How many buy-to-let properties can I have?

There’s no limit to the number of properties a landlord can own. However, many banks have restrictions on how many buy-to-let mortgages they’re willing to offer you. The major high street banks usually have a limit of three or five mortgages, or a total borrowing limit of up to £1 million.

Multiple mortgages can increase the bank’s exposure to risk because you might use rental income for this property to pay the interest of another mortgaged property. It can take a bit more searching to find a lender for additional mortgages, so it’s best to see a mortgage advisor to ensure you’re still getting a very competitive deal.

Lenders are also now required by law to investigate whether you can afford another mortgage if you already have three or more mortgages. This is to ensure you aren’t likely to default on your interest payments and lose your property. These investigations can include your estimated rental yield for the new property, your existing properties and your experience as a landlord.

Some banks will provide different buy-to-let mortgage products if you’re a professional or portfolio landlord. Banks have different conditions for classifying an investor as a professional or portfolio landlord, but they tend to take into account the number of properties you have (typically four or more) and the percentage of your total income that comes from rental income.

How are buy-to-let properties taxed?

There are a few different taxes related to buy-to-let properties. If you’re a private landlord with a buy-to-let property, you need to know about income tax, stamp duty, capital gains and council tax.

Income Tax:

The rental income you receive from tenants in your property is taxable. This is added to your total annual income and taxed according to the UK tax rates – so your rental income might push you up into a higher tax band. You’ll have to file a Self Assessment tax return every year with the HMRC. The HMRC will then get back to you with a tax bill.

Some of the costs involved in your property investment, such as repairs and insurance, will count as expenses and won’t be included in your total income. Buy-to-let investors also used to get full tax relief on all interest payments for their mortgage – so you were only taxed on the profits after you deduct interest payments and other costs from your rental income. This is now being limited to Basic Rate tax relief – so only 20% will be deducted from the tax rate you pay for the rental income that you spend on interest payments. This is a bit complicated, so see our full guide to income tax relief changes.  

Capital Gains tax:

When you sell your property, a percentage of your profit you make on the sale is taxed.

Your capital gain is calculated by deducting the price of the property when you bought it from the price you sell it at.

Any costs you incurred in purchasing the property and selling the property, such as Stamp Duty, agency fees and repaying your mortgage, aren’t deducted from the Capital Gains calculation.

Many landlords transfer buy-to-let properties to family members, such as a partner or child, without actually selling it. This is still considered a capital gain for tax purposes, even if no money was paid for the property, and the original owner is liable to pay Capital Gains.

Stamp Duty:

You pay stamp duty when you buy a property. This is a percentage of the total property price, and the rate increases as the property price increases.

There is a £40,000 tax-free allowance. The stamp duty rate is 3% for the next £85,000 of the property price, up to the £125,000 threshold. Then, you pay Stamp Duty at 5% up to a threshold of £250,000. The remaining cost of the property between £250,001 and £925,000 is taxed at 8%.

Who pays council tax for my buy-to-let property?

Council tax is typically payable as a household, but it can vary by the type of tenancy you offer your tenants. Its paid to the local council that serves the property.

Assured Shorthold Tenancies

Standard residential lets are usually Assured Shorthold Tenancies (AST). Your tenants are responsible to pay council tax, and this should be set out in a clause of the contract between the landlord and the tenant. You need to notify the local council when your tenants move in so they know who to send the bill to.

If your tenants are renting the property as a group (such as a group of friends rather than a family), they are jointly and severally liable to pay council tax. This means the council can chase everyone for the council tax even if only one person hasn’t paid their share.

Some tenancies don’t have formal contracts. If this is your case, the tenant is still liable for their own council tax and you still need to notify the local authorities. However, if the tenant doesn’t pay their tax bill, the council might chase you for it instead.

You can be exempt from council tax for up to six months if your property is empty. After six months, the landlord is liable to pay council tax at a 50% discount. You’ll need to notify the local council that your property is empty, or they may still send you a bill.

HMOs

In a Home of Multiple Occupancy (HMO), several tenants live as individual households in your property, with individual rental agreements and payments. The landlord pays the council tax for all the tenants in the property. You can increase the rent you charge to cover the council tax bill if both parties agree before signing the tenancy agreement.

Short Term Lets

Short term lets are properties let out on a temporary basis by room or by the property as a whole, or rooms let out on a short term basis within a property the landlord lives in. In both cases, the landlord is liable to pay council tax for the entire property. However, you can factor the council tax bill into the rent you charge tenants.

