With tax changes and potential mortgage interest rate rises on the horizon, one way that landlords can lessen the impact on their finances is to cut their costs. Here are our top 15 money-saving tips:
Switching to a lower interest rate could save you thousands of pounds over the life of the mortgage. If your property has increased in price and your loan-to-value has reduced, you might be entitled to a better deal, even if you stick with your existing lender.
Buy with a partner:
If you make a profit when you sell the property, you'll get double the capital gains tax free allowance, which is currently £11,100 per person.
Claim all your tax allowances:
Landlords are entitled to deduct certain expenses from their rental income before paying tax. This includes letting agency fees, mortgage interest payments (until April 2017), maintenance and administration costs. Until April 2016, landlords letting furnished accommodation can also deduct 10% from their gross rental income for wear and tear; post April 2016, the wear and tear allowance will be removed but we'll be able to claim back the cost of replacing furniture.
Shift the rental income to the lower rate tax payer:
If a couple own a property and one is a higher rate tax payer, it might make sense for the lower rate tax payer to receive the majority of the rental income. Unmarried couples simply need to tell HMRC how they intend to split the income but married couples are required to complete something called ‘Form 17’.
Buy before April:
Beat the increase in stamp duty on buy-to-let and second homes by buying any rental properties before the rise in April 2016.
Postpone renovations until 2017:
From April 2017, HMRC will no longer take landlords' mortgage interest payments into consideration before working out their profit, which means that some lower rate tax payers will be tipped into the higher tax bracket, so it makes sense to delay any non-essential renovations until then as any tax-deductable expenditure could push you back into the lower tax bracket. Check with HMRC or your accountant what costs HMRC will allow you to deduct, as some renovations might be classed as improvements, which can only be deducted from your capital gain, not from your income.
Cut out the middle man:
Carefully vet your tenants:
This will reduce the likelihood of you ending up with someone who won't or can't pay the rent and having to spend money on legal fees trying to evict them. Make sure all tenants have passed a credit check and ask to see their references. If they fail a credit check, ask them to provide a guarantor.
Sometimes you've got to spend a bit to save a lot. Buildings and contents insurance doesn't cost much compared to the amount of protection it offers and it's absolutely essential to avoid the risk of losing your investment. However, normal house insurance isn't suitable for rental properties, you need a specific landlord insurance policy. Make sure it comes with public liability cover too in case your tenant is injured on your property and decides to sue you.
Let your property empty:
After 2016 when landlords lose their automatic 10% wear and tear allowance for letting furnished rental property, it might be more economical to let your property unfurnished. You'll also save on the hassle of arranging repairs or replacements when things break.
Butter up your contacts:
Find affordable and reliable plumbers, electricians and handymen on sites like Checkatrade and my personal favourite Mybuilder.com and keep them sweet by always paying them on time, recommending them to others and staying loyal. If you do, they’ll always be there when you need them, saving you the expensive call-out fees charged by cowboys.
Check all repairs:
Before you rush to call out a professional when a tenant reports a problem, check to see if it's something you can fix yourself. It might just be the case of tightening a screw, oiling a hinge or replacing a broken part that you can find yourself for a few quid at a DIY store. One of my tenants reported a problem with the washing machine, which wasn't draining, but it turned out she'd blocked the drain by pouring fat down the sink, which was sorted with a plunger!
Have a detailed tenancy agreement:
Make it clear in the contract that the tenant will be responsible for some repairs, such as blocked sinks (see above), and any damage beyond normal wear and tear, so if you do need to call out a plumber when they’ve clogged up the drains, you can pass them the bill. Some landlords pass responsibility for the maintenance of appliances, such as washing machines, to the tenant.
Keep it legal:
Avoid fines by making sure you correctly protect any deposits, get an annual gas safety check by a qualified gas engineer, install and maintain smoke and carbon monoxide alarms and keep your Energy Performance Certificate up to date.
If it isn't broke, don't fix it:
In other words, don't carry out any unnecessary 'improvements' to your rental. Before spending any money, always ask yourself if it will increase the rent or make it rent faster and if the answer to both is no, keep your money in your pocket.