How much has buy-to-let really made?

Buying and selling prices, mortgages, running costs, taxes - it can be tricky to calculate how much property actually makes. A study by Hamptons looked at the net gains an average investor has made over the last decade.

Property investors make profits from both rising prices and rental income. Hampton's research found that on average, landlords who sold last year made a capital gain of £91,000, having bought the property just under 10 years ago. Over the same period, they received around £112,000 in rental income, making a total of £212,000 before expenses and taxes.

Expenses and taxes are however a very real part of property investment. Hamptons assumed that investors used the highest available level of borrowing, typically a 75% interest only mortgage. They also assumed that running costs amount to 10% of gross rental. After deducting both, the average higher rate taxpayer netted £41,000 in rental income and a lower rate taxpayer £66,400 in addition to the capital gain.

Two other taxes were factored in - capital gains tax and stamp duty. Once these were accounted for, the average high rate taxpayer made a total net return of £105,500. As the actual amount invested was the just the deposit plus acquisition costs, the total return on investment was 225% over 10 years.

The equivalent figures for lower rate taxpayers were £130,600 net profit or 275%.

Hamptons also drew a comparison between London and one of the regional markets - the Northeast. Whilst London made slightly higher gains overall - 244% over 10 years versus 226%, there was a stark difference in how the profits were made. Investors in the capital were heavily reliant on house price growth, making up 77% of the profit, while in the Northeast 68% of gains came from rental income.

Expat investors
The majority of Pcom's clients are working expats without significant UK sourced income. As such, most will be lower rate taxpayers. Investors whose total UK income, including rental income, exceeds £50,000 p.a. may wish to seek professional tax advice.