accountant and tax adviser. We can help you assess your finance needs, work out a budget and set up the most tax-efficient way to purchase the property.

If you’re thinking of starting a rental property portfolio, please do come and talk to us.

Get in touch to plan your rental property purchase.

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