Lots of people find property is a great investment.  A property can earn passive income if renting it out and potentially make a profit from the value increase when sell it.  When a property is bought specially for the purposes of renting it out is called ‘Buy-To-Let’ in the UK.

However, like all investments, there are some risks to think about with buy-to-let property.  

It is very crucial to make sure understanding what responsibilities as a landlord will have. Minimum responsibilities are putting the rental deposit in a protection scheme and keeping the property compliance with the up-to-date building and renting regulations, safe and energy efficient requirements.

Unless someone has a big pile of cash sitting in the bank, most of the landlords need a mortgage to buy the property.  If considering buying a property through money lending, buy-to-let mortgage may be the best option to get into the property market. Unlike most residential mortgages, buy-to-let mortgages are commonly offered on an interest-only basis. This means that your monthly mortgage payments are repaying the interest on your mortgage.

There may be times when the property is unoccupied, or rent is not paid. financial backup for any such ‘void periods’ should always be ready for continuing to repay mortgage and other costs.

A letting agent can help a landlord, especially a first-time landlord, to stay compliant and to manage the tenancy.

There are tax implications for buy-to-let investors, both on rental income and gain on selling his property. The more the rent has been earned, the higher the tax rate will be charged.  Similarly, the greater the profit gained from selling a property, the more the capital gains tax (CGT) may have to pay. The amount of CGT needs to pay depends on whether the investor is a basic-rate or higher-rate taxpayer, or the property was owned by a company.

1. Choosing a property
   
   If decision is made to become a landlord, following tips may help a first time landlord to find an ideal property:
   

   (1)	Location is an important part of finding a buy-to-let property to attract more suitable tenants.   For instance, houses near good schools and amenities are always the number one concern of families have young children.
   (2)	University and college students may want a more affordable property that is close to their university, transport links and nightlife.  Houses in Multiple Occupation (HMOs) may attract students and generate a better rent comparing to properties for families.
   (3)	Smaller properties, if they are in the right location with good transport links, they can make attractive rental homes for single person, new married couples, and professionals.
   (4)	Although the property price for new-build homes may be higher, it is likely to save a lot of money on maintenance and refurbishment costs over the years.  New-builds also tend to be more energy efficient, which is even more important consideration of paying less for energy bills.
   (5)	Buying properties close to an investor’s own home will benefit of being familiar with the area if anything goes wrong.
   (6)	Serviced apartments or Airbnb properties become more and more popular for tourists and people who need an accommodation for a short period of time.

   
   
2. Getting a buy-to-let mortgage
   
   Unlike most residential mortgages, buy-to-let mortgages usually only pay the interest back each month and the money borrowed will not go down.
   
   Different lenders have different rules about who can get a buy-to-let mortgage and what sort of repayments are contracted.  In most cases of lending requirements, a borrower:
   

   (1)	needs to already be a homeowner earning more than £25,000 a year;
   (2)	needs to have a good credit score;
   (3)	sometimes requires the age to be under 70 years old;
   (4)	needs to have a deposit of at least 25% for a buy-to-let property. But to get the very cheapest mortgage deals, deposit is looking at more like 40%;
   (5)	can be able to earn a good ballpark figure of 25-45% more in rent than monthly repayment for the mortgage; so, if it is easier to get a mortgage worth £1,000 monthly payment when rental  is £1,250 or more.

   
   
3. Taxes to pay on a buy-to-let
   
   All rental income received from buy-to-let properties is taxable and needs to declare as Income Tax on the Self-Assessment Tax return if a property is held by individuals or on the Corporation Tax Return if a property is held by a limited company.
   
   

   (1)	Stamp Duty The tax applies to all investment property of over £40,000.  The 3% stamp duty is also charged on the entire property price, not just the value over a certain tax band. An extra 3% stamp duty is charged on any second or additional homes, which includes buy-to-let.
   (2)	Income Tax Rental income will be taxed at relevant tax band.  The tax is charged in accordance with the income tax banding which is 20% for basic rate taxpayers, 40% for higher rate, and 45% for additional rate.
   (3)	Corporation Tax Companies pay Corporation Tax at a fixed rate. The Corporation Tax rate is currently at 19% for companies with profits under £50,000. The corporation tax rate will increase to 25% from 1 April 2023, for those companies with profits of £250,000 and over. With profits between £50,001 and £250,000 is subject to a tapered rate.
   (4)	Deductible Expenses There are expenses allowed to deduct from rental income, examples include: (a) letting agent fees; (b) buildings and contents insurance; (c) council tax (if unoccupied or bearing by landlord); (d) utility bills (if unoccupied or bearing by landlord); (e) essential maintenance, such as roof repair; (f) damage to furniture or fixture; (g) mortgage interest (fully deductible for limited company); (h) relief on mortgage interest is capped for all landlords at the basic rate of 20%, regardless of whether the landlords are a higher rate (40%) or additional rate (45%) taxpayer.
   (5)	Capital Gains Tax Landlords has to pay Capital Gains Tax (CGT) tax on any value increase when selling their buy-to-let property. Individual taxpayers pay at 18% or 28% depending on their tax bracket while limited companies pay CGT as same as corporation tax rate according to their profit level of the financial year that the property was sold.

   
   
4. Responsibilities as a landlord
   
   It’s important to think about the legal responsibilities in the UK as a landlord. Let's run through the main things to think about.
   
   

   (1)	Tenancy contracts There are a few types of tenancy contracts, but the most popular is an Assured Shorthold Tenancy (AST). An AST gives renters a legal right to live in a property for a fixed duration or on a rolling term, normally six or 12 months. The tenancy usually includes the terms of rental, if rental deposit keeps in the deposit protection scheme, the scope of responsibilities for repairs, and the notice period for eviction.
   (2)	Deposit protection schemes The Deposit Protection Schemes come with an independent resolution service just in case any problems arise between landlords and tenants.  It is a way of protecting the deposit money that the tenants have handed over.  If landlords don’t have one, the landlords or their letting agents could be fined. There are two types of government-backed deposit schemes: insurance and custodial.   Under the insurance scheme, the deposit is kept by the landlord or the letting agent.  The landlord pay interest to the insurer. With a custodial scheme, the deposit money is paid into a Protection scheme, so the landlord doesn’t have to look after it.
   (3)	Right to rent checks It is the legally responsible for landlords making sure the people who have the right to rent in the UK.
   (4)	Other responsibilities It is very important making sure the property is safe for tenants to live in, examples of responsibilities:  (a) dealing with repairs to the property’s structure and exterior; (b) improving the Energy Performance Certificate (EPC) rating; (c) maintaining the heating and water system; (d) making sure furniture meets fire safety regulations; (e) making sure the gas and electrics are safe; (f) providing the right paperwork and information; (g) buy-to-let insurance; (h) buildings insurance if the property is damaged or destroyed and needs to be repaired or rebuilt; (i) contents insurance will cover the furniture and fixtures in the property.

   
   
5. Using a letting agent for a rental property
   
   As a first-time landlord, a letting agent can take a lot of admin and hassle.  Letting agent can help to advertise the property, hold viewings, and quickly find a tenant. The agent may also handle the paperwork when a tenant moves in.
   
   It is very important to make sure the agent is a member of the Association of Residential Letting Agents and the National Approved Lettings Scheme.