Property Developers, Property Investors, Doctors / GPs

How much property tax does a landlord pay?

simon

Simon Misiewicz

29th October 2021

How much tax does a landlord pay?

The amount of tax a UK landlord pays is subject to their total taxable income.

If a landlord pays the basic tax rate, this is 20% (taxable earnings up to £50,270), while in a higher rate taxpayer, the landlord will pay 40% (taxable earnings from £50,271 to £150,000). The additional rate bracket will mean a landlord pays 45% tax Taxable earnings above £150,000).

There are three main types of tax in the UK: income tax, National Insurance and VAT.

Landlords letting out one or two properties while in full-time employment will often only need to pay income tax on the profit made from renting property to tenants.

A full-time landlord needs to declare this to HMRC if starting a property business, and then taxation rules are different in a company-based structure.

Watch our YouTube presentation to determine how much UK income tax buy to let property investors pay to HMRC.

HMRC has provided clear information on how to work out your rental income when you let property as a UK landlord.

One of the questions we are asked is, “Do I need a property accountant near me” to work this out. I would say no. This is because we use Zoom as a great way to help you get answers to your property tax questions with ease and speed.

The frequently asked questions about landlord tax

As property accountants, we are regularly asked about landlord tax. We will look to answer the below questions in this Article.

“Are you paying too much property tax?”

“Should I speak to a property tax accountant?”

“What are the basics of landlord tax?”

“How much tax do I pay on rental income?”

“What are allowable expenses for landlords?”

“When should I report rental property income?”

“How do I complete a landlord tax return?”

“Will I pay less tax by using HMRC’s Let Property Campaign?”

“How does this affect Hong Kongers that are looking to move or invest in the United Kingdom from Hong Kong?”

“How does this affect American readers that are looking to move or invest in the United Kingdom from the United States?”

“How does this affect our British readers that are looking to move or invest in either the United States or Hong Kong?”

If you are wondering if a “property accountant near me”makes sense then think about the extra time and effort to go and see the accountant. Why not book a tax consultation with us using Zoom and have the call from the comfort of your own home?

Need tax advice?

Book a tax consultation call with us today and save tax tomorrow

30 or 60 minutes

Book now

Are you paying too much property tax?

Our property tax specialists help over 1,000 monthly retained UK landlords and property investors to minimise tax whilst building their wealth.

There are many reasons why some landlords pay far more buy to let property tax than they need to.

This is because:

-They do not know what they do not know.

-They have not spoken to a tax specialist to go through their situation to see what tax reliefs are available to them.

-Their accountants or solicitor are not aware of the many reliefs available to their clients and are not taken advantage of.

-Tax legislation changes but either the person or their accountant/tax specialist have not been made aware.

What are the basics of landlord tax?

As property accountants serving thousands of UK landlords that purchase buy to let properties, we know that landlord tax is one of the main concerns for all of our property investor clients.

Ensuring that their property portfolios are as tax-efficient as possible is our main objective as specialist property tax accountants serving clients across the UK and abroad.

Whoever benefits from owning a property pays the tax.

Finding that person means following the income and dividing it between the owners (or those paid from it), such as property lettings managers.

If you are a landlord letting out a property and allowing a third party to keep the income in return for managing the property, you may still need to declare this on a self-assessment tax return even though you were not receiving any rental income.

HMRC wants to see where the income ends up, even with a third party acting as a landlord’s agent.

Property owners, landlords and property investors who pay higher or additional rate income tax can hide their income and reduce their tax bills by claiming that someone else (usually a basic rate taxpayer) is the person gaining the income.

There are legal ways to do this, such as transferring allowances within a marriage or civil partnership or forming a business partnership.

Misrepresenting your tax situation by hiding where income goes is not one of those options.

Many of our landlord clients have several properties.

In these situations, tax liabilities are much the same as when running any other type of business.

For self-assessment, all rents and expenses from similar properties are joined together into a single figure.

Landlords need to divide properties, rents and expenses in the following way:

– UK rentals – any buy to let or share house rented out on a shorthold tenancy agreement
– Overseas rentals – any properties abroad let on a long lease
– Holiday lets – homes located within the EEA that qualify as furnished holiday lets

We recommend that all landlords review what HMRC expects landlords to do from a tax perspective when renting out their property.

To discuss how you can reduce landlord tax, speak to us today.

Why do people ask for a “property accountant near me” when they can use specialist property accountants anywhere around the world. There is no need. The power of technology allows property tax questions to be answered by accountants for property investors anywhere in the world. I hasten to add that our property tax specialists are UK based.

Have a question about property investments, tax or being an expat?

There are a number of free events that will help you build investments/businesses with more comfort and move forwards with confidence.

Free

Book on a seminar

Buy to let property allowable costs - Revenue or Capital?

Costs incurred in a business can be categorised in one of 2 ways usually to help mitigate tax. These are:

– Revenue costs (that can be used to reduce your income tax bill).

– Capital costs (that can be used when you sell the property and can be set against the amount of gain made to reduce your capital gains tax bill).

As HMRC’s website states that refurbishment costs are allowed provided that the property is in a lettable state. To quote HMRC’s website “A property acquired that wasn’t in a fit state for use in the business until the repairs had been carried out or that couldn’t continue to be let without repairs being made shortly after acquisition.”

A customer may incur expenses for the purposes of a rental business before that business starts. If so, they may be able to claim a deduction for them once the letting begins (ITTOIA05/S57 or CTA09/S61). Relief is only due under these special rules where the expenditure:

Qualifying pre-commencement expenditure is treated as incurred on the day on which the customer first carries on their rental business. This is deducted, together with the other allowable expenses of letting, from the total receipts of the business for that year.

– is incurred within seven years before the date the rental business is started, and

– is not otherwise allowable as a deduction for tax purposes, and

– would have been allowed as a deduction if it had been incurred after the rental business started.

Refurbishment costs will be considered to be capital if you are unable to get a buy to let mortgage. This is a good signal to suggest if the property is dilapidated or in a lettable state. If the property is lettable then HMRC will see like for life repairs/replacement as allowable to be offset against your taxable income. If the property does not have a buy to let mortgage then this tells HMRC that the property is dilapidated and that refurbishment costs are capital.

Allowable refurbishment costs to reduce your property profits and tax

There are three types of costs that are allowed to be offset against your property profits. These allowable refurbishment costs will reduce the tax that you pay to HMRC. Simply put the three Rs are:

– Replacement (kitchens, bathrooms and furniture)

– Repairs (roof tiles, garden fence, brickwork)

– Renewals (replastering, repainting)

 

Let us take a property that you have purchased. It is a property that has not been renovated for many many years. You know the types of property that have:

– The beautiful woodchip wallpaper

– The stunning salmon bathroom suite

– Furniture that looks as though it was leased from a museum. Yes, people still watch black and white TVs

A note on Stamp Duty Land Tax

Identifying fixtures/fittings and furniture = chattels means you do not pay

£200,000 property value

£10,000 (F/F and F = settee, tables, freestanding kitchen appliances
etc)£190,000 which is used for SDLT purposes, not the £200,000 thus saving SDLT.

– The kitchen sink that resides in a bedroom wardrobe (yes, this actually happened to me)

You know full well that the property would not achieve great rental income if let in its current state.

As such you would replace the kitchen and bathroom suites and these costs provided they are like for like replacements (same number of cupboards and functionality). As such these items would be allowed to be offset against your property profits.

Once you have replaced these items, you may turn your attention to the decoration. You will be able to claim 100% of the costs if you renew the paintwork and plasterwork to make them look shiny and new. The same applies to the replacement curtains, carpets and furniture as I have mentioned before.

There are times when it would appear that improvements have been made to a property. Many accountants would capitalise on these costs. As HMRC’s website says “alterations due to advancements in technology are generally treated as an allowable repair rather than an improvement. If the functionality and character of the asset are broadly the same. For example, when single glazed windows are replaced with double glazing.”

