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The potential for both income and capital gains from a buy-to-let property can look attractive. However, the outgoings on owning such an asset, from the cost of managing a property to tax bills, can dramatically reduce those headline figures. There are also financial risks to consider, including void periods (where a property is not let), currency fluctuations and the potential fluctuations in the market.
Stamp Duty Land Tax (SDLT) – Stamp duty is a percentage rate charged on a proportion of the property value; the rate paid will vary depending on how much the property is worth. From 1 April 2016, higher rates of SDLT will be charged on buy-to-let properties above £40,000. The higher rates will be 3% above the current SDLT rates.
Income Tax – Property owners who are not resident in the UK are generally required to pay UK Income Tax on rental income. Some of the costs of financing and maintaining the property can be used to reduce the tax bill.
Capital Gains Tax (CGT) – UK residents and foreign owners must pay CGT on the profits when selling or disposing of a buy-to-let property that has increased in value.
Letting Agent Fees - Fees for letting services are normally a percentage of the rental income, and will vary by agent and service level. Lower fees will cover basics such as finding and vetting tenants, and preparing an inventory. Ongoing property management services, which include managing periodic rent increases, will incur higher costs.
It’s also important to factor-in landlord insurance, legal fees and maintenance costs. Leasehold properties may incur additional service charges or ground rents. International landlords will also need to think about any currency impacts from receiving or making payments. Currency solutions can be used to manage exposure to changes in currency markets and to time payments