Being a landlord is harder than it looks. It’s not just about making a quick profit from rent, you need to be on top of health and safety requirements, maintenance and you’ll occasionally need to be an agony aunt/uncle when it comes to sorting out tenant squabbles.
And the government’s autumn budget last year, is just going to make the life of a landlord even more complicated when some new rule changes come into effect in April 2017.
Currently, landlords only need to pay income tax on the rental profit they make. So, at the moment it means that if you get £10,800 in rent a year but pay £6,000 in mortgage interest you only get taxed on the profit – which is £4,800. But the new rules of the game mean that you’ll be taxed on the full £10,800 you get in rent – ouch. Landlords will get tax relief at the base rate of 20% and so that it’s not such a shock to the system, the government plan to phase this in gradually so the full effects won’t be felt until 2020. Ultimately it means that landlords might see profits dwindle and some may even end up with losses.
Of course, some sneaky landlords choose to ‘work around’ the rules. If you own a rental property through a company, then you’ll only be taxed on the profit you make rather than the whole amount. You’ll need to pay corporation tax – but that’s 20% compared to income tax of up to 45%. You’ll also be able to reinvest your money in order to buy more properties without being taxed plus you can also withdraw personal funds out of the business. That’s all well and good but is it as sweet as it sounds or is there a catch?
Like anything that seems too good to be true, there are always a few negatives lurking behind the benefits. For a start, there’s lots of paperwork when you own a company; you’ll need to properly file your accounts each year (not just scribble them on the back of an envelope). As a company, your accounts will also be published on the Companies House website, so if privacy’s important to you then it might not be the best option. You might also face higher fees from mortgage lenders and also for conveyancing services.
Whether you decide to run your property portfolio through a company structure or run it as a private individual is ultimately up to you. But whatever the new tax rules are, there’s one thing that hasn’t changed – and that’s making sure you’re properly covered. Landlord’s insurance is specially designed to keep your property protected no matter how many tenants come and go. Don’t assume that regular home insurance will cut the mustard – because it probably won’t and halfway through a claim is not the time to find out you’re not adequately covered. So, do yourself and your property a favour – start a quote for landlord’s insurance today.