As such the fact that you replace boilers, plumbing, wiring etc. these costs will be allowed to be offset against your property profits. These costs help you reduce your property tax bill

Our specialist property accountants are focused on getting you the best property tax strategy to legally and ethically reduce your tax liability on your property portfolio. Speaking with our accountants for property investors will help you identify the most reasonable costs to mitigate tax on your self-assessment tax return.

Need tax advice?

Book a tax consultation call with us today and save tax tomorrow

30 or 60 minutes

Book now

How much tax do I pay on rental income? 

When renting a property to a tenant, you pay tax on any profit made from the rental income that goes over the personal allowance of £12,570 for the 2021-22 tax year.

The amount of tax a landlord pays depends on which tax band they fall into.

You can calculate your profits by adding together rental income and deducting any allowable expenses from this total.

HMRC classes rental income as money made from sources including:

– Rent money paid by tenants
– Utility costs
– Fee for cleaning communal spaces
– Parking fees
– Additional fees for the use of furniture

It does not include money from services not usually provided by landlords, such as meals, cleaning services or laundry services.

These would be claimed as trading income, not rental income.

You can put rental receipts and expenses together when calculating rental profit, so one property’s expenses can be claimed against another’s income.

The income tax rates for the 2021-22 tax year are:

– Higher rate tax band (taxable income from £50,271 to £150,000) = 40%
– Additional rate taxpayer (taxable income over £150,000) = 45%

So if you earn £15,000 from renting out a property, the first £12,570 is tax-free.

You would then pay 20% tax on the remaining £2,430, giving you a tax bill of £486.

Ensure that you speak with your specialist property accountants to get this right.

Have a question about property investments, tax or being an expat?

There are a number of free events that will help you build investments/businesses with more comfort and move forwards with confidence.

Free

Book on a seminar

Why should I speak to a property tax accountant?

We have worked with many landlords and property investors in the UK.

We have numerous international clients who invest in UK property and seek to minimise the tax they pay in the UK and their own countries.

We specialise in working with property investors from America and Hong Kong and working with British landlords who are seeking to build property portfolios overseas in those areas.

There are many ways in which a uniformed property investor can pay too much property tax on their buy to let portfolio.

The property tax specialists at Optimise Accountants have a large and well-established client base of property investors worldwide whom we help to save UK property tax.

Furthermore, the two Directors are successful property investors with significant and thriving portfolios.

Not only can we advise you on how to pay less tax as a landlord, but we can also help you to maximise your property investments.

Get in touch here to find out why it is vital to speak to a property tax accountant.

Need tax advice?

Book a tax consultation call with us today and save tax tomorrow

30 or 60 minutes

Book now

The frequently asked questions about HMRC self assessment tax returns

You may be interested in our main article on how much income tax you need to pay to HMRC. You may also be interested to know more about our tax saving services for UK landlords and property developers.

Did you know that HMRC pulled in £825 billion in taxes for the year 2019/20? Of this amount, £195 billion came from income tax. This is either collected through the employment PAYE schemes or through the submission of your personal self-assessment tax return. The top 50% of households pay nearly 80% of the income tax liabilities.

According to the HMRC’s annual income tax report, the southeast population of the UK accounted for 14.8%, whilst London accounted for 13.4%.

As property accountants, we are regularly asked about income tax and personal self-assessment tax returns. We will look to answer the below questions in this article.

– Who must file a self-assessment tax return?
– How much do you need to earn before self-assessment is required?
– How to register for self-assessment with HMRC
– How to sign in to the HMRC portal to do a self-assessment tax return?
– How do I do a self-assessment? / How to file your self-assessment tax return online?
– When do I need to pay tax?
– Can I spread my tax bill?
– What is a payment on account?

Does your specialist property accountants help you understand the answers to the above questions?

Have a question about property investments, tax or being an expat?

There are a number of free events that will help you build investments/businesses with more comfort and move forwards with confidence.

Free

Book on a seminar

When should I report rental property income?

You need to declare rental income to HMRC before the deadline following the end of the tax year.

The tax year begins on 6th April each year and ends on 5th April the following year, but the deadline for online tax returns is not until 31st January the year after.

If it is your first year completing a self-assessment tax return as a landlord, you need to register by 5th October in the year after you collected rental income.

You must contact HMRC if your income from property rental is less than £2,500 a year.

You must report it on a self-assessment tax return if it is £2,500 to £9,999 after allowable expenses or £10,000 or more before allowable expenses.

How do I complete a landlord tax return? 

You need to complete a landlord tax return by 31st January each year through self-assessment.

The self-assessment tax return process is essentially the same whether you are a landlord, small business owner or sole trader.

The first step is to register for self-assessment by 5th October in the tax year following your first rental income.

You will get a Government gateway user ID and password when you register, enabling you to set up a personal tax account and manage your taxes online.

Once registered, you can file your tax return by filling out the self-assessment tax return form online.

The deadline for submitting your landlord tax return each financial year is 31st January for online tax returns.

To fill in your tax return, you’ll need information about all the income you’ve received throughout the tax year, as well as information about all expenses you want to deduct.

HMRC states that landlords need to record the dates a property was let out, all the money a landlord spent, and all rents received.

Landlords also need their UTR (unique taxpayer reference) number when they register for self-assessment.

It is vital to deduct all allowable expenses to work out your total taxable profit.

HMRC states that expenses need to be wholly and exclusively used for the purpose of renting out property.

When you fill in your landlord tax return online, HMRC’s system reacts to information as you enter it and removes sections that aren’t relevant.

UK landlords need to fill in the UK property section to tell HMRC about:

– rental income and other receipts from land or property
– income from letting furnished rooms in your house
– income from furnished holiday lets in the UK or EEA
– premiums from leasing UK land

HMRC will calculate what you owe and send you a tax bill.

HMRC provides helpful information on how to work out your rental income as a UK landlord. It is worth reading this material and then discussing it with your property tax consultants.

Need tax advice?

Book a tax consultation call with us today and save tax tomorrow

30 or 60 minutes

Book now

Understanding the basics of self assessment

As property accountants serving thousands of UK landlords that purchase buy to let properties, we know that it is challenging to understand the world of tax when submitting a tax return to HMRC.

Many people pay too much tax because they are not aware of the many tax reliefs that are open to them. People fear facing an HMRC tax investigation if they submit a self-assessment tax return that shows there is little or no tax to pay. This is not the case, but you do not know what you do not know.

HMRC has provided a friendly website page that helps you understand all about self-assessment tax returns.

It is important to note that the self-assessment tax year starts on 6th April and ends a year later, on 5th April. You will need to collect all your taxable earnings during this “Fiscal” tax year.

There are three key dates to bear in mind:

– 5th April: the tax year-end date for personal self-assessment tax
– 30th October: deadline date for submitting a tax return to HMRC in paper format (postal)
31st January: This is the ultimate deadline for submitting a tax return online. Please note that this is also the date on which tax liabilities must be paid.

You only pay tax once you have exhausted your personal allowance. A personal allowance for tax purposes is the amount of money you can earn before paying tax.

Personal allowances increase over time in line with Consumer Price Index otherwise known as CPI. The personal allowance for the tax year 2019/20 was £12,500. Any good accountants for property investors will be able to shed light on how to reduce your tax liabilities using the most basic techniques.

Have a question about property investments, tax or being an expat?

There are a number of free events that will help you build investments/businesses with more comfort and move forwards with confidence.

Free

Book on a seminar

How much do you need to earn before self assessment is required?

There are times when you do not have to file a tax return.

The information above from HMRC can be pretty misleading. The above would suggest that you file a tax return if you have a £1000 rental income. This is not the case.

