The Buy to Let First Time Buyer
If you are thinking about investing in property to generate returns, this article is for you.
Buy-to-let property is purchased with the intention of renting it out to tenants, rather than living in it. It has the potential for generating passive income, as well as serving as a long-term investment vehicle. With the rising demand amongst renters in the UK, the prospect of earning a steady rental yield through buy-to-let property can be enticing for new investors. However, it is crucial for first-time landlords to be aware that entering the buy-to-let market comes with its own set of rules and challenges.
In this article, our specialist buy-to-let conveyancing solicitors cover the key legal, tax, and borrowing considerations for buy-to-let properties to help first-time buyers make smart, informed property decisions.
It is also important to understand that being a landlord comes with strict landlord legal responsibilities, which can get you into a lot of trouble if overlooked.
For more information about your responsibilities as a landlord once you’ve purchased your buy-to-let property, see our corresponding article The Landlord Responsibilities Checklist.
Legal Ownership of a Buy to Let
When entering the buy-to-let market, investors must decide how to structure their ownership of the property. The two primary options are purchasing as an individual or acquiring the property through a limited company.
Buying as an individual:
Purchasing a buy-to-let property as an individual is the traditional approach for many first-time landlords. Just like buying a property to live in for yourself, a buy-to-let property purchased as an individual means owning the property in your own name. Any mortgage to finance the buy-to-let property will also be taken out in your name. As such, when you own a property as an individual, you are personally liable for any debts, expenses, and legal issues related to the property.
Buying through a limited company:
Limited companies are considered to be separate legal entities in and of themselves, meaning they can own assets including property. To clarify, when you purchase buy-to-let property through a limited company, the company becomes the legal owner of the asset rather than you individually. This means that any losses or legal concerns related to the property are the responsibility of the company rather than you personally (hence limited liability). However, this protection does not extend to acting negligently or unlawfully in operating the company. There are also administrative requirements involved in running a company, including keeping-records and making regular filings at Companies House. Properties owned by limited companies are subject to different tax rules compared to personal ownership (more on that below).
In summary, buying as an individual means that the investor assumes personal ownership and responsibility for the property. Conversely, buying property through a limited company transfers ownership to the corporate entity, introducing different legal and tax considerations, including limited liability for personal assets. Choosing the right structure for buying a buy-to-let property depends on various factors, including your financial situation, investment goals, and willingness to manage administrative complexities.
Figuring it all out can be quite overwhelming when becoming a landlord for the first time, so we strongly recommend getting professional advice. Here at Starck Uberoi, our conveyancing solicitors have specialist expertise in buy-to-let matters – whether you are purchasing through a limited company or as an individual. We can help you explore your options and help choose the route that aligns best with your unique circumstances.
There are also Stamp Duty implications when buying through a Limited Company. You may want to check out: Stamp Duty Calculator for a Limited Company Property Purchase
Tax Matters for Buy-to-Let Investors
Buying as an individual:
Income tax on rental income:
While investing in buy-to-let properties can be a lucrative venture, it comes at a cost. If you are purchasing the buy-to-let in your own name (and not through a limited company), just like salary from your employment, tax is applied on rental income generated from buy-to-let properties (usually at your standard income rate). Income tax is payable on rental profit, which is the gross rent you receive less any deductible expenses and allowances. Gross rent includes any payments made by tenants to you to cover the provision of services, such as cleaning, utilities, and repairs (but these can be charged as expenses). Other expenses includes things like letting agent fees, property maintenance costs, and insurance premiums. Landlords used to be able to deduct buy-to-let mortgage interest and other finance costs from rental income before tax was calculated. This significantly reduced their tax bills. Unfortunately, this system has been phased out. Instead, landlords can now only claim mortgage interest tax relief in the form of a 20% tax credit applied on mortgage interest.
Capital gains tax:
When it comes to selling a buy-to-let property, individual landlords may also be subject to capital gains tax (CGT). You are taxed on the gain, which is the difference between what you bought the property for and what you sell it for. The rate at which you pay CGT depends on your overall income. Basic rate taxpayers pay 18% on gains from buy-to-let property, while higher and additional rate taxpayers pay 24%.
Every person has an annual tax-free allowance, currently £3,000 for 2024/25. CGT is only payable on gains above this threshold. Before calculating CGT due, you can deduct certain costs and expenses, such as legal and estate agency fees, stamp duty tax paid on the original purchase, and some improvement costs. There may also be other reliefs available that reduce your CGT liability. For example, Private Residence Relief (PRR) may be applied if you once lived in the property as your main residence.
