Rental yield the priority when investing, say landlords

Over 70 per cent of buy-to-let investors say rental yield is more important than capital gains when making property purchase decisions.

The new poll from Simply Business - voted on by close to 200 landlords - shows that most landlords are more concerned with seeing a healthy rental return than making money from an increase in property value.

Rental yield

According to recent research, the best buy-to-let rental yields in the UK can be found in Manchester, with buy-to-let owners enjoying an average yield of 6.02 per cent.

Liverpool is the location with the second highest average rental yield (5.16 per cent) and Cardiff and Coventry follow close behind.

The rental yield of a buy-to-let property is how much income it generates annually, expressed as a percentage of the purchase price.

For example, if you bought your rental property for £180,000 and charged rent of £700 a month, you’d have an annual rental income of £8,400, so your rental yield would be 4.67 per cent. The average rental yield in the UK is currently around five per cent.

Capital gains

For the minority of buy-to-let voters (27 per cent) capital gain is more of a concern than rental yield.

If you’re a buy-to-let landlord keen to make big bucks when you come to sell your property, inner London is the place to invest if you can afford it, with average annualised capital growth of 7.81 per cent.

Cambridge comes second place with 5.99 per cent and Watford is in third with 5.35 per cent, followed by Outer London.

This shows that while the north west takes the top spots for rental yield, London and the south east are hard to beat for capital gains.

Tax on rental income and capital gains

Whether you’re more concerned about the rental yield or the money you’ll make when you sell your buy-to-let property, remember to take the buy-to-let tax implications into account.

You’ll pay income tax on the rent you receive via self assessment, at a rate that’s based on your income bracket.

If you make a profit when you sell up, you’ll have to pay capital gains tax.

The current rate of capital gains tax for buy-to-let properties is 18 per cent for basic rate taxpayers and 28 per cent for higher rate taxpayers.

What do you consider when you’re thinking about where to invest? Tell us in the comments.

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