Here is an extensive list of when people need to file a tax return to HMRC by 31st October using paper form or online. The tax submission deadline is extended to 31st January:

– People that earn more than their personal allowance of £12,500 (for 2019/20) and have not been taxed through PAYE
– Sole traders that have earned more than £1,000
Landlords that receive UK rental net income (rental income less costs) of £1,000. There is a caveat to this information relating to the gross rental income received
– £2,500 to £9,999 after allowable expenses
– £10,000 or more before allowable expenses

If your circumstances change and you no longer need to file a tax return, please make sure that you contact HMRC to tell them. It is important not to assume that they know. It is unlikely that they know you no longer need to file and will issue you late fines and penalties. Contact HMRC to update them on your financial position and filing status.

How to register for self assessment with HMRC?

Once you have identified that a tax return is submitted, you may need to register for tax with HMRC.

Before registering for self-assessment tax returns, you will need to obtain a Unique Tax Reference code (UTR). This ten-digit unique UTR may be obtained by requesting it from HMRC. The UTR is for each tax person. Your UTR tax reference code is unique to you.

You can contact HMRC directly on 0300 200 3310 to see if you already have a UTR or to request a new one. You can also request a Unique Tax reference code using the online self-assessment registration application process.

There are three options for you when registering for self-assessment:

self-employed
not self-employed
registering a partner or partnership

UK landlords and property investors that need to register for self-assessment would use the “not self-employed” option. This is where our accountants for property investors can help you.

Need tax advice?

Book a tax consultation call with us today and save tax tomorrow

30 or 60 minutes

Book now

How do I do a self assessment?

As mentioned above that the UK tax year runs from 6th April to 5th April the following year. This means that you will need to collect all your forms of income between these dates.

It is important to note that your tax returns may be done by:

– You, using the online self-assessment tax forms
– An accountant or
– Tax advisor

For many people preparing and filing a UK tax return to HMRC is simple enough. Their tax affairs are not complex, and hiring an accountant would cost more than the benefits provided.

For people with more complex financial or tax affairs, it makes a lot of sense to hire an accountant/tax specialist to help prepare, review and submit your personal self-assessment tax return.

Having someone look over your shoulder should provide greater confidence and comfort that the numbers are correct.

The forms of income that you need to declare to HMRC might be as follows:

– Employment income: P60 and/or P45
– Employment benefits in kinds that are not subject to PAYE: P11D
– Pension income: P60
– Income (net) from buy to let property: gross income less costs
– Self-employment income (income less costs)

Once you have all this information, you will then need to populate this data into your self-assessment tax return if you are doing your own.

The deadline for the submission of self-assessment tax returns is as follows:

– 31st October if you are posting your paper tax return to HMRC

– 31st January if you are submitting your personal tax return to HMRC online

 

One of our specialist property accountants will be able to help you understand how to complete your UK tax return whilst minimising your tax liability.

Have a question about property investments, tax or being an expat?

There are a number of free events that will help you build investments/businesses with more comfort and move forwards with confidence.

Free

Book on a seminar

What is a payment on account?

There is also something called payments on account. A Payment On Account, also known as (POA) is an additional tax that you pay for the upcoming tax year.

– Your last Self Assessment tax bill was more than £1,000
– Less than 80% of future taxes are captured within your employment PAYE system.

If you have a tax liability that is greater than £1,000 and are not employed then a POA needs to be paid along with your tax liability on 31st January. The payment on account is the same amount of money as the current year’s tax liability but spread over two instalments

– 31st January
– 31st July

Let us look at an example here. Sarah has a tax liability of £500. She needs to submit her tax return to HMRC and pay the £500 tax liability by 31st January 2022. She does not need to pay a payment on account for 2021/22 because her tax liability is less than £1,000.

John has a tax liability from his buy to let property portfolio of £2,500. John needs to pay HMRC by the 31st January 2022 the following:

– £2,500 tax for the tax year 2020/21
£1,250 for the forthcoming tax year 2021/22 (50% of the 2020/21 tax liability
– £3,750

John also needs to pay an additional £1,250 on 31st July 2022 for the tax year 2021/22. These POAs will be taken into consideration when he files his 2021/22 tax return by 31st January 2023.

It is possible to reduce the POA for the following reasons:

– You are about to retire, meaning you will have less employment income
– You have changed jobs with less money
– You have just been made redundant
– Your self-employment business activities are unlikely to be as high
– You expected to make less money from your buy to let property investments.

You can notify the reduction of your payment on account when you submit your personal self-assessment tax return to HMRC. It is important not to reduce your POA if you expect your income streams to remain the same. This is because HMRC will issue penalties and fines to you by reducing your POA under false pretence.

Has your specialist property accountants informed you of what a Payment on account is?

Need tax advice?

Book a tax consultation call with us today and save tax tomorrow

30 or 60 minutes

Book now

Let Property Campaign

HMRC’s Let Property Campaign was introduced in Autumn 2013. It is a method for UK landlords and property investors to declare undisclosed income to HMRC and pay any tax on their investments.

Launched in September of that year, the nationwide campaign was targeted at residential property landlords who were not declaring their rental income.

HMRC estimated in 2013 that there were as many as 1.5 million landlords in the UK, but they had less than 500,000 on their books.

There were significant property tax revenues to pursue from these one million ‘missing’ landlords.

The Let Property Campaign was introduced to run for an initial 18 months. It was still in effect in 2021.

It’s advisable for any UK landlords or property investors who are behind in their tax affairs to read the HMRC Let Property Campaign guide in full to see how they can make a disclosure and reduce penalities.

Our buy to let accountants for property investors have helped hundreds of people complete their let property campaign. Could we help you?

Have a question about property investments, tax or being an expat?

There are a number of free events that will help you build investments/businesses with more comfort and move forwards with confidence.

Free

Book on a seminar

Why should I use the Let Property Campaign?

The Let Property Campaign presents an opportunity for residential property landlords in the UK to get up-to-date with their tax affairs, taking advantage of the best possible terms from HMRC.

HMRC allows for full disclosure from landlords and property investors, with 90 days to work out and pay any tax owed.

HMRC often examines property transactions to check that taxpayers are declaring the correct amount of income and gains.

Whilst the campaign focuses on undisclosed rental income, HMRC issued nudge letters in late 2020 to indicate that some people could need to tell HMRC about gains from property sales.

Since being launched in 2013, property industry sources claim that the Let Property Campaign has clawed back more than a quarter of a billion pounds in taxes from UK landlords and property investors for HMRC.

Whether the current voluntary system will be replaced by a more direct approach by HMRC to tracking down private residential landlords who fail to declare rental income has also been questioned.

Read this guide from HMRC to find out how to use the Let Property Campaign.

If you’re unsure about how to get your property taxes in order, speak to one of our property tax accountants today.

Need tax advice?

Book a tax consultation call with us today and save tax tomorrow

30 or 60 minutes

Book now

What are the basics of HMRC's Let Property Campaign?

As property accountants serving thousands of UK landlords who purchase buy to let properties, we know that tax-efficient is of prime concern to our property investor clients.

For those landlords who are not up-to-date with their property tax affairs, the Let Property Campaign is a long-running disclosure opportunity from HMRC that allows individuals to disclose undeclared income from previous tax years in a straightforward way.

HMRC receives data from various sources about rental properties, including letting agents, land Registry, Council records, mortgage applications and tip-offs from members of the public.

HMRC can analyse data from different sources and flag up taxpayers who do not appear to be paying the correct amount of tax.

This can lead to a nudge letter from HMRC to landlords and property investors, inviting them to use the Let Property Campaign to get their tax matters in order.

HMRC property let scheme is open to a range of residential property landlords, including

* landlords with one or more UK or overseas residential rental properties

* landlords renting rooms in their primary home using the Rent A Room Scheme

* landlords who specialise in property lets for students and workforces

* landlords with holiday lettings

Landlords who think they have underpaid tax should contact HMRC through the Let Property Campaign as soon as possible.

Once HMRC has been notified by a landlord that they wish to be involved in the scheme, they are required to disclose to HMRC any income, tax, gains and duties they’ve not previously disclosed.

