Is Buy-to-Let Property Investment Worth It in 2021?

Posted by Salboy Ltd on 20th September 2021 -

Buy-to-let property investment is still profitable in 2021. Management of rental properties and taxes have been changed and made investing slightly more complicated. However, there are ways to adapt to these changes. And with a long-term strategy, investors can earn profitable incomes in the short and long-term. 

Here’s a guide on buy-to-let property investment, covering the benefits, changes and how to effectively adapt in 2021 and beyond.

The benefits of buy-to-let investment

Property is a relatively secure, tangible asset with long-term security, which rises with inflation and beats bank saving rates. Additionally, property is still a flexible asset as it can be remortgaged, rented or lived in. 

On top of that, investors are still earning strong yields paired with great capital appreciation potential as well, especially in certain areas. The housing market is continuing to grow as there is still an under supply of housing. 

As tenant demand is expected to continue at high levels, rental yields are expected to remain healthy, especially in key locations with growing demand. This makes choosing a good property in the right location particularly important for successful buy-to-let investment.

Additionally, there are a number of competitive products on the mortgage market. Recently, there has been positive growth in the mortgage sector with interest rates remaining at low levels, which is making borrowing more affordable.

The changes impacting the sector

In recent years, there have been a number of legislation and tax changes that have been brought forward in the buy-to-let sector. This has impacted how property investors operate in the market.

Due to buy-to-let being so profitable, the government increased taxes for landlords and property investors. Because of this, tax bills are now higher for most buy-to-let investors, which does eat into some profits. 

Now, less tax relief is available. Since April 2020, private landlords are no longer able to deduct any of their mortgage expenses from their rental income to reduce their tax bill. Instead, landlords receive a tax credit, which is based on 20% of mortgage interest payments. This predominantly impacts landlords who are higher or additional-rate taxpayers.

Additionally, in 2016, a 3% stamp duty surcharge was added for those buying additional properties in the UK, including buy-to-let properties. There have also been rumours that capital gains tax rates could be increased in the future, which would impact buy-to-let investors.

On top of tax changes, there also has been an increase in legislation. For example, there are new electrical safety standards for all privately rented properties. All fixed electrical wiring and installations must be checked and tested by a qualified electrician. And additional changes like abolishing Section 21 could be brought forward later in the year.

While sometimes additional regulation isn’t always popular, this is continuing to professionalise the sector and increase standards in the private rented sector, making it more appealing for tenants to rent for longer.

How to adapt to tax and property management changes

While tax and property management are more complicated now, there are ways to adapt to these changes in the buy-to-let sector.

Seek out professional tax advice

Seeking professional independent tax advice can help ensure your property investments are as tax efficient as possible. Buying property through a limited company may be an effective way to navigate the recent tax changes.

Limited companies can deduct mortgage expenses before calculating profit – unlike those who are investing as individuals. Investing through a limited company also allows investors to pay corporation tax instead of income tax, which is currently lower than the higher rate of income tax. There are some disadvantages to consider, including higher mortgage rates, more admin involved and that you would get taxed twice if you want to take money out of the business.

An investor’s personal situation and plans for the future are important factors when considering whether it’s best to invest through a limited company or not. Making the right decision could save you a significant amount of money in tax, so receive professional tax advice to find out what is the best investment option for you.

Hire a quality property management company

With a growing number of legislative changes in the buy-to-let sector, working with an experienced property management company can help ensure you meet your legal obligations and stay on top of any future changes to buy-to-lets.

Additionally, property management companies come with numerous benefits. This includes attracting quality tenants to your rental property quickly, potentially minimising periods the property is sitting empty. 

Concluding thoughts

Long-term buy-to-let property investment is a great way to save for retirement or as part of a diversified investment portfolio. This kind of property investment can be used as a second income stream or as your main business. 

There is flexibility that comes with this kind of property, and there are still good yields that can be earned by buy-to-let property investors, along with potential capital appreciation as well. This can help you earn an income in the short and long term, providing the potential to earn a strong return on investment.