How can landlords save money?

How can landlords save money?
Home Blog How Can Landlords Save Money?
Pete Mugleston

Author: Pete Mugleston

Mortgage Advisor, MD

Updated: March 18, 2024

How can buy-to-let landlords save money?

Anybody who rents a property to tenants knows it isn’t all easy money in the bank. There are countless responsibilities, ongoing costs, and administrative tasks to juggle, making the investment more of a marathon than a sprint. However, there are a few long-term savings opportunities that can make the journey a little more lucrative.

Whether you’re looking to buy-to-let, or you’re already years in the throes of landlordship, here are four ways you can make your properties as tax-efficient as possible.

Make the most of being married or in a civil partnership

If you co-own your rental property with your partner, HMRC typically considers your rental income to be split 50:50, so you are both taxed equally.

However, it may work better for you to change this balance. If one of you has less income and is in a lower tax bracket, it makes sense to make use of their larger personal allowance.

Your personal allowance is the amount of income you can make without paying any tax, which for most is £12,570. If one of you earns less than this, consider transferring the rental income to their name so that you’re not paying more tax than necessary.

When a spouse is ‘gifted’ a property that still has a mortgage attached, that means you’ll incur stamp duty. If you act now, the current tax holiday will still apply, so you’ll get the opportunity to pay less to HMRC.

Also remember, this arrangement may not work for everyone. If rent is paid into only one account, it’s a good idea to have a level of trust that you’ll both enjoy the profits. In case a separation should occur, have an agreement that they won’t walk away with the property income all as their own.

Establish a company to hold your properties

Another way to potentially save money is to move your property into a limited company.

This may sound complicated, but essentially it means selling your property to a company of which you are the director. This way, all mortgage interest can be offset against tax, compared to just 20% when you hold the property in your own name.

While logistically, you can set up a company relatively quickly and cheaply, there is one hurdle to climb: the property must be sold to the company at market rate, which will require the time and resources of organising an independent valuation. But this one-off cost will be outweighed by the permanent tax benefits in the long term.

If the property is mortgaged, you will also need the lender’s consent to transfer it to your company’s name. Some buy-to-let lenders won’t allow this, meaning it’s usually best to transfer the property once the mortgage reaches the end of a fixed term.

There are other reasons incorporating may not work for you. You’ll likely need to pay for an accountant to file company results and you may have higher mortgage interest rates.

And if you lease multiple or high-end properties tied up in a company structure, you may be affected by upcoming changes to corporation tax. ­­­From April 2023, the rate of tax will increase from 19% to 25%. But this hike will only apply to companies with profits of more than £50,000 a year – landlords under this threshold will be protected and continue to pay the 19% rate.

Find a mortgage broker

One of the best ways to save money as a landlord is to make sure you’ve got the best interest rate possible on your buy-to-let mortgage or mortgages. By using a broker who specialises in buy to let, you can rest assured you’ll get the best rates that you qualify for.

The right broker can also advise you on how to save money on your mortgage. For example, if you have four properties or more, they could explore whether taking out a portfolio mortgage for the whole lot is a more cost-effective option than separate mortgages for each one.

Furthermore, they can also check whether you’re paying too much for your landlord insurance and match you with a less expensive policy that fits your needs, if that’s the case.

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