Landlords are then required to make HMRC a formal offer and pay what they owe.

HMRC give landlords the best possible terms under the Let Property Campaign, with lower penalties available to those who provide the most accurate and prompt information.

Have a question about property investments, tax or being an expat?

There are a number of free events that will help you build investments/businesses with more comfort and move forwards with confidence.

Free

Book on a seminar

How does the HMRC property let scheme work? 

HMRC property let scheme is relatively straightforward for landlords and property investors to use.

The following steps need to be taken:

– HMRC will issue a Payment Reference Number once you have advised them you wish to use the Let Property Campaign.
– All previously undeclared income and gains must be included in your disclosure, such as business profits and investment income as well as rental income and gains.
– Calculation of the additional tax, interest and penalty due for each tax year covered by the disclosure
– You must pay HMRC the amount offered using your Payment Reference Number
– Once your disclosure has been submitted, the HMRC will issue an acknowledgement letter within a fortnight. They will carry out further internal checks and issue a formal acceptance letter if satisfied that full disclosure has been made
– You must ensure moving forward that you are compliant with current and future tax affairs by registering for Self-Assessment and declaring all income and gains via your annual tax return

There are technical rules to be aware of and potential arguments to try and utilise to restrict the number of years to include and minimalise penalties from HMRC.

We recommend that you speak to an experienced property tax accountant before disclosure.

Need tax advice?

Book a tax consultation call with us today and save tax tomorrow

30 or 60 minutes

Book now

Will I pay less tax by using HMRC property let? Maybe, maybe not says our specialist property accountants

It is unlikely that less tax will be paid by using the Let Property Campaign.

There is still a significant benefit in using the scheme rather than going through an HMRC tax investigation.

It is unusual for the scheme office to request invoices and receipts for expenses. They do allow a degree of estimation where information cannot be obtained.

Under an investigation, the requests for information and paperwork are far more stringent and take longer to complete. This means that it is likely you would pay far more in professional tax advisor fees.

It is also possible to reduce potential penalties by approaching HMRC before they contact you.

Good property tax advisors will help landlords and property investors to gain the minimum penalty rate possible, as well as helping landlords to navigate through any tax issues that arise.

Does HMRC contact landlords about the Let Property Campaign?

HMRC targets tax compliance activity across all UK landlord types.

They will identify and write to landlords and property investors who they consider not declared all their rental income.

If HMRC then has to carry out compliance checks or enquiries to resolve matters, you will not be able to use the Let Property Campaign.

Voluntary disclosure is recommended to resolve penalties and resolve matters. This can also help convince HMRC that simple mistakes or errors have been made rather than more severe issues.

During a single Summer, HMRC sent tens of thousands of letters to landlords suspected of avoiding or underpaying tax under the banner of the Let Property Campaign.

The majority of those targeted were landlords with one or two properties to let.

These letters gave the landlords a 30-day period to contact HMRC and then 90 days to repay the outstanding tax.

By utilising the Let Property Campaign, these landlords were informed they could gain favourable terms, while those who didn’t would face investigation, higher penalties and the prospect of a criminal conviction.

Our specialist property accountants help many landlords that face an investigation from HMRC. Let us take away the stress of going through a tax enquiry.

Have a question about property investments, tax or being an expat?

There are a number of free events that will help you build investments/businesses with more comfort and move forwards with confidence.

Free

Book on a seminar

Where does HMRC get information from about let property? 

HMRC has broad information powers to obtain details about let property in the UK, including:

* Council, for landlords providing accommodation to housing benefit claimants

* the land Registry for details of who holds the legal ownership of a property

* HMRC also has powers to gain information from third parties such as letting agents, anyone who searches for tenants, and internet-based letting services

HMRC has also developed in recent years systems to manage and analyse data, ensuring they have access to large lists of persons in receipt of rental income.

HMRC's £7,500 Rent a Room Scheme

HMRC’s Rent a Room Scheme was introduced in 1992 to incentivise homeowners and property investors to let out spare rooms in their homes.

According to HM Treasury, since the Rent a Room Scheme was first launched, the UK’s Private Rental Sector has more than doubled in size. The emergence of multiple online platforms enables those with spare accommodation to find potential lodgers.

The scheme aimed to increase the availability of low-cost rented accommodation across the UK.

One of the objectives of the Rent a Room Scheme was to make it easier for individuals to move around the country for employment purposes.

It also gives a £7,500 tax-free income incentive to those renting out a room.

The tax-free threshold of £7,500 per year applies to letting out furnished accommodation in your home.

This allowance is halved if you share the income with a partner or spouse.

You can opt into the scheme at any time if you’re a resident landlord or if you run a B&B or a guest house.

You cannot use the scheme for homes that have been converted into separate flats. This is because the rent a room scheme requires the tenant or guest to have access to the homeowner’s facilities. A separated flat whereby the tenant or guest that has their own washing, sleeping and eating facilities would be considered to be in their own “dwelling”. This arrangement is covered by the buy to let the method of taxation.

Read this informative helpsheet on the Rent a Room Scheme from HMRC.

Do you need ” a property accountant near me” to help you with this? Certainly not. We use Zoom as a quick way to make you tax efficient. Why get in a car to see your accountant? Book a call today and get questions answered tomorrow from the comfort of your own home.

Need tax advice?

Book a tax consultation call with us today and save tax tomorrow

30 or 60 minutes

Book now

What are the basics of the Rent a Room Scheme?

As property accountants serving thousands of UK landlords that purchase buy to let properties, we know that our property investors and landlord clients are keen to maximise their rental incomes.

According to industry sources, the tax relief claimed under the Rent a Room Scheme has tripled in the last decade.

The average rent for a spare room in the UK is currently £587 per month, according to SpareRoom.

This monthly amount equates to £7,044 per year, which means most room-based landlords wouldn’t be required to pay any tax on the income gained.

The scheme enables homeowners to let out at much of their home as they wish, as long as it is their primary residence and they continue to live there.

The allowance cannot be claimed by those who let their property completely and move elsewhere.

From 6th April 2016, the amount of relief available under the Rent a Room Scheme increased from £4,250 to £7,500, which provided a powerful incentive to many individuals who could receive rental income from a lodger.

You pay tax on your actual profit, meaning total receipts less any expenses.

Examples of expenses include insurance, maintenance, repairs and utility bills.

If you’re unsure of your tax position regarding the Rent a Room scheme, speak to one of our property tax experts today.

Have a question about property investments, tax or being an expat?

There are a number of free events that will help you build investments/businesses with more comfort and move forwards with confidence.

Free

Book on a seminar

Who is eligible for the Rent a Room Scheme?

The main points to remember if you’re considering using the Rent a Room Scheme and are unsure if you’re eligible are:

– It must be your only or main residence in the UK
– You can’t deduct any wear & tear costs against the letting
– The room cannot be used for business purposes
– Permission must be gained from your mortgage advisor
– Your home insurer will also need to give permission
– Second homes and holiday homes are scrutinised by HMRC
– The scheme might not apply if you go abroad to work

The scheme is open for owner-occupiers and tenants who have gained permission.

HMRC has provided more details about the tax rules of the Rent a Room Scheme that are worth reviewing.

To discuss your tax position concerning the scheme, speak to our property tax accountants today.

What are the pros and cons of the Rent a Room Scheme?

The main advantage of the scheme is that you can earn £7,500 a year tax-free.

This can be outweighed by some people because you cannot claim any expenses related to the letting.

Any money spent on repairing wear and tear in the property or for major expenses such as replacing a broken boiler is not tax-deductible as expenses against income gained under the Rent a Room Scheme.

If you spent more on decorating a room and keeping it in good order than you make in rent under the scheme, you would end up making a loss and wouldn’t be liable for tax.

The scheme will not always be tax-efficient or profitable if gross rental receipts are below the Rent a Room Scheme limit and automatically exempt from tax.

