When To Do Maintenance Work on Buy to Lets
When to Do Maintenance Work on Buy to Lets
The Chancellor’s decision to cut the amount of interest on loan costs that landlords can offset from their profits to the 20% rate of tax, (with full effect from four years from now), has had some interesting outcomes.
We have written about some of the outcomes in previous blogs. But there are some less obvious consequences too. For example, many landlords are actually bringing forward expenditures on maintaining their properties. This allows them to legitimately increase their costs and hence drive them back into a position where some are, once again, basic rate taxpayers.
And the tax changes have meant landlords are taking an even harder look at each of their properties. Are they performing as they should? Is it time to divest? What about their financing costs? Are their mortgage loans or other financing methods the cheapest available? Could they re-mortgage to a cheaper deal?
Certainly, mortgage costs have fallen considerably in recent months, such that even those landlords who are on cheap historic tracker rates (like me) may be tempted to remortgage some of them, especially if the property that could be re-mortgaged has a low loan-to-value ratio and could really benefit from the cheaper mortgage deals available. I have actively pursued a policy of re-mortgaging in recent months.
Deciding when to improve a property is always a tricky decision. If you are getting a decent rent and the property lets quickly, then you sometimes question why you should bother renovating that kitchen or sprucing up the bathroom? After all, it will let anyway!
But there comes a time when the bigger refurbishment / maintenance expenditures of this kind make sense and cannot be put off any longer. I generally do the bigger works when the cost of doing the work pays for itself via a higher rent over a 5 or 7 year timeline.
Of course, you have to budget for the void period too. But we try to factor that cost in too.
When to Do Maintenance Works?
Generally, we will aim to do major improvements between tenancies, but if the tenants show no signs of moving any time soon, we just have to do it whilst they are still in situ. They are usually fine with this, (they will ultimately not have a choice if their fixed term has ended, it is either accept it or leave!) because they will be getting a better kitchen or bathroom or whatever it is, at the end of the works.
Of course, it may be some time before I can increase the rent because, even after we have put in a new bathroom or kitchen, I would never hike the rent for the existing tenants. We just don’t believe that is right. (It might surprise the Corbynistas but most landlords are not all totally rapacious).
But I know, my tenants will appreciate a better place and stay longer. And when they eventually go, that is when I can put the rent up, for the new tenants – and really recoup the past investment. Of course, that will increase future profits again, and possibly tax viagra online uk too, but that is a problem for another day, sometime in the future.
It’s worth noting that many of my tenants are from Central and Eastern Europe – and many are pretty competent tradesmen. If they are, getting them to do the work always pays off as they will have an obvious vested interest in the quality of the works – though I do still check their competency, as I would any tradesman.
Finally, in doing any work, one needs to be aware of what counts as an “improvement” and what is maintenance work and declare for tax accordingly. Obviously, it is better if more of the work can be claimed against income (refurbishment / maintenance) than having to wait to deduct it from capital gains (improvement to the property) when you sell. The HMRC guidance on this is complex and is a very grey area, in our opinion.
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