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A Complete Guide: The Costs of Being a UK Landlord

Published by Susan Basnet
Published Date: May 15, 2024

You are mistaken if you think the purchase price of buying a property is the only cost you'll incur as a landlord. Embarking on the journey of being a landlord in the UK involves various costs beyond the initial purchase price you pay.

This article explores a range of financial considerations, from upfront expenses like stamp duty to ongoing operational costs like property management fees. Understanding these costs is crucial for making sound decisions and ensuring a successful venture – especially if you're a first-timer!

Legal and Compliance Costs

Not every cost incurred by landlords is a legal requirement. As such, the costs for landlords may vary depending on the landlord's choice. However, there are certain costs no landlord can escape. In this section, we will discuss the legal and compliance costs:

Council Tax

Council tax is a local tax imposed by local authorities throughout the United Kingdom. It serves as a significant source of revenue for these councils, enabling them to finance essential public services and amenities within their respective areas. Although tenants are generally responsible for council tax payments, landlords operating Houses in Multiple Occupations (HMOs) are accountable for paying the council tax.

Gas Safety Certificate

The safety of the tenants is your responsibility as a landlord. As a part of this, you must have your gas appliances checked annually. The gas appliances must be checked by a gas-safe registered engineer who will give you a certificate. You must then send the certificate to HMRC.

Gas safety certificates cost around £60 per gas appliance.

Energy Performance Certificate (EPC)

In addition to the gas safety certificate, having an Energy Performance Certificate (EPC) for rental properties is a legal requirement. EPC tells you how energy efficient a building is, and a rating is given based on the assessment. It is, however, much more flexible as you only need this once every ten years. However, the certificate must be renewed if significant energy efficiency improvements are made on the property.

EPCs generally cost around £65 for registration and will last ten years.

Smoke & Carbon Monoxide Alarms

the Costs of Being a UK Landlord

Another legal requirement landlords need to be informed about is the smoke and carbon monoxide alarms. Unlike EPC and gas certificates, you will not be required to renew them occasionally. Additionally, alarm expenses are sensible and inexpensive, amounting to only £30 per house.

Tax Obligation – Stamp Duty Land Tax

Stamp Duty Land Tax (SDLT) is the tax levied on property or land purchases in the UK. The amount of SDLT payable varies based on factors like whether it's your first property purchase and your eligibility for reliefs or exemptions. If you qualify for reliefs like first-time buyers' relief, you'll pay SDLT at a reduced rate (see below). Otherwise, individuals pay SDLT at different rates depending on whether it's their second home.

Property Price

SDLT Rate: Standard

SDLT rate: Second Home

£0 – £250,000

0%

3%

£250001 – £925,000

5%

8%

£925,001 – 1.5m

10%

13%

Above £1.5m

12%

15%

For individuals qualifying for the first-time buyer relief, Stamp Duty Land Tax (SDLT) is levied at a rate of 0% for property purchases priced between £0 and £425,000. Beyond this threshold, SDLT is charged at 5%. It's important to note that properties priced above £625,000 are not eligible for first-time buyers' relief.

For Example, 

Mr. K buys a residential property in the UK for £615,000. As his property’s value is below £625,000 and he is a first-time buyer, his SDLT calculation would unfold as follows:

0% on the initial £425,000: £0,

5% on the extra £190,000 (615,000-425,000): £9,500,

Therefore, Mr K's SDLT bill amounts to £9,500!

Tax Obligation – Income Tax

Landlords pay income tax on their rental income. If there are other sources of income, such as employment income, the tax liability will vary depending on the income level. Once the total income is accumulated, the tax liability is computed based on the relevant tax band.

Below are the applicable rates for landlords based on their total income for the year 2024/25.

Band

Income

Applicable Tax Rate

Personal Allowance

£0-£12,570

0%

Basic Rate

£12,571-50,270

20%

Higher Rate

£50,270-£125,140

40%

Additional Rate

Above £125,140

45%

For Example, 

Mr Shelby has a rental income of £67,000 in the year 2022/23. Assuming he has no other income, his calculation would unfold as follows:

0% on the initial £12,570: £0

20% on the next £37,700 (50,270-12,570): £7,540

40% on the remaining £16,730 (67,000-50,270): £6,692

Mr. Shelby’s final tax liability will be £14,232!

Additional Costs

Beyond the mandatory expenses discussed earlier, landlords should also be mindful of additional costs that may vary depending on individuals’ circumstances. These costs play a significant role in the landlord’s financial considerations. This section delves into some noteworthy additional expenses that landlords may encounter, such as:

Mortgage Payments

Most landlords buy their property with a mortgage, and the mortgage repayments are generally the most enormous costs for landlords. The monthly repayment will vary depending on whether the mortgage is a residential or buy-to-let.

For example, buy-to-let mortgages come with higher interest rates than residential mortgages. In addition, buy-to-let mortgages are generally interest-only mortgages instead of repayment mortgages, meaning the monthly payments will be lower. However, the catch is that you will not have paid off the mortgages at the end of the term.

Insurance Cost 

Although not a legal requirement on few instances, landlords generally should have an insurance policy covering their property as the risks that come with an uninsured property amount are too high to ignore. Additionally, mortgage lenders are unlikely to lend without adequate insurance in place. Depending on the nature of the insurance and the interest rate charged, insurance costs start from £16 per month amounting to around £192 per year.

Property Refurbishments

the Costs of Being a UK Landlord

If you plan to provide 'furnished accommodation', you must have all the necessary furniture in your home. These are huge investments, and it might take some time before you can offset the expenses with the income. You can claim 'rent-a-room' relief amounting to £7,500 if you let out a furnished room on your main residence.

Repairs and Maintenance

If any repairs are required on the property, it's your responsibility, as a landlord, to pay for the repairs. Whilst routine maintenance tasks such as repairing a broken appliance, fixing a leak, or electrical issues demand immediate attention, landlords should also be prepared for unexpected repairs. These repairs are deductible against your rental income. Remember to keep the receipts for repairs you've paid for to reduce your income tax liability!

A recommended practical guideline is setting aside 1% of the property's value each year for repairs and maintenance expenses. However, it's crucial to factor in the age of your property when estimating potential repair costs.

Decoration Cost

In addition to the routine maintenance tasks, landlords should factor in decoration costs as a vital element of property management. Thoughtful decoration creates an inviting living environment, enhancing tenant satisfaction.

You might need to paint your property every year. So, you must be prepared for that!

Letting Agent Fees

Being a landlord is a lot of work. So, if being a landlord isn't your main or only job, you would probably have a property agent taking care of your rental properties. The agent fees will depend on the contract, but agents usually charge around 10-15% of the rental income. Most of the daily running of the property will be covered under the agreed-upon fees. That said, agents may charge extra fees if the services are added up.

Conclusion

In conclusion, becoming a landlord in the UK involves various mandatory and additional costs, from safety certificates to management fees. However, don't let that discourage you, as most costs are tax-deductible expenses unless they are capital expenditures.

You must budget wisely, considering both legal and discretionary expenses, for the success of your property ventures. By understanding and planning for these costs, you can make informed financial decisions for a prosperous rental experience.

Need expert advice on SDLT and property taxation?

Contact us today for efficient and hassle-free assistance.

Susan Basnet
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