Other tax considerations:
Despite the tax implications of buy-to-let investing, there are some benefits and allowances that first-time landlords may qualify for. For example, landlords may be able to claim tax reliefs on money spent replacing domestic items in a rental property. In addition, landlords have a personal property allowance available each year, meaning the first £1,000 of buy-to-let rental income is exempt from tax. This can be claimed respectively by each owner for jointly held buy-to-let properties (although personal allowances cannot be used in conjunction with deducting expenses). Every person also has a personal tax free allowance of £12,750 . If your total income including rental earnings does not exceed this, no income tax is payable.
Buying as a limited company:
Corporation tax:
If you are purchasing a property through a limited company, the rental profits will be subject to corporation tax (instead of income tax). Starting from the 2024/25 tax year, the corporation tax rate is set at 25% for companies with profits exceeding £250,000. For those with profits below £50,000, the rate is lower at 19%. There is a marginal relief system that allows for a gradual increase between these two rates for businesses with profits ranging from £50,000 to £250,000.
Additionally, companies can fully deduct mortgage interest payments as a business expense, instead of facing a cap of 20%.
When a limited company sells its assets (like property), any profits made are subject to corporation tax (not CGT as for individuals).
Tax on dividends:
The most common way to extract profits from a buy-to-let limited company is in the form of dividends paid to shareholders, which are also subject to tax depending on your ersonal rate as follows:
- 8.75% (basic rate)
- 33.75% (higher rate)
- 39.35% (additional rate)
Any income that falls within your personal allowance (£12,750) is not subject to tax, and there is also a dividend allowance of £500 for the tax year 2024/25.
The tax implications of buy-to-let property are complicated. We would always recommend speaking with a tax advisor to understand your tax liability, and potentially explore ways to mitigate it.
Stamp Duty Land Tax (SDLT) Rules
The SDLT surcharge
Stamp Duty Land Tax (SDLT) is a tax levied on property purchases in England and Northern Ireland. The amount of SDLT you pay depends on the property’s purchase price, with different rates applied to different portions of the price. If you are thinking of buying-to-let, you should be aware that higher SDLT rates apply. In particular, an additional 5% surcharge is payable on top of the standard SDLT rates. As of 1 April 2025, the higher SDLT rates for additional (including buy-to-let property) are as follows:
Up to £125,000 – 5%
£125,0001 – £250,000 – 7%
£250,001 – £925,000 – 10%
£925,001 to £1.5M – 15%
Over £1.5M – 17%
Who does it apply to and warning for first time buyers
The additional surcharge will only be applicable if your buy-to-let purchase means you end up owning more than one property. If the buy-to-let is your first and only property purchase, the standard residential rates will apply. However, you will not benefit from any first-time buyer relief available to those who intend to live in the property as their main residence. This applies even if you sell your buy-to-let then purchase another home to live in. To confirm, as of 1 April 2025, first-time buyers have a full discount on the first £300,000 of the purchase price of their property, and 5% on anything above that up to £500,000.
If you are planning to buy-to-let through a limited company, the higher rates always apply, regardless of whether it is your company’s first property purchase. However, non-residential and mixed-use properties are exempt.
SDLT for buy-to-let example:
Understanding how SDLT and the surcharge for buy-to-let properties works is best illustrated by an example.
Let’s say you are purchasing a buy-to-let property for £270,000, you’ll pay:
- 5% on the first £125,000 = £6,250
- 7% on the next portion up to £250,000 = £8,750
- 10% on the final £20,000 = £2,000
Your total SDLT bill will therefore be £6,250, + £8,750 + £2,000 = £17,000
Now if you were purchasing the same property on standard SDLT rates, 0% would apply to the first £125,000 (£0), 2% to the next portion up to £250,000 (£2,500), and 5% to the remaining £20,000 (£1,000) = a total SDLT liability of £3,500.
The higher rates of SDLT for investment properties no doubt make investing in buy-to-let property more expensive upfront, but with the right financial planning and legal advice, you can still make it work for you. There are various reliefs, exemptions, and potential refunds that may be available (depending on your ownership structure) to help manage and mitigate your overall tax liability. This is a highly specialist area that requires expert knowledge, so we would recommend getting in touch to explore your options.
