How to cut business costs and maximise landlord rental income

Relief on landlords’ income, such as offsetting mortgage costs against tax bills, has been withdrawn by the government, but several offsetting options still exist. These are now more important than ever for landlords to know about and include the following five:  

 

1. Claim back expenses related to the rental property:

Many landlords are unaware that they are legally entitled to claim back expenses such as the cost of travelling to their rental property and phone calls or texts sent in connection with the property. It is also possible to claim back the cost of subscriptions to property investment magazines, and money spent on property services, advertising and legal and accountancy fees connected to the buy-to-let. Adding up these expenses and deducting them from your rental income can make a big difference. Crucially though, offset expenditure must be entirely for the purpose of the business so make sure to keep comprehensive records and receipts.

 

2. Offset losses made during coronavirus:

During the pandemic many tenants fell into arrears or requested payment holidays. That drastically reduced the rental yield for their landlords. It’s worth knowing that losses made in any tax year can be carried forward and offset against the next tax bill. For instance, a loss of £1,000 in one tax year then a £20,000 profit the following year means tax will be paid on the adjusted figure of £19,000 instead. If the landlord has a portfolio of properties, HMRC will combine the income and expenditure from all of those rentals in a year. This means that losses can only be carried over if the portfolio as a whole has made a loss.

 

3. Claim back for void periods:

When a property is occupied the tenant usually pays council tax and heating bills. Many landlords couldn’t find tenants during the pandemic and if they had to cover those bills themselves, they may be able to claim back the cost on their self-assessment tax return.

 

4. Consider operating a holiday-let rather than a buy-to-let:

Running a property as a furnished holiday let rather than a long-term rental has tax benefits. For HMRC, a holiday let is treated as a business which allows you to offset your mortgage interest against your tax bill. A long-term rental only allows landlords to claim back 20% of their mortgage interest. The rules governing what constitutes a holiday let are strict. Homes must be furnished, available to rent as holiday accommodation for at least 210 days a year and occupied by a tenant for at least 105. The property cannot have long-term tenants who stay for more than 31 days, for more than 155 days per year. Falling foul of any of these has serious consequences.

 

5. Make the most of pension tax relief:

Holiday lets have another key advantage over long-term rentals. Any profits they generate can be treated as income for pension purposes, so if you put this money into a retirement pot you can claim tax relief on it. With income from a normal buy-to-let, this is not the case.

 

Michael Graham Lettings have an expert team ready to talk to you about how best to manage your rental investment. Call us now if you have questions about a property you are intending to rent out or visit our Landlords page for more details.