What are the top tips for maximizing the efficiency of your investment?
In the current climate, it makes sense to make sure your investment is generating the best possible return. These tips should help
- Transfer assets. Switch jointly-owned property into the sole name of the partner who pays the lower rate of tax, so that you pay less tax on your rental income. The general rule that jointly owned income is taxed 50/50 can be altered by specifically electing a genuine outright gift of assets. Speak to your lender, though, as they may have specific conditions that apply to this request.
- Own jointly. Depending on when you plan to sell your property, it can make sense to transfer it to joint ownership to take advantage of two sets of Capital Gains Tax allowance. This way you can realize £20,200 of capital gains before you are liable for CGT, rather than just £10,100. Speak to your lender, though, as they may have specific conditions that apply to this request.
- Use your LESA. You can claim a Landlord’s Energy Savings Allowance – a maximum tax allowance of £1,500 per property to spend on draught proofing, hot water insulation, loft insulation, cavity wall insulation and solid wall insulation. For more information call the Energy Saving Trust on 0800 512 012.
- Borrow tax-efficiently. Anyone with a buy-to-let property can claim tax relief on the mortgage interest. It could make sense to increase borrowing on a buy-to-let property and use this money to reduce the main mortgage paid on your residential home, where no tax relief is granted.
- Claim all allowances. Be aware of the costs you can deduct from your rental income before tax. These include: Water rates; insurance; service charge/ground rent; council tax; legal fees; accountancy fees; repairs and maintenance; management or letting agent fees; transport costs for visiting the property and advertising costs.
- Keep tabs on the rent. Review the rent you are charging regularly and increase it where appropriate and in accordance with the requisite rules and regulations. Insist rent is paid by direct debit or charge a late payment fee if tenants fall behind.
- Offer added extras. To boost your income, consider offering additional services for tenants such as laundry and dry cleaning. Look to rent out car parking spaces and sheds.
- Minimise void periods. Keep a list of potential tenants from previous visits and have a system in place to minimize changeover times. Network with other landlords in case it is possible to trade tenants.
- Let it yourself. Unless you have a very large portfolio or live some distance from your buy-to-let property, you might want to consider managing it yourself rather than using a letting agent. This will involve no small effort on your part, but it will buy you back an average 14% of the annual income you would otherwise pay out to a letting agent.
- Regularly review your mortgage. Your existing mortgage deal may have been right for you at the time, but remember that this may not be the case in the future when rates start rising or you want to borrow more money.