Where expenses exceed rental receipts, and the landlord makes a loss, the benefit will be lost under the Rent a Room Scheme.

Where a loss arises, it can often be carried forward and used against future rental business profits.

The ability to use the loss may be beneficial if the landlord lets out other properties on which they make a rental profit, or if it is likely that in the future, the rental receipts from letting rooms in his home will exceed the £7,500 allowance, giving rise to a taxable profit.

Need tax advice?

Book a tax consultation call with us today and save tax tomorrow

30 or 60 minutes

Book now

Can I opt-out of the Rent a Room scheme?

If you want to opt-out of the Rent a Room Scheme, you must tell HMRC by 31st January after the end of the tax year in question.

This can be done by informing HMRC directly or through the property section of your tax return.

You will need to opt-out of the scheme every time you submit a tax return to be eligible.

There is no particular form for telling HMRC you don’t want to be part of the Rent a Room Scheme.

If you earn more than the £7,500 threshold or have already completed a tax return, declare the relevant lettings income and expenses when filling out your tax return.

To discuss your tax position regarding the Rent a Room Scheme, speak to one of our property tax specialists today.

What is a deed of trust? Also called a Declaration Trust - Let our accountants for property investors help you understand more

A deed of trust is a legally-binding document that dictates the capital and revenue interests in a property.

There were a record number of buy to let UK landlords setting up companies for their property investments in 2020, with buy to let businesses being the second-highest company type incorporated after firms selling goods online.

More UK landlords set up buy to let companies between 2016-2020 than in the whole of the 50-year period preceding. By the end of December 2020, there was a record 228,743 buy to let companies in the UK. Of these new property investment companies, 34% were based in London.

A deed of trust can be used to transfer property income gained to reduce the amount of tax paid to HMRC.

At a time when more UK landlords are setting up buy to let businesses than in the last 50 years, tax-efficient tools such as a deed of trust can make a significant difference to a property investor’s tax bill.

As leading property accountants, we work with over 1,000 retained buy to let UK landlords, helping them to run more tax-efficient property businesses and to lower the tax paid from their rental incomes.

Are you married or in a civil partnership? Do you own property investments between you? Is one person a higher rate taxpayer and the other a basic rate taxpayer?

You may already be aware that you could reduce your tax liability by splitting your property profits favouring the lower rate taxpayer. Did you know that HMRC will always assume spouses own a 50/50 share in all property unless they are told otherwise?

Typically couples own property as “joint tenants”, which means that the property is owned 50%/50%. The other way to own property is as “tenants in common”, which specifies a different split in ownership and profits, meaning one person can have 99% of the income and the other person receives just 1%.

If one of you is a basic rate taxpayer, it is worth considering who will receive rental income for tax purposes and changing the beneficial ownership of buy to let properties in your portfolio to reflect this.

Putting a deed of trust in place effectively diverts the income on a property from the legal owner to the person named on the deed of trust. This transfer of interest can be beneficial as a tax-saving strategy for UK landlords.

The HRMC differentiates between the ‘legal’ and ‘beneficial ownership of a buy to let property. The legal ownership of a property is whoever the owner is according to the Land Registry, and if a property is mortgaged, who the mortgagee is.

It is, however, the beneficial owner of a property that HMRC taxes on property income. A deed of trust allows the legal and beneficial ownership of a property to be detached from one another.

This means that although the legal title of a property can be owned by one or both spouses or both people in a civil partnership, the beneficial interests (the right to receive income from the property) are held by the person who then declares the income on their tax return.

A spouse or civil partner is often the recipient of property income from a deed of trust since capital gains tax is not payable on spousal transfers of property. Alternatively, trusted siblings, family members and friends or business partners can all be recipients.

The overall objective is to move property income into the name of a person who is unaffected by Section 24 legislation and subsequent tax liability.

Please note that the deed of trust is a legal document. The deed of trust is, therefore, legally binding. Many solicitors will also update the land registry to show the public that there has been a change of legal ownership. The change will also affect how assets are passed on after death. Make sure you speak with a solicitor about this.

Where buy to let property is mortgaged, further professional advice may be necessary. A transfer of the beneficial interest may breach the terms of the mortgage with the lender. A transfer of an interest in land could also trigger an SDLT liability if the sum outstanding is over £125,000.

Have a question about property investments, tax or being an expat?

There are a number of free events that will help you build investments/businesses with more comfort and move forwards with confidence.

Free

Book on a seminar

What are the benefits of a deed of trust?

Splitting property profits 50/50 has a negative tax implication on couples where one partner is a higher rate taxpayer and one a basic rate taxpayer. They could pay less tax overall if all of the property income was included in the lower taxpayer’s income.

A deed of trust is a way of making this happen. It is a legal document drafted by a solicitor that allows you to alter the shares in a property. So a lower taxpaying spouse can be classed as the one benefiting from the rental income.

Using a deed of trust to transfer beneficial interest in a buy to let property investment from one person to another can be a tax-efficient way to reduce the impact of Section 24 legislation in effect from 2016, or to mitigate the impact of high rate income tax on rental profits from a property business.

As highlighted later in this article, however, there are CGT and SDLT considerations to be taken into account. The relevant documentation (a deed of trust and form 17) must be drawn up and where appropriate filed with HMRC.

Reducing Capital Gains tax using a deed of trust and form 17

If you are selling a property then you may be liable to Capital Gains Tax (CGT). Each person receives an annual CGT allowance of £12,300 before any tax is paid. If a couple own a property and it is sold then the first £24,600 is tax-free. After that, the gain is taxed on the investment property at 18% for basic rate taxpayers and 28% for high rate taxpayers.

A deed of trust may also be used to minimise CGT liabilities as you can utilise one another’s CGT annual allowances. Not only that but if done correctly you can also identify the right % allocation to maximise the basic rate tax band for CGT purposes.

This is more significant if you are married and the property is in one person’s name.

Our specialist property accountants have helped hundreds of UK property investors to minimise the impact of CGT using a deed of trust.

Need tax advice?

Book a tax consultation call with us today and save tax tomorrow

30 or 60 minutes

Book now

So, what is new with the declaration trust?

It was not until my tax team spoke about this at length with HMRC that we discovered the deed of trust and form 17 need to be accompanied for:

– Properties already purchased in joint names
– Properties couples buy in future under a ‘tenants in common’ structure where ownership is not 50/50

This means that every property owned by a couple will be deemed to be owned 50/50 unless you tell HMRC otherwise. Even if you buy a property as tenants in common with a split of 99/1 in favour of the lower rate taxpayer.

Apportioning the profits, in the same way, could mean there is a potential risk that your self-assessment return may be challenged. This is because although you correctly bought the property, you failed to notify HMRC via form 17.

If the couple divorce then the assets will remain 50/50 until the divorce settlement has been finalised.

What solicitors can get wrong and do not tell you about regarding deeds of trust

Here are some of the issues that our clients have found when using solicitors to prepare a deed of trust, and our experience of correcting the mistakes:

– Solicitors may use templates and do not check them thoroughly. As a result, the names of the individuals or the name of the property is incorrect, voiding the whole document.
– They may not tell you that an HMRC form 17 declaration of income is required to ensure that property income can be reallocated. HMRC do not care that a deed of trust is done. If this is not done, the document becomes void and you have to start the whole process again.

Have a question about property investments, tax or being an expat?

There are a number of free events that will help you build investments/businesses with more comfort and move forwards with confidence.

Free

Book on a seminar

Include your form 17 with the declaration trust (dedd of trust)

You could ask your solicitor to do the work. Unwittingly you leave the office thinking that everything has been sorted. Sadly, HMRC can investigate the past six years’ worth of accounts. They can backtrack and unravel all your work.

They can put the property income back to the high-rate taxpayer if they find you have re-allocated property income based on a deed of trust without the submission of the required form 17 declaration of income.