If the property is empty for over a month, you may be eligible for council tax exemptions or discounts for that period. Council rules vary on this so it’s best to enquire with your local authorities.

Is a buy-to-let property a business asset?

Residential buy-to-let properties are typically classed as investment assets rather than business assets. These classifications are used by the HMRC to determine how much Capital Gains tax you pay. Business assets are used in a trading business so commercial properties such as shops and offices are usually business assets. Hotels, BnBs and properties that you buy and sell quickly without trying to rent may also be classed as business assets.

Is it better to invest in rental properties or dividend stocks?

The best investment strategy for you will always depend on your personal financial situation and goals. Many people choose between real estate and stocks and shares.

Buy-to-let properties are usually much more stable and secure investments than stocks. As a landlord, you’re likely to manage the property yourself. This can be a demanding job but gives you much more control over your investment. You can profit from rental income and capital growth when you sell the property. Buying an investment property requires more upfront capital than stocks. You can get a buy-to-let mortgage to pay for most of the purchase price, but you’ll need to provide a deposit of 25% to 40%.

When you buy stocks and shares, you’re buying a part of a company. You’ll be paid regular dividends as a percentage of the company’s profits. Dividend stocks are much more volatile investments, because your returns depend on the fluctuations of the stock market and the company. They’re liquid investments, meaning you can sell the shares to withdraw your capital at any time. However, you may have to sell at a loss if the company isn’t doing well economically. You can also lose your investment altogether if the company goes bankrupt.

You might not have to choose between rental properties and dividend stocks. If you buy a buy-to-let property, you should be making a net profit from your rental income by the second year. You can then reinvest this in dividend stocks to build up your capital and put together a deposit for another rental property.

Is there a crowdfunding platform where I can get people to invest in the upfront deposit for buy to let property I want to purchase?

If you can’t afford a deposit by yourself, you can also invest in buy-to-let property by pooling your capital with other investors. One popular method is peer-to-peer lending. You can either borrow capital from other investors to collect a deposit, or lend to an investor who then buys the buy-to-let property. Digital platforms like Landbay and LendInvest connect lenders with borrowers.

Several websites also offer crowdfunding platforms to invest in buy to let property. These platforms allow you to invest if you haven’t got enough capital for a deposit by yourself. This is different to peer-to-peer lending because you’re directly investing in property rather than providing a loan. You’re essentially buying equity in a company that owns the property(ies) or buying a share in a house itself. You’ll be paid a regular dividend from the rental income, and you might make a profit from capital growth of the property.

You can invest £500 with The House Crowd, £50 with Property Partner and £10 with Property Moose.

Which are the best buy-to-let properties?

The best buy-to-let property for you will depend on your personal financial situation and goals.

You can usually evaluate an investment by comparing the purchase price to the estimated annual rental yield. As a landlord, you’ll want to aim for an annual rental yield of 5%-10% of the total price of the property.

The strongest returns on investment for a buy-to-let property vary by location, the type of property and the tenancy model.

Short term lets will typically have much higher annual rental yields, especially in areas of high demand.

Flats in urban and commercial centres of big cities will usually be strong investments because there will be high demand for rental homes from young professionals.

If you’d prefer to rent to a family, look for a property in a clean and safe neighbourhood with good schools. Properties near universities will also attract high rental demand from students – although you may have an empty property over the summer.

Buy-to-let properties in London are yielding diminishing returns because although rent in London remains high, property prices are also very high. Cities like Leeds, Cardiff and Edinburgh have comparatively higher rental yields.

What is the quickest way I can start investing in rental property?

Property investment can be a long and time-consuming process. If you’re eager to start seeing returns on your investment more quickly, you can appoint agencies and advisors to manage some of the big steps. Platforms like Yuvoh can streamline your journey and complete a lot of the essential research and legwork for you. There are also opportunities to buy fully managed and serviced properties. This can greatly speed up the process of getting your property ready to rent out and finding tenants.

You may also need to spend a few years saving up your capital if you can’t afford a deposit for a property yet. A financial advisor can help you plan your finances to put together a deposit more quickly.

You can also invest in REITs, peer-to-peer lending and buy-to-let crowdfunding. These are equity-like investments that pay dividends rather than rental income, but they can be quicker and easier and you can invest as little as £100.