Strategies for improving Buy-to-Let income
We can’t say it enough – every buy-to-let portfolio is different. Strategies that save tax or protect income for one landlord won’t necessarily work for another.
That said, there are lots of options you can consider. We take a look at some of the most common below, but be sure to get specialist advice before you rush into any of them!
Up your pension contributions
In our section on how married landlords could reduce their tax bill, we saw how the changes to government’s mortgage interest relief can push some landlords from the basic to the higher income tax band.
The example we gave showed how a landlord who had to declare £5,400 of pre-tax profit before 2017 will have to declare £13,800 from 2020. That’s an extra £8,400 of declarable income that could easily push some landlords from basic rate to higher rate tax (which kicks in at £50,001 from April 2019.)
If that’s likely to happen to you, one strategy is to increase your pension contributions. Because these attract marginal rate income tax relief, they can bring your pre-tax income into the lower band – and save yourself money.
Mortgage your own home
You are likely to pay a lower mortgage interest rate on your own home, rather than on your buy-to-let property. One option worth considering is re-mortgaging your home to pay off some or all of the mortgage on a buy-to-let property. This can increase the profit margin on your rental home(s) and leave you with a smaller interest bill from the mortgage on your home.
Raise rents
You could increase your income by raising rents, although you need to make sure that they remain at a reasonable market rate. If you haven’t already got a policy of raising rents annually – at the very least in line with inflation – it’s a good idea to review this. Tenants find it more palatable and easier to cover smaller, annual rises than they do large rental hikes every few years.
Get an accountant who understands buy-to-let
This is so important, especially given the huge numbers of tax changes affecting the buy-to-let market over recent years. Make sure your accountant has a good track record in saving landlords money – and if they haven’t, find a new one that has!
Consider holiday lets
If you live in an area that’s popular with tourists, consider converting one or more of your properties into a holiday let. These are exempt from the tax changes on finance costs, so you can claim full relief on mortgage interest and other allowable expenditure. Of course, you may need to invest in improving the property, buy attractive furniture and cover higher maintenance costs (such as gardening). So, make sure that switching to the holiday let model really will be more profitable in the long run.
However you should be aware that the criteria set by HMRC to have your property classed as a holiday let in order to receive this advantageous tax treatment is very strict.
Review your lettings agent
If you’ve used the same lettings agent for a long time, you could save money by switching. Research competing companies and check their reviews before setting up meetings with them. Don’t be afraid to negotiate either – the more properties you have, the keener each agent will be to win your custom.
Another option, of course, is to handle the letting process yourself. If you do this, be sure that you have enough time spare to do it properly and that you are covered by essential insurances (such as rent guarantee insurance).
More in this series:
- Making Buy-to-Let More Profitable
- Why Buy-to-Let Incomes are Dropping
- Should I transfer my BTL properties into a limited company?
- Married Landlord? You could reduce your tax bill.
- Strategies for improving Buy-to-Let income
- Personal Buy-to-Let mortgages & re-mortgages – the facts
- Selling your BTL property – things to look out for
- How THP can help you as a Landlord
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The information included on this page should be regarded as general advice only. You should always seek professional advice tailored to your own specific circumstances before taking any action based upon it.
