Landlords: changes to tax relief and maximising returns explained

My ‘phone hasn’t stopped ringing with landlords asking how July’s emergency Budget will affect them. There have been some unflattering headlines about how changes to offsetting ‘allowable rental expenses’ against a landlord’s income tax bill will detrimentally affect profits but with clever planning and professional guidance, a buy-to-let can still be positive investment and an attractive alternative to traditional savings.

The Chancellor’s emergency Budget contained details on a new approach to tax relief. The biggest change is to the offsetting of mortgage interest. The existing rate – which can reach 45% – will be reduced to the basic tax rate of 20%. It is also expected that mortgage broker and arrangement fees will also fall into the new lower bracket.

Firstly, there is no immediate panic. The changes will be phased in over a four year period from April 2017. Until then, landlords can still claim tax relief on monthly interest repayments at 45%. There are almost two years for landlords to plan for the alterations, and this is where working with a professional letting agent and property manager really counts.

Jones Robinson has access to the most relevant information and can draw on years of planning experience to help property investors minimise the impact on their lettings portfolio and maximise returns. Our lettings team would be delighted to talk to you in detail about the future of your property investments but for quick reference, here are our top five tips for improving returns on a buy-to-let property:-

1. Consider a HMO – a study from July 2015 revealed that a HMO – house in multiple occupation – outperformed a standard single occupancy buy-to-let at a stunning rate of 40%. The survey by investment company Platinum Property Partners found that the gross yield on a HMO was 12.4% and the net yield 9.7% (compared to 5% and 3.5%, respectively, for a standard buy-to-let with a sole occupier. Jones Robinson successfully let a collection of all-inclusive suites in a Basingstoke HMO, with the number of tenants wanting to a reserve a suite far outnumbering the number of available units. Ask us about developing a HMO aimed at professional workers or the upper end of the student market.

2. Make the most of the retained tax relief aspects – there are still many costs and expenses that a landlord can offset against their income tax bill. This includes any professional management fees; maintenance work that rectifies wear and tear, such as mending broken white goods, replacing worn carpets and general decorating; specialist landlord insurances; phone calls, travel expenses and stationary directly related to running a buy-to-let, accounting fees in regards to a self-assessment tax return and, in some leasehold circumstances, service charges and ground rent

3. Think about offering the let with bills included – advertising your monthly rental charge with council tax and utility bills included does have a tax advantage, as a landlord can claim back the whole cost. This applies to void periods too, when there are no tenants in the property.

4. Ensure you review the rent on a regular basis – Jones Robinson monitors the local lettings market and manages 100s of rental properties on behalf of landlords, so we are in an excellent position to advise landlords on rental values. Why not ask us to carry out an appraisal on your buy-to-let portfolio? It might be time to adjust what you charge to tenants, mindful of the local demand.

5. Evaluate your buy-to-let mortgage – many landlords will benefit from an appointment with an independent financial advisor. Buy-to-let mortgage rates have been tumbling for some time and remortgaging or moving to a better product with the same lender may reduce your monthly mortgage repayments. We are delighted to recommend FirstXtra – a local mortgage advisor who would be happy to work with any landlord.

If you’re unclear over the recent changes or would like to know more about the above points, feel free to contact the lettings team today.

Jones Robinson | 23/07/15 11:25AM

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