Lending Considerations for First Time Buyers
Overview of buy-to-let mortgages:
Buy-to-let mortgages are specifically designed for those looking to purchase property for rental purposes. Unlike standard residential mortgages, these loans come with a few distinct features:
- Higher deposit: lenders typically expect at least 25% of the property’s value for buy-to-let property, in comparison to the usual 10% despot required for standard residential mortgages.
- Higher interest rates: interest rates on buy-to-let mortgages are typically higher, reflecting the increased risk lenders associate with rental properties.
- Interest-only loan: buy-to-let mortgages are often structured so that monthly repayments cover interest only, with the balance due at the end. For residential mortgages, monthly repayments cover both the interest and original loan amount.
To secure a buy-to-let mortgage, lenders want to see that your rental income will cover mortgage repayments, but also some remaining to cover unforeseen expenses. Rental income is usually expected to be between 125% and 145% of the mortgage repayments, dependent on your taxpayer’s rate.
Challenges for buy to let first-time buyers
One of the main hurdles is the limited lender options available to first-time landlords. Many mortgage providers are hesitant to offer buy-to-let loans without prior experience in rental property management, which can significantly narrow down choices. This is the case whether you are buying personally or through a limited company (although the range of buy-to-let products available for limited companies can be narrower compared to personal mortgages, come with stricter criteria, and higher interest rates).
Affordability assessments play a crucial role in the lending process too. Lenders will scrutinise not only the expected rental income but also your personal financial situation, including income stability and existing debts. They want to know that you can comfortably handle both mortgage repayments and any additional costs associated with property ownership.
Owners of limited companies are often asked to provide personal guarantees for the buy-to-let loans, with some lenders demanding a personal minimum income.
Fortunately, as specialist buy-to-let conveyancing solicitors, Starck Uberoi can help you overcome these challenges, as highlighted next.
Role of mortgage brokers
Mortgage brokers play a valuable role in helping buy to let first-time buyers get their finances sorted. Firstly, brokers have access to a wide range of lenders and have often forged good working relationships with them. Coupled with their in-depth knowledge of the lending market, working with a broker means you can potentially access the best deal for your situation, including lenders who are more amenable to working with first-time landlords. Mortgage brokers can also assist in preparing the necessary documentation and guide you through the entire application process, ensuring a smoother experience in securing funding for buy-to-let investments.
Role of conveyancing solicitors
Buy-to-let is often more complex than your average residential property purchase. It is therefore important to choose a conveyancing solicitor with the right skills to ensure these type of transactions run smoothly and that nothing is missed. Here at Starck Uberoi, our conveyancing team have specialist knowledge and expertise in the legal, tax, and borrowing considerations when it comes to buy-to-let. We have strong professional networks and are on specialist buy-to-let panels of major lenders. This means that we can act for both you and your lender – explaining the unique buy-to-let aspects of the borrowing terms to you and making you aware of any risks, while ensuring the property is good security for the lender.
“Getting your head around the buy-to-let market for the first time can be overwhelming. At Starck Uberoi, we specialise in guiding first-time landlords through every step of the process, ensuring they make informed decisions that align with their financial goals. Our expertise in buy-to-let conveyancing, strong relationships with lenders, and tailored legal advice provide clients with the confidence they need to invest successfully in rental property.” Raminder Uberoi, Owner and Head of Property – Starck Uberoi Solicitors.
Buy to Let First Time Buyers Summary
Buy-to-let investments may seem daunting with all the legal and financial considerations involved. Fortunately, professional support is available at every stage to help you get on the buy-to-let property ladder and keep all bases covered. Here at Starck Uberoi, our specialist property solicitors take care of the legal side of things for you, while our mortgage brokers can help you secure the right buy-to-let loan. Our individualised approach and jargon-free advice gives clients the confidence to move forward with their buy-to-let property journey.
To book an appointment, please call 020 8840 6440 or email solicitor@starckuberoi.co.uk. Our offices are located in Brentford, Richmond, Ealing, London Belgravia and Canterbury, all within easy reach by public transport.
You may also be interested in
Buy to Let via a Limited Company – this article explains the benefits of purchasing rental property via a Limited Company rather than as an individual
- Buy to Let and Buy to Let Conveyancing Quotes – a really useful guide which answers many questions that someone who is considering becoming a landlord, will be asking.
Buy to Let: A First Time Buyer’s Guide – provides a comprehensive overview of the legal, tax and borrowing considerations for the first time landlord
- Becoming a Landlord: Top Ten Tips for First Time Buyers – watch our Head of Commercial Property, Laura Maltby in this informative video.
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