propertyspacesolutions.co.uk,  Based in Buckinghamshire creating extra living space by converting your house into an HMO.

email, gary@propertyspacesolutions.co.uk or call 07551756279

Buy to let as a business has been hit by a barrage of new taxes and legislation, making it tough for any Landlord to make money from owning a second property by renting it out. As pension schemes underperform and will not likely cover your retirement living costs, people have since looked at the buy-to let property market for the extra residual income.

In April 2016 an extra 3% stamp duty on top of the normal stamp duty levy a private homebuyer would pay, has heavily impacted the buy to let market.

April 2017. The 1st phase of the erosion of mortgage interest rate relief on buy-to let came into force, which means you can only claim 75% of your mortgage interest against your rental income.

April 2018. You will only be able to claim 50% of the mortgage interest against your rental income.

April 2019. You will only be able to claim 25% of the mortgage interest against your rental income

April 2020. You cant claim any (0%) of the mortgage interest against your rental income

How the Government look at your rental income;

Lets assume you have a job and earn £25,000pa. You have 2 buy to let properties.

Property 1 receives rent of £1600pm (£19,200pa) and property 2 receives rent of £1,200pm (£14,400pa) The tax office will look at the combined income £57,600pa and tax you accordingly. As you can see from this example that this scenario places you into the 40% tax bracket.

Calculate how much you are now making.

If property 1 generates £1600pm but your mortgage payment is £1400pm the tax, if only at 20% tax band is £320 This means you are going to have to subsidise your property portfolio every month from your personal income.

How to improve rental income from your Buy to let property.

Consider turning your property into an HMO. I have worked with several Landlords in the Hounslow area recently whom were in similar situations.

Renting the property out by the room can generate significantly more money than a single tenancy.

In Hounslow a room is letting between £550pm-£600pm. These properties had 2 reception rooms, so we could turn one of these rooms into another bedroom giving us 4 bedrooms. As you can see this can then generate up to £2,400pm on a property that was previously getting only £1,600pm.

Is it that easy?

‘NO’. You need a licence from your local council to run your house as an HMO. You may need to do some alterations to the property, eg. fit Fire doors, Fire alarm, etc. you can download the criteria required from your local council website under HMO.

If you want to know how to convert properties into an HMO you can visit our website and order a video showing an actual property being converted, including all the relevant documents and certificates required, and how to manage a conversion.

2017 some councils have already introduced the Landlord levy which is costing up to £1,000pa. Ealing borough council is the latest to levy it on Landlords in their Borough. This means all tenanted properties have to be disclosed to the council and they want to know WHO the Landlord is.

In a move to control standards of Let properties, councils are jumping on this bandwagon realising its another way of extracting money from the private sector to boost their coffers. (for what it’s worth, this is a tax deductible expense which can be offset against your rental income)

When buying a buy-to let property in the future, I suggest you leverage it no more than 60% of the purchase price. Or put simply, Pay a 40% deposit or more. Landlords whom over leverage their Property purchase as so commonly done until now, could find themselves in a dire situation by 2020 due to the tax factors mentioned above.

To Get more out of your buy to let property. look at it closely to see if your property is suitable to convert into an HMO

If you need more assistance or would like us look at your current properties to see how they could generate more income, contact me gary@propertyspacesolutions.co.uk

Leave a Comment