With the end of the 2018/18 tax year about 2 weeks away, now is the time to squeeze in some planned maintenance or improvements if you are going to offset them against tax.
This is especially important due to the changes in taxation on rental income for landlords with buy-to-let mortgages.
Previously, the interest element of monthly repayments could be offset against tax, meaning landlords wouldn’t pay tax on the interest. Now, the amount of tax relief on that interest has been reduced, and will be reduced further on rental income received after 6th April 2019.
While spending money on maintenance now wont necessarily make your rental investment more profitable immediately, it can reduce your tax bill and prevent costly emergency repairs in the future.
So How Can Landlords Stay Profitable in 2019?
Firstly, look at how well (or not) your rental property has performed this past year. Here are my top 4 easy questions to help you evaluate:
1. How much rent did you receive in total for the year?
2. How much did you spend on maintenance and repairs?
3. How much did you spend on mortgage interest and insurances?
4. How much did you spend in legal and professional costs?
Remember, it’s not just about how much money you have spent or gained, but also how much time.
Next, simply switching these questions around could make the 2019/20 tax year a lot more profitable for you:
1. Should I review the rent, and when? Increasing rent, either for an existing tenant or at the point of re-let, will obviously instantly increase profits for the forthcoming year. Not every tenancy will warrant a rent increase, however, especially if the tenancy is relatively new or you have already increased the rent, but many rents are well under market values in Swansea at the moment.
2. What maintenance should I be planning to undertaken in the forthcoming year? Will the boiler need changing soon, and do the gutters need cleaning out? Planning maintenance ahead of time not only reduces unexpected emergency costs, but also helps you to plan your overall expenditure for the year and know how much you can off-set against tax. Another way to prepare for maintenance is to put between 5-10% of rent aside for emergencies to give you peace of mind your cash flow will be OK if a situation does arise.
3. When does my mortgage term finish, and when is my landlord insurance due for renewal? Reviewing your mortgages and insurance premiums annually is a great way to make sure you are on the best deal available at the time and ensure you’re not paying out more than what is necessary.
4. Am I getting good value for money from my professional fees? Legal and professional costs (such as letting agent fees) can be offset against tax and are part and parcel of a good property investment plan.
The best letting agents in Swansea will be looking at all aspects of your property investment rather than just taking the rent and passing it on. Look at the service you are receiving: is your property being regularly inspected and are you receiving a report to show they have been? Do you receive the rent in a timely manner? Do you have to spend time chasing them for information? Does your letting agent have your best interests at heart at all times?
If you currently manage your property portfolio yourself, look at the time-cost involved in doing so. Is it taking up too much of your time? Does it take up time you’d rather be spending with your family, or growing your own business? Is now the time to look at taking on a managing agent?
Managing Your Property Cash Flow
Once you have an idea of what your tax liability will be for the next financial year, you can sit back and relax knowing you have put in solid foundations to manage your cash flow. Should the worst happen – your boiler needs replacing unexpectedly, or the tenants split up and need to be released from contract early -, at least you will be able to make informed decisions about how to move forward in these situations.
As a landlord myself, these are the questions I ask myself to manage my own property portfolio and ensure it will be as profitable as possible, whilst also keeping my long-term tenants happy.
If you are looking for a dedicated letting agent to manage your Swansea property investment portfolio who truly understands the needs of landlords, please get in touch – call us in the office on 01792 430100 or click here to email me.
Disclaimer: The information presented in this article is with information title only. Each landlord’s situation is unique, and you should seek professional tax advice before implementing any measures. The information in this article is not intended to be a source of tax advice.