Stamp Duty Land Tax (SDLT) consequences of a deed of trust

The beneficiary transfer of a property from one spouse to another does not give rise to SDLT. This is because a gift from one spouse to another is a nil gain and nil loss. As such a beneficiary of interest transfer is not subject to SDLT nor Capital Gains Tax (CGT). We must remember that SDLT is only chargeable if there is deemed consideration. Consideration may be in the form of cash, asset swaps or a mortgage.

Typically we see clients that are requested by their bank to add their spouse onto the mortgage when transferring a beneficiary entitlement to their spouse. This is deemed consideration and would be subject to SDLT on their share of the mortgage.

3% SDLT higher rate consequences of a deed of trust

Please note that the 3% SDLT charge does not apply to these transactions as highlighted by HMRC’s manual (example 3).

“Husband wishes to transfer half of his only residential property worth £300,000 into his wife’s name. No cash changes hands but the property is subject to a mortgage for £200,000. His wife has previously owned property but not at the time of the transfer.

As half of the property is being transferred, half of the mortgage debt is being taken over by the wife.

There is no SDLT due on this £100,000 chargeable consideration as it does not exceed the tax threshold but the transaction is still notifiable. N.B. First Time Buyers relief and Higher Rates for Additional Dwellings do not apply to this transaction.

Therefore the 3% SDLT higher rate does not apply when transferring an asset between spouses even if the mortgage liability changes from one person to another

Need tax advice?

Book a tax consultation call with us today and save tax tomorrow

30 or 60 minutes

Book now

How does this affect Hong Kongers looking to move or invest in the United Kingdom from Hong Kong?

The Inland Revenue Department (IRD) does not charge Hong Kongers tax on their foreign assets. The income earned from buy to let properties in the United Kingdom will only have to suffer tax at the hands of HMRC and not IRD.

Learn more about our International services to help Hong Kongers move or invest in the United Kingdom

How does this affect American readers looking to move or invest in the United Kingdom from the United States?

Income earned from the United Kingdom buy to let properties will have to be declared to the Inland Revenue Service (IRS) on the 1040 tax return.

Americans that own UK buy to let properties will receive a US tax credit for the tax paid in the United Kingdom.

Americans can elect to have the UK tax as a credit or a deduction on their 1040 tax return.

Learn more about our International services to help Americans move or invest in the United Kingdom

How does this affect our British readers looking to move or invest in either the United States or Hong Kong?

Income earned from the UK buy to let property investments will still be subject to tax by HMRC.

Taxes may need to be paid in the country they are moving to.

Care is required to ensure that you do not pay too much tax to both tax authorities.

Learn more about our international tax services to help British people that wish to invest or move to the United States or Hong Kong.

You may be interested in our main Article on Self-assessment tax returns or our other Article where we focus our efforts on how much income tax you need to pay to HMRC.

You may also be interested to know more about our tax saving services for UK landlords and property developers.

Property investing - How do you get started?

YOUR_REASON_WHY_TO_INVEST_IN_PROPERTY_OPTIMISE_ACCOUNTANTS

I have gone into a lot of detail about the world of property investing. A question needs to be asked. “What is it you want from the property investment?”. Here are some examples of what our clients have said to us as their property accountants in our Nottingham office.

– I want an income to replace my employment income so I can leave my job

– We want a pension fund that is better than the state pension on offer from the government

– I wish to try something new and property gives me a hobby

– We wish to be in control of the investments that I make

– My husband and I  wish to leave a legacy for my children

You may be looking for additional income or to replace your employment/business earnings. If you are looking for income then you need to invest in properties that will generate a good Return on Investment (ROI). This means you get more money out for every pound invested.

Investors looking for income typically focus on the gross yield. This is calculated by dividing the yearly rent of the property by the purchase price. You should also look at the monthly anticipated cash flow position of any investment. There is no point in having a great % rate of return if the absolute return is just £50 per month.

If you have sufficient employment/business income, you may be seeking capital appreciation. Investors looking for capital growth typically invest in areas where they believe house prices will grow.

For many investors, the choice isn’t clear cut – they may be looking for investments that provide a reasonable income and also have the potential for capital growth. Determining the right balance is a matter of thinking about your financial goals over the next 12 months, three and five years. I would suggest you spend some time working out your desired outcomes and goals before you start to invest your hard-earned cash.

Need tax advice?

Book a tax consultation call with us today and save tax tomorrow

30 or 60 minutes

Book now

Is Property investing worth it?

The one thing I personally like about property is that you can generate an income and hope to have capital growth. As you will be able to see from the Office of National Statistics (ONS) website that house prices have significantly increased over the last 14 years. Share prices have also seen growth since 2005. It is only fair that we draw on the conclusion that both asset types have benefitted from capital growth.

Optimise_UK_HOUSE_PRICES

 

It is possible to get an income from savings accounts, gilts and bonds. The amount of income that can be generated by these investment types has been low for the past decade as can be shown from the Bank of Englands website. I fully appreciate that you can earn dividends from shares but these vary from company to company and will not be reviewed in this article.

 

Optimise_Bank_of_England_Interest_rates

 

It is possible to generate a good level of income from buy to let properties. The amount of rent that may be achieved will vary from location to location throughout the UK. As you will see from the below graph that rental income since 2015 has continued to increase. I firmly believe that UK rental prices will increase over the next few years. This is because many landlords will sell their property investments because of the tax changes and the fact that the population in the UK continues to increase. Demand will not be met by supply.

This is why I wish to continue investing in property in the UK.

Have a question about property investments, tax or being an expat?

There are a number of free events that will help you build investments/businesses with more comfort and move forwards with confidence.

Free

Book on a seminar

 

What are the pros and cons of investing in buy to let properties?

Pros of investing in buy to let properties

– Income generation It is possible to generate an income from a property. So much that the income could eventually replace your employment income over time once you have several buy to let properties in your investment portfolio.

– Capital growth: As you can see from the above that properties increase in value over time. Many property investors see their investments as a pension pot. They may reduce their mortgage over a term of 15 to 20 years and have an unencumbered property.  All of the rental income would be theirs if they no longer have a mortgage at the end of the term

– Risk & access: It is a form of investment that helps spread risk. You may have money tied up in pensions, shares, bonds, gilts and wish to spread your risk. You may have a desire to create an income stream that you can access before you retire. This is where property investments can come into their own.

Cons of investing in buy to let properties

It is only fair to write about the downsides of investing in buy to let properties. I wish to provide you with an article that gives you a balanced view. From this information, you can make an informed decision.

– Money tied up: It may take a while to sell a buy to let property investment. You may need to wait a while to access the money invested until the house is sold. This is unlike shares, bonds and gilts that may be sold quickly.

– Time involvement: Noise may be generated from tenants complaining about a maintenance issue in a property. Even if you were to use a letting agent. The letting agent would still need to be in contact with you to discuss the work required and the cost.

– Capital loss: Like any asset types property values may go up as well as down. The issue with property values is that mortgages may call upon the debt to be repaid because their risk has increased.

-Income loss: If a tenant does not pay you or the property remains void you may not have any income. However, mortgage repayments and interest still need to be paid in addition to the ongoing maintenance of the property such as council tax, light and heat.

Can I afford to invest in property? 

There will be certain costs that you will need to consider when buying a buy to let property investment

– Stamp Duty Land Tax (SDLT), which we discussed in a more detailed Article. If you have a property in your own name then you are likely to bear the cost of the 3% SDLT surcharge. This additional cost applies to residential dwellings that have a cost of more than £40,000.

– Conveyance costs of purchasing the property (solicitor fees)

– Refurbishment costs of the property to ensure you achieve the very best rental in the local area. We discussed how to refurbish the property whilst being able to offset the costs against your taxable income in our other article.

