BTL Banking Questions

by Readers Question

11:26 AM, 10th March 2015
About 4 years ago

BTL Banking Questions

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BTL Banking Questions

I have been following this site for a few months now in anticipation of purchasing a BTL shortly. Just wondering when submitting your tax self assessment, would you also deduct overpayments to the mortgage from the income or is this solely applicable to the interest portion of the mortgage payments? Business banking for landlords

I also plan to open a seperate current account for all expenses/ revenue associated with the BTL…although unlikely, are there any preferential accounts for such purposes?

Ideally, I would continue using my Santander 123 account which gives cash back on utilities, council tax, etc but I would like to keep personal and business seperate (probably making a mountain of a molehill, but as a first time BTL I need to look after the pennies!) – grateful of any thoughts.

I will be posting a few other threads shortly looking particularly at the leasehold details.

Thanks in advance

Ray



Comments

Mark Alexander

11:30 AM, 10th March 2015
About 4 years ago

Hi Ray

You can only set off the interest as an expense against your rental income, NOT the capital repayment, I recommend you read this article which outlines the top 10 mistakes that landlords make when completing tax returns >>> http://www.property118.com/landlords-tax-returns-10-common-mistakes/61630/

The following link is to a very useful discussion thread regarding business banking for landlords, I recommend you to read all comments >>> http://www.property118.com/business-banking-landlords/66622/

Hope that helps and good luck 🙂
.

Gary Nock

13:15 PM, 10th March 2015
About 4 years ago

Mark is bang on. Only interest is offsettable against profit. But also remember you can claim mileage for all the visits to the property, B and Q, for all the DIY, letting agent fees, insurances, and also a flat allowance for use of home as an office. I think it's £208 a year.

And like other posts on the link Mark has mentioned - no need for a business account. HMRC don't class BTL as a business. So neither should you or the bank. Use a.personal account. It's cheaper.

Ray .

14:10 PM, 10th March 2015
About 4 years ago

Thank you both! In which case I will stick to personal banking, but simply have a brand new account set up solely for the BTL.

Even though the future running costs will be paid for by myself, the BTL will be a joint ownership with my wife (passive-to-no-involvement in the future running of the BTL). I had overlooked the part that my wife would also need to fill a tax self assessment but I presume this can only be an advantage (aside from having to spend time populating the form).

Given that this will be the case, it would probably make sense to open this personal bank account jointly (even though the funds will only flow my personal account to this BTL account).

Gary I did not realise the vast scope you could use on the expense side...in which case I doubt any newbie BTL folks really get taxed a great deal...which is great 🙂

My intention is to set all the direct debits to the BTL account and simply charge the tenant an inclusive price to rent the room. I have seen some threads talk about switching the bills to the names of the tenants...but is there any best practice/legal requirement to have certain utilities transferred to the tenants name, whilst others kept in the landlords name? (As an example, I presume the landlord would never leave it to the tenant to insure the contents and instead that responsibility should remain with the landlord to make sure the carpets, doors etc are insured against say a burst pipe)?

Colin Dartnell

20:54 PM, 10th March 2015
About 4 years ago

Reply to the comment left by "Ray ." at "10/03/2015 - 14:10":

I've been using my personal account for 20 odd years without a peep from my bank. You can claim £54 a year for using your computer for accounts.

You say 'rent a room' is it a BTL or are you taking in a lodger, or running an HMO.

You are right to insure your property but you don't want to be paying their utility bills in a BTL. It's their debt if it's in their name.

Ray .

21:26 PM, 10th March 2015
About 4 years ago

Thanks Colin there will be 3 bedrooms (though the living room could be a suitable bedroom too...however at first glance of the lease, it is so restrictive I doubt I will be able to change this to a 4th bedroom) - either way not enough rooms for a HMO. I won't be living at this property so I imagine that rules out a lodger...it should be a "normal" BTL

I guess it mostly boils down to the vetting process...if I get a decent tenant then that reduces the anxiety I have with putting the utilities in their name...I keep thinking any failings with paying utilities etc will impact my credit score or come back to bite me in some shape or form.

So is it literally gas, water and electric that gets put into each of the tenants name? Or is it also council tax, broadband, telephone line rental, tv package etc?

When I was renting, I don't believe any such expenses were placed in my name...but from a logistical perspective is this the way it would potentially work:

- On the day that the tenant moves in you contact the gas, water, electric and council tax with the new name (including giving readings where applicable)
- Do you obtain from the tenants beforehand their DD details to pass onto the service provider
- Is it possible to ask for a copy of the bills to be sent both to the BTL and to my own personal residence (so I can deal with any issues before they become serious)

Apologies if the above understanding is naive and perhaps I may be getting more involved than required, but it would good to understand how best to handle the bills. For instance if X moves out before Y, then how do they split out costs which are less obvious to divide (i.e. Atleast wih the utility bills, meter readings can be given to split the costs accordingly, but it is more difficult for other expenses which is another reason why I was leaning towards an all inclusive price)

The intention was to drop an informal friendly warning that if they abuse the utilities (i.e. Leave heating and lighting on all the time then I would increase the rent to reflect this).

