Buying a Buy to Let property in your personal name

Buying a buy-to-let (BTL) property in your personal name involves purchasing a rental property as an individual, rather than through a company or special purpose vehicle (SPV). This approach has its own set of advantages and disadvantages that you should consider.

Key Considerations for Buying a BTL in Your Personal Name:

1. Tax Implications:
• Rental Income Tax:
• Rental income is taxed as part of your personal income. This means it will be subject to income tax at your marginal rate (20%, 40%, or 45%). (as of May 2024)
• Mortgage Interest Relief:
• The phased reduction of mortgage interest relief means that you can no longer fully deduct mortgage interest from your rental income. Instead, you receive a basic rate tax reduction, which can be less beneficial for higher-rate taxpayers.
• Capital Gains Tax (CGT):
• When you sell the property, any capital gains will be taxed at the rates for residential property, which are higher than other types of assets (18% for basic rate taxpayers and 28% for higher rate taxpayers). (As of May 2024)
2. Financing:
• Mortgage Availability:
• There are a wide range of BTL mortgage products available for individuals, often with competitive rates. However, lenders may have stricter criteria, such as larger deposit requirements (typically 25% or more) and proof of rental income potential.

• Interest Rates:
• BTL mortgage rates for individuals can be competitive, but you may find slightly higher rates compared to residential mortgages due to the higher risk associated with rental properties.
2. Management and Liability:
• Simplicity:
• Buying in your personal name is generally simpler than setting up and managing a company. You’ll have fewer administrative responsibilities and lower costs compared to managing an SPV.
• Liability:
• You are personally liable for the mortgage and any financial or legal issues related to the property. This can pose a risk to your personal assets.
3. Inheritance Planning:
• Estate Planning:
• Property held in your personal name forms part of your estate for inheritance tax (IHT) purposes. Proper estate planning is essential to minimize IHT liabilities for your beneficiaries.
4. Regulatory and Compliance:
• Compliance Requirements:
• As a private landlord, you’ll need to comply with various regulations, including safety standards, tenancy agreements, and local authority licensing if applicable.

Advantages:

• Simplicity:
• The process of buying and managing a BTL property in your personal name is typically simpler and less costly compared to setting up an SPV.
• Mortgage Products:
• Access to a wide range of BTL mortgage products designed for individual landlords.
• Flexibility:
• Greater personal control over the property and its management.

Disadvantages:

• Tax Efficiency:
• Less tax-efficient compared to using an SPV, especially for higher-rate taxpayers, due to limitations on mortgage interest relief and higher income tax rates on rental income.
• Personal Liability:
• Full personal liability for the property and any associated debts or legal issues.
• Capital Gains Tax:
• Higher CGT rates on the sale of rental properties held in your personal name.

 

Please Note: This is for information purposes only; you should discuss the option of either buying a BTL in your personal name or an SPV with an accountant.