The positive news about property investing is that you can obtain mortgages. You do not need to finance the entire purchase. If you had £50,000 you could only buy shares with the entire value. If you purchased a house with a mortgage then property value could be £200,000. You would benefit from a great capital appreciation of 10% growth on each asset type. This is because the house value would increase by £20,000. The shares would increase by £5,000.

An example of how much money is invested in a buy to let property

We can look at an example of a run-down property with a value of circa £200,000 in the Nottingham area

£50,000 deposit (being 25% deposit of the property value)

£7,500 Stamp Duty Land Tax on the acquisition of a residential; property with a value of £200,000

£1,000 legal fees including bank fees

£15,000 refurbishment costs

£73,500 total initial investment

As you can see from the above there is a significant amount of investment to be made. This is where we suggest that you save money on other investments until you have about £100,000. That way you can invest money in shares, gilts/binds and property whilst spreading your risk. It is ill-advised to invest all of your money in one asset type. This is because of the risk of capital values falling, wiping out your entire investment.

Need tax advice?

Book a tax consultation call with us today and save tax tomorrow

30 or 60 minutes

Book now

How can I buy a rental property with no money?

Let’s look at the above example. We suggested that you would need £73,500 to get into the world of property. However, as one famous billionaire investor was once quoted as saying “control the asset and not own it”. This leads us to one popular property strategy that Samuel Leeds suggests is a great idea. That is rent to rent. This is where you control the asset from another landlord without buying it. You agree on a long term rent with the landlord and you rent it out for a premium to other tenants.

There are other organisations such as Northwoods that provide guaranteed rent to landlords. You may read this and ask “why would people agree to this?”. Many landlords do not want the hassle of dealing with tenants. Albeit they receive less rent each month this is more than compensated by the peace of mind that they have no rent or tenant issues.

Have a question about property investments, tax or being an expat?

There are a number of free events that will help you build investments/businesses with more comfort and move forwards with confidence.

Free

Book on a seminar

What property investment strategy is best for me?

Types of residential property investments

Before you decide what investment type is best I think it is appropriate to share my thoughts on the type of properties that you can invest into.

Single let property investments

Single lets are the most common type of investment choice for those starting out in property investment.

A single let property is a house or flat let to a single-family or person on one tenancy agreement. You can engage a letting agent to manage the property for you and deal with any issues arising during the tenancy. Alternatively, you can self-manage the property. It may be feasible to manage the tenant if you live reasonably close by. If you already have a business or employment that is generating enough money for your lifestyle, then a single let may be the best strategy for you. This is especially the case if your chosen strategy is capital growth.

Houses of Multiple Occupation (HMOs)

HMOs are large properties where rooms are let individually to professionals and/or students. They share common areas such as bathrooms and kitchens. Some do have ensuites. Landlords typically charge tenants a fee that is inclusive of all bills. They will hold tenancy agreements with each tenant. There is good more money to be made in HMOs.  Some of my more experienced property investor clients are now generating more than 15% net yield. According to research by Platinum Property Partners last year, the average gross yield of an HMO is 12.4%. This is substantially higher than the 5%-8% from single lets.

HMOs do take up a lot more time. This is because there are more tenants involved. Whilst there are many competent letting agents around to manage single lets, it’s harder to find agents to manage HMOs. You may need to be prepared to do more of the work yourself.

There are a lot more rules and regulations you must comply with when renting out an HMO. Getting something wrong can be very costly. Last year magistrates got the power to impose unlimited fines on HMO owners who fail to comply with regulations. Licenses are also required for properties over a certain size, and in many areas. Local authorities have brought in rules that require planning permission for all HMOs. Financing HMOs can also be tricky if you’re a first-time property investor. There are more options available to those with experience in single lets when buying an HMO

Price and tenant considerations

The one thing I have personally learned over the past decade is that you need to provide quality rooms. I also believe in charging more rent to get a better standard of a tenant. The better the tenant the more they will look after your property investment. I used to charge a double room in Nottingham for £395 per calendar month. I constantly had issues with late payers, arguments between tenants.

If you have the same type of property as everyone else then all you can compete on is the price of a room. This is why I had voids. I was constantly reducing my price because there was greater competition in the area that focused on cheap accommodation.  Constantly reducing the price of my rooms was not an option. I knew this would be a sure way to lose money in the long run. I decided to focus on quality.

Quality standards

There is a lot to be said about the price of Apple computers. They are not cheap. However, once you use a mac you never go back. This is why I decided to attend a seminar hosted by Julain Maurice of Icon Living. In this workshop, I was convinced without a doubt that I needed to improve the condition of my rooms to maximise the rent that I could charge. The workshop was only one day but it gave me plenty to think about when it came to making money through property.

I went to work and improved the decor of the rooms, the standards of furnishings and even hung up decent pictures throughout the house. The transformation was incredible. I was able to charge more rent. People paid it because they liked the fact that we demonstrated we cared for our tenants. The void period reduced and so did the number of issues with tenants.

Charge more rent, get better tenants, improve the bottom line.

Need tax advice?

Book a tax consultation call with us today and save tax tomorrow

30 or 60 minutes

Book now

Single let property investment strategy compared to HMOs

I have taken the liberty to show you a direct financial comparison between single let properties and HMOs. Please note that these examples have been taken from my very own property investments here in Nottingham. The values represented in the below charts may not be achieved in your local area. This is where your own due diligence needs to come into play. You may be able to achieve better financial results than what is being shown below. In fact, I would argue this is true with a number of Optimise Accountants’ very own clients up and down the UK.

Investment in an HMO compared to a single let property

The amount of money that you will need to invest in an HMO for refurbishment works will be higher than that of a single let property. This is because you will furnish the property and provide lockable doors to give each tenant privacy. You are also likely to invest more in a shared kitchen as it needs to be spacious and workable.

You can pay more for a house for it to be converted into a 5-6 bedroom HMO. However, there are ways of making the very best returns from what they call “mini-HMOs”. These Mini-HMOs are typically 4 to 5 bedrooms. This is why I made a direct comparison between a good-sized family home as a single let with an HMO.

Investing in property is not cheap. I would always stress that you get other people to support you on the first property investment that you make. It is better to be educated and learn from others than it is to be isolated and make costly mistakes.

 

INVESTMENT_INTO_PROPERTY

 

Income comparison between a single let property and an HMO

I wanted to show you the key difference between the income and costs of a single let property and an HMO. You will be able to generate more income from an HMO as you will have more tenants.

Please bear in mind that many HMOs are bills included. You may charge a tenant for the rent and their share of the gas, electricity and water. Many savvy landlords also include more luxury items such as broadband and TV subscriptions. You may decide that tenants pay their own council tax.  landlords that have students will not have any issues here. This is because students do not pay council tax.

You will notice that the “other costs” in the below graph are higher for the HMO than the single let property. This takes into account what I said above about utility bills being paid by the landlord.

More profits may be made from HMOs

I am hopeful that you can see that the HMO will generate £1,000 profit per month. This is typical of many of the Optimise Accountant’s clients. You may only need 2-3 HMOs to replace the income that you generate from your job. This will hopefully show you that there is a way out of employment if you do not like what you do in your job. Personally, I love investing in property. I also love solving tax issues. You could say that I have the very best of both worlds.

 

Rental income from single lets and HMOs

Return On Investment (ROI) on single let properties and HMOs

Finally, we can now talk about Return On Investment or ROI as many people refer to it. I firmly believe that there are two ways of looking at the returns you get from property investment. You need to take the annual profit that you make from your buy to let investment and divide it by the amount you initially invested.

Return On Investment (ROI)

1 – Income generated in absolute terms (£ per month)

2 – ROI

Many people are far too focused on ROI. I say this because they are impressed by how they have a property with an ROI of 10%. If a property is only providing a monthly income of say £200 it can be easily be wiped out if there is a  maintenance issue. I would suggest that you look at the absolute monthly income and the ROI of a property.

Equally, I would suggest that you do not look at just the absolute profit without considering ROI. If you want to sweat your asset then the ROI calculation is a very good mechanism to help you work out which property to invest into over another.

