Structuring your Buy-to-Let portfolio carefully is now more important than ever
£50,000 it in a building society, will be lucky to earn 2% or £1,000. That same £50,000 as a deposit on a £200,000 buy to let (BTL) property with mortgage costs covered by rental income means if house prices rise you get capital growth on £200,000. Say the property increases by 3% in value, that’s a £6,000 return. Six times the return on cash. Of course I’ve ignored purchase fees but you get the idea. Hence a “leveraged” return has real attractions. So much so that everyone wanted into the market which raised the question are buy to let landlords pricing first time buyers out of the market? The government sought to slow the market down with a raft of measures making BTL less attractive as an investment.
In April 2016 an additional 3% stamp duty on second homes was introduced. This, along with the phasing out of higher rate income tax relief on buy-to-lets (BTLs) and higher Capital Gains Tax (CGT) on BTL now has many investors questioning whether BTLs are still their best investment option. High management fees, the CGT issues, dealing with awkward tenants and void periods – coupled with the bother of deposit protection all make owning buy to let property VERY hard work indeed. But, with a UK property market that seems to move inexorably upwards it’s still attractive to some.
For all these reasons how you structure your BTL portfolio is now more important than ever.