Is a buy-to-let investment worth it?


In the last three years, landlords have suffered from various changes to the buy-to-let landscape. Multiple tax changes and the uncertainty surrounding Brexit hasn’t played in landlords’ favour, deeming a buy-to-let portfolio somewhat risky. But is all really lost?

Are you losing out?

In April 2016, the chancellor George Osborne announced several measures that would shake up the perks enjoyed by landlords for decades. Along with announcing a 3% surcharge on the stamp duty payable for second property purchases, the most damning change came in the form of mortgage interest relief (MIR) reductions.

Until the 2016/17 tax year, landlords were able to subtract mortgage interest and other costs directly from their total rental income, before they calculated how much tax they owed. The chancellor’s changes – which are being applied slowly – mean that, from 6 April 2020, landlords will no longer get mortgage interest relief, and, instead will only receive a 20% tax credit against mortgage interest. This could leave many landlords at a financial loss.

Thinking of buy-to-let for retirement planning?

Pensions versus investing in property is probably something you’ve thought about in planning for your retirement. With rising house prices and the stability of a rental income, investing in a buy-to-let property could seem appealing.

If you’re younger, you may feel investing in property is a safer option than investing in a pension. If you’re at retirement age, you may be considering using some of your hard-earned pension to purchase property for income as an alternative to an annuity. However, along with the changes mentioned above, using your pension pot to purchase a buy-to-let property – something the new pension freedoms rules has allowed – may not be the most tax-efficient option.

This is where a financial adviser can help you to understand the options and what may be best for your own circumstances. This includes the potential tax bills you could face as a buy-to-let investor, including tax on withdrawing your pension, inheritance tax and possibly capital gains tax. An adviser will discuss with you if, given your circumstances, relying on buy-to-let investments in retirement would be beneficial at all.

So, is all really lost?

When it comes to buy-to-let investments, truly understanding the costs associated with purchasing a buy-to-let property – as well as the tax implications if you’re thinking of relying on a buy-to-let investment in retirement – is important. Although a strong demand from tenants struggling to get on the property ladder and rents rising quicker than inflation create a strong case for buy-to-let investments, a qualified adviser can help you see the bigger picture, in line with your financial goals.

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