 

Holiday lets & serviced accommodation

Investing in holiday lets has been attracting a lot of interest lately. Holiday lets are properties that would otherwise be standard residential accommodation. However, they come with the tax advantages of commercial property. Section 24 mortgage interest relief cap does not come into play. 100% of the mortgage interest cost can be offset against holiday let income.

Investing in a holiday let could allow you to enjoy the same opportunity for growth as a standard buy-to-let. Holiday lets are a lot more time-consuming to manage than single lets, but there are many good holiday letting agencies that can take care of management for you.

We have written a separate article on the tax benefits of owning a holiday let over a standard buy to let property investment.

Have a question about property investments, tax or being an expat?

There are a number of free events that will help you build investments/businesses with more comfort and move forwards with confidence.

Free

Book on a seminar

Commercial property investment

 

Types of commercial properties - Optimise Accountants

 

We have written a more detailed article on the benefits of investing in commercial properties over standard residential property investments.

Investing in commercial property has not been the first port of call for property investors. However, commercial property investment is now drawing more attention since the announcement of Section 24. This is a change that affects residential buy to let property investments. It basically means that mortgage interest costs may not be offset 100% against rental income.

Commercial property is taxed differently from residential property.  Stamp Duty Land Tax Surcharge of 3% as highlighted above does not apply to commercial property. These are just two of the many tax benefits of owning a commercial property over a residential buy to let.

You can invest in commercial property via a self-invested personal pension (SIPP), which attracts tax relief at the highest tax bracket. Do not forget that you get tax relief on the money you invest into your pension.  This immediately boosts your ROI considerably. Any income and capital growth earned in a SIPP is tax-free.

Commercial property can include properties such as shops, offices and restaurants, as well as holiday lets.

Need tax advice?

Book a tax consultation call with us today and save tax tomorrow

30 or 60 minutes

Book now

Top Property Key Performance Indicators for UK landlords

There are ways of ensuring that you treat your properties as a business. I firmly believe if you use these measures, you could buy fewer properties and yield better results.

Welcome to the Optimise world of property Key Performance Indicators. Here are the five measures that I believe are the most important to ensure that you make more money on your property portfolio. Note that there is not one shred of information about tax.

• Return On Investment (ROI)
• Rent Yield
• Interest Cover
• Maintenance % of rental income
• Voids % of rental income

Return On Investment or (ROI)

ROI is my preferred measure. It takes into consideration the amount of profit that you make against the amount that you have personally had to invest in the property.

Let us say that you make £2,000 profit from your property and you invested £20,000. You can see that £2,000 divided by £20,000 is 10% ROI.

It is not the easiest measure because you need to understand the actual profits on a rolling 12-month basis.  You can use this measure to review a) how your existing properties are doing and b) set a minimum ROI based on current performance.

Rent Yield

Rent yield is a measure that compares the annual rental income (fewer bills if you run an HMO) against the purchase price. For example, you know that a property will give you £500 net rent per month and you will have an income of £6,000. If the house cost is £100,000 then you have a rent yield of 6%.

This is a “quick and dirty” measure and should not be the main part of your due diligence process. That said it is an easy way to understand if one property is worth looking at in more detail than another.

I use a benchmark of 10%+ rental yield (else I will not look at it). The downside of this formula is that it is not ROI and is not comparing the amount of money that you need to invest in the property, such as a large refurbishment project. However, I would assume that the purchase price does take into consideration the condition it is in.

Have a question about property investments, tax or being an expat?

There are a number of free events that will help you build investments/businesses with more comfort and move forwards with confidence.

Free

Book on a seminar

Interest cover

Interest cover is the profit (adding back the mortgage interest) divided by the mortgage interest itself. Even for me, reading this statement would lead my imagination to burn itself out.

Example:

£6,000 rental income
£1,000 bills
£2,000 maintenance

£3,000 profit before mortgage interest

£2,000 mortgage interest
£1,000 profit

In this example, we can see that dividing the profit before interest by the mortgage interest gives us a 1.5:1 ratio.

£3,000 profit before interest
£2,000 mortgage interest

This shows that interest can go up by another 50% before this property becomes a loss-maker. This is a key measure because as we know mortgage interest charges increase and decrease over time. Which way do you think mortgage interest rates will go? How will this affect your profitability?

I use a ratio of 2:1. This means that mortgage interest charges would need to increase by twice the amount before I start to lose money. If interest rates are at circa 5% and some of us are old enough to remember the 1980s when mortgage interest charges were in double digits.

Need tax advice?

Book a tax consultation call with us today and save tax tomorrow

30 or 60 minutes

Book now

Maintenance % of rental income

A lot of property investor clients carry out some sort of due diligence. It is not surprising that there is a variation of % of what they think will be the maintenance cost of rental income.

The main cause of this variation is down to:

– Property type

– Tennant types (demographics

– Quality of refurbishment and furniture put into a property

I believe that HMOs with students will cost more money than a middle-aged family. I am going to generalise here and I suspect that people will have different views. That is OK with me.

Students are generally less careful and often take a little less pride in their environment especially when it is shared and they see it as a short term base until next semester. Therefore their attention to bags being scrapped along the walls, food trod into the carpets, broken kitchen doors as they are slammed in a drunkard state is usually going to be minimal.

The result of this is more maintenance costs each year. Clearly, there will be more revenue from students but I suspect that because they live in the property for just one year that the maintenance work is going to be a little more frequent than LHA tenants that live in the property for a longer time.

Rubbish in rubbish out. If the standard of the property was a poor standard then people living there will treat it as such. They may be less careful of closing the doors on a kitchen cabinet. Given the carcass and doors are cheap then there is more chance of these needing repair. The same applies to cheap shower cubicles and living room furnishings.

Buying cheap is good for now but can cost you a lot more money in the future. Invest wisely and ensure that products have warranties that can be easily managed. Do not buy warranties where a cooker needs to be sent back for three weeks. This is a waste and you would be better placed to buy a new one.

Have a question about property investments, tax or being an expat?

There are a number of free events that will help you build investments/businesses with more comfort and move forwards with confidence.

Free

Book on a seminar

Voids % of income

If you have a property that is empty then you have a void. If you have voids then you have less rental income and ultimately less profit.

The issue with this ratio is that it is easy to calculate for due diligence (a lot of property investors we do work for use 10% to 15%) but it is less easy to do when the property is up and running, or is it?

I find that it is easy because I compare the amount of money I should have received against the money I actually received. If I wanted £6,000 rent but only got £5,000 I know that I am £1,000 short of the £5,000.

£1,000 voids
£6,000 predicted rent

This gives me a ratio of 01.67 or 16.7%. This is a lot of voids and should be managed. To find out more about what causes voids and what can be done about it please read the blog referenced.

Need advice?
Contact us now

Enquire about our ongoing services

Book a call to discuss our property accountancy services

Get in touch

Book a paid for tax consultation

Use the code “Art25” to get 25% discount

Book now

Book a call to see how we can help you.

Consultation options.

We offer the two following options for initial consultations.

CALL OPTION ONE

Our Ongoing Accountancy Services

Fixed price irrespective of how many properties you have

We charge on a fixed monthly fee

  • - Accounts submitted to HMRC & Companies House

  • - One hour onboarding tax call

  • - Unlimited 30 minute tax calls

  • - An holistic review of your tax structure and future plans

  • - Invitations to regular tax update virtual meetings

Our Monthly Accountancy Services

CALL OPTION TWO

Tax Consultation + Tax Report + Video Recording

(Free for clients)

Want tax advice right now? Book today

  • - Upload your questions in advance

  • - Our Tax Advisors collectively discuss your questions

  • - A qualified tax advisors discuss the very best solution with you

  • - A tax report & meeting recording is sent within 24 hours

  • - Clarification questions are answered via email

Tax call from £199.95

Booking your appointment.