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Landlords learn how to reduce your tax bill and achieve a better rental yield

A recent survey found that one in four landlords plans to sell some, or all, of their properties if the new Chancellor of the Exchequer doesn’t revoke his predecessor’s decision to impose a greater tax burden on buy-to-let investors from April 2017.

However, even if Philip Hammond’s Autumn Statement next Wednesday doesn’t contain any good news for landlords, we don’t think it’s all doom and gloom. Not by a long way.

Every cloud has a silver lining and, while we accept that it’s possible some landlords will jump ship and sell up to avoid paying the extra tax, we think that will create opportunities for the rest of us who hang on in there.

Should you sell up or not?

With fewer rental properties on the market, we will face less competition, which should make it easier for us to find tenants. We might not be able to increase our rents immediately to cover our higher tax bills because in some areas prices have already reached a ceiling, but finding tenants faster means fewer or shorter voids, which is a saving in itself.

A lack of available rental properties might also mean that tenants stay for longer, and less churn means less expenditure for landlords.

In time, rents will almost certainly rise. Especially as there are likely to be fewer new landlords coming into the market now that the barriers to entry are higher than ever. The additional stamp duty on BTL properties, combined with tougher lending criteria that must be applied by BTL lenders from January 1st, will put off many would-be property investors.

How can you reduce your tax bill?

In the meantime, there are things you can do to reduce the impact of the higher tax bills you might face from next April, when mortgage interest tax relief will be removed and replaced with a less generous tax credit.

Click here to calculate your mortgage interest relief

The first thing is to make sure you’ve got the best mortgage deal. As interest rates are at an all-time low, anyone who isn’t already locked into a fixed rate should be looking to see if other lenders might offer them a cheaper product.

You should also make sure you claim all your tax allowances, including your letting agents’ fees and other marketing costs, maintenance bills, service charges and travel expenses. It’s a good idea to get advice from an accountant and tax specialist (remember their fees are also tax deductible!).

Higher rate taxpayers should think about incorporating their properties, as companies will still be allowed to claim full tax relief for mortgage interest payments. This won’t work for everyone and it will involve some upfront costs, which will be too onerous for some but for others the long-term savings could be enormous. Once again, it’s important to take professional advice.


Watch our Landlord Finance and Tax Update webinar
with Upad CEO James Davis and special guest Charter House
Accountants & Tax Advisors


Achieving a higher rental yield

You could also look at ways to increase your yield, either by making some cost-effective improvements that will justify rent increases, such as upgrading bathrooms or kitchens, or simply redecorating, or think about letting properties by the room, rather than as single units.

We’re not saying that the future isn’t going to be challenging for landlords, but for those who get things right, there are big opportunities too. You’ll find lots of survival tips on Upad’s blog and look out for our regular webinars with industry experts, which also give an opportunity for you to ask questions about your own problems.

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