Potential costs and returns to consider when investing in a buy-to-let property?

Being a landlord can make you a steady income, both from your rental yield and rises in property value (capital growth).

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Costs and Returns

Being a landlord can make you a steady income, both from your rental yield and rises in property value (capital growth). But it’s also important to remember that buy-to-let investments are a medium to long term risk, so it helps to know how the books are balanced.

When juggling outgoing buy-to-let costs, like agent management fees, buildings insurance and Capital Gains Tax alongside market risk-factors like fluctuating property values, it’s valuable to know which costs might cause your outgoings to exceed your return.

Let’s look at the details.

Our Fees

As proud members of the Association of Residential Lettings Agents (ARLA), we pride ourselves on transparency. We are completely upfront about the costs involved in using our services. We can provide a full breakdown of these costs.

Income Tax

The profit that you make from a rental property is taxable. There are deductible allowances (such as our management fees, maintenance costs and similar) which could result in significant savings in the tax you’ll be liable to pay. We always recommend speaking to an accountant/ book keeper on these points or familiarising yourself with the allowances which can be found on the HMRC website.

Capital Gains Tax

Capital Gains Tax is a tax you pay on any profits you make when disposing (selling, gifting, swapping or receiving compensation for damage) of an asset, such as a second home or rental property that has increased in value.

You are taxed on the difference between the price of when you bought the property to when you sell the property and not the entire value. For example, if you purchase a buy to let at £100,000 and you then sell sold it at £150,000, you would be liable to pay tax on £50,000 (subject to allowances etc).

Second-home Stamp Duty

When purchasing a second home, such as a buy-to-let, there are higher taxes to pay in the form of stamp duty. Under current regulations, you will have to pay an additional 3% of the purchase value on top of the standard stamp duty rates.

Building Insurance

When letting a property, it is important to bear in mind that you will require ‘landlord’s building insurance’, not just ‘standard’ building insurance. It is important that you discuss this with your current provider and/or switch providers if necessary. If you do not do this, your insurance may be invalid if you try to make a claim in the future.

Landlord building insurance can provide peace of mind that should the unexpected happen, such as fire or flood, your investment is protected. Some policies also offer cover in the event of a claim being made against you in the event if an injury happening at the property.

Rent and Legal Warranty

The rent and legal warranty that we are able to offer (via a third party) is one of the most comprehensive warranties on the market. It helps to protect your rental income and your biggest asset – your property.
It can provide you with cover:

  • up to 100% of rent owed with zero excess (up to 15 months’ rent as a maximum)
  • up to £100,000 of legal expense cover
  • 75% rent payment for up to two months after vacant possession of the property

This warranty is £350 a year (Inc. taxes).

Safety Certificates

In order to legally let a property, you are required to have a valid Electric Installation and Condition Report (EICR) and gas safety record (where gas is supplied to a property). You will need valid certificates both at the start and for the duration of the tenancy. The certificates ensure that both you and the tenant are protected.

We can instruct an electrician and/or Gas Safe engineer to attend the property at the start of the tenancy. When either document is due for renewal during the tenancy, we will send you a message to remind you of the renewal date and ask whether you want us to instruct a contractor to attend the property.

If your property has a wood burner/ fireplace that you have agreed the tenants can use, you will be required to have a carbon monoxide alarm fitted and to have the chimney swept once a year. Again, this is something we are happy to assist you with and will remind you when the chimney needs to be swept again.

Block Agent Fees

If you are a landlord of a leasehold property, you will be responsible for maintenance fees, annual service charges and your share of the buildings insurance.

The maintenance cost is used for many different things, such as keeping communal areas clean and tidy, lifts maintained, serviced gardens are kept tidy, and ensuring any entry phone/CCTV is working. Leaseholders will normally pay an annual “ground rent” to the freeholder as well.

Maintenance Repairs

We hope the need for repair and replacement is minimal during a tenancy but under our Full Management service, you will have peace of mind that we will prepare quotes and instruct contractors to complete any work that is required.

The cost of repairs can vary significantly from a relatively small sum of repairing a seal on a tap, to thousands of pounds to replace a roof. It is certainly worth making sure you’re prepared for all eventualities, no matter how small the risk.

Capital Growth

When purchasing a buy-to-let, most investors will focus on the rental value of the property. While this is an important factor in determining the immediate return you will receive on your investment, there is another potential for profit.

Capital growth is the difference in value from when a property is purchased to when it is sold. Assuming the property market maintains an upward trend, the longer an investment is kept, the greater the potential for capital growth and the bigger the return. Of course, things do not always work this way, and we would always recommend speaking to a financial advisor on matters like this.

If you are thinking of renting your property and have any questions, we are very happy to help. Visit your local branch today or call 01903 213 111 to speak with one of our friendly team.

"Easy tenancy renewal service undertaken over email. Helpful to receive advanced notice well ahead of the end of the tenancy and Jane was keen to ensure a positive outcome for both landlord (me) and my tenant. Thank you very much."



Talk to one of experts to understand all of the potential costs and returns when renting out a property.

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