Tony Atkins

14:35 PM, 11th March 2015
About 4 years ago

There is at least one extensive thread on this site regarding how to handle bills. I think the usual practice is that the bills are all left in the tenants' names if you have, say, a couple who know each other and there's a single AST.

If the tenants do not know each other well and the house is a houseshare (i.e. an HMO, because if there's more than one "household" of unrelated people, then that fits the general definition of a house in multiple occupation - it's just not a "registered" HMO, which means five or more people *and* more than two storeys, which has to be notified to the local authority), then often the bills are kept in the landlord's name for reasons of administrative convenience as people join and leave the house. The big danger with such a "bills inclusive" arrangement is that the tenants abuse it: they run the house at 30 degrees C for 24 hours a day, have 30 minute showers and the like. The way round this is to set a stop-loss on the bills. Tell the tenants before they move in - and have it written into the tenancy agreement - that their rent+bills includes a maximum amount of, say, £80-90 each a month, and if they exceed this by running a very high fuel bill, then they must reimburse you the difference. Equally, if they run the house frugally, you guarantee to repay them any saving, which will be a nice reward for them. This approach makes them responsible for their own level of bills, even though technically the bills are in your name for administrative simplicity.

Phone and TV bills are never included with the rent - that's their affair. Broadband can be included.

I've always resisted having the bills in my name in my HMOs, but I got fed up with the tenants failing to transfer the bills into the new names when someone left the house, and the bailiffs from the borough council then came knocking on the door looking for their council tax. So I maintain all the bills and issue monthly invoices, which the tenants then pay me. The principal reason that some tenants, especially students, benefit claimants and first-job graduates, like a "bills included" arrangement is that they want fixed outgoings, to help control their budgets. I accept the logic of this, but I draw the line at the landlord having to pay the difference if the tenants then think of the house as "free fuel included" and use gas, electricity and water with gay abandon. They need to recognise that heating in particular is not free and must be paid for, which is why I think the stop-loss approach is a reasonable compromise: the tenant gets a fixed monthly rent and no unexpected huge bills after six months, but equally is expected to pay up if the household is profligate and irresponsible.

Michael Barnes

17:22 PM, 11th March 2015
About 4 years ago

Reply to the comment left by "Ray ." at "10/03/2015 - 21:26":

Sounds like it could be a HMO:
An HMO is "An entire house or flat which is let to 3 or more tenants who form 2 or more households and who share a kitchen, bathroom or toilet" [http://www.nationalhmonetwork.com/definition.php].

If it is an HMO, then you need to determine if you need a HMO licence in your area.

If you intend separate agreements for each bedroom (letting to people who do not know each other), then I would suggest keeping utilities in your name, as suggested above.
In this case you will also be reponsible for council tax (by law).

If you intend one agreement for the whole property (letting to a group of people who know each other), then I would put utilities in their name. This reduces your potential losses if they stop paying rent (the utility companies chase them, not you, for non-payment).
Note that in this case, if one tenant serves valid notice to quit, then that terminates the tenancy for all tenants.

To put utilities in tenants names you notify the provider that tenants X, Y and Z are living there from date D, and you are no longer responsible. They then contact the occupants to get their details.
Personally I only let entire properties, not rooms, so I always contact utility and service providers (including council) to inform them of both the date from which new tenants are liable (on move in) and the dates they cease being liable (end of tenancy, which may be later than when they move out).

Ray .

18:16 PM, 11th March 2015
About 4 years ago

Thanks Tony, Michael does it usually specify in the leasehold whether the freeholder allows a property to be further rented as HMO or not...I could not spot any wording to this effect, but not sure if a freeholder has such power to dictate?

I had no idea this was actually a HMO, assumed the 5 room criteria would have ruled this out. The 3rd bedroom is a tiny box room...I will have to advertise and gauge likely demand...if no one wants a room of that size/standard it may be better to just rent the whole property out to a single family...

That's a novel idea on the stop-loss approach to the bills - I really like it Tony!

Depending on the above decision to let out the whole property to a family vs room by room - I could either:

A) Keep the bills in my name and implement the stop-loss approach

B) Transfer bills to X,Y and Z and let the utilities follow-up and as Michael mentions just keep a log of the dates/readings and inform all suppliers accordingly

For A) I will have to ask around to see a suitable nominal amount for a 3 bed split level flat...however, my opinion is now greatly changed towards putting this in the various tenants names.

In terms of "starting up" would I the landlord source out all the various providers and then once ASTs are signed by the tenant start transferring their names to the suppliers? Or do I allow the tenants to source these providers themselves?

Without sounding too greedy, I would prefer to identify these providers as I usually get quidco cash back...

Thanks everyone for the input, I think I am starting to build up a better mental picture of how to handle the logistics/ admin side of things and record keeping seems paramount!

Michael Barnes

23:43 PM, 11th March 2015
About 4 years ago

Reply to the comment left by "Ray ." at "11/03/2015 - 18:16":

I would be surprised if a lease mentioned 'HMO' specifically, but it might have alternative wording such as 'only sublet to a single family'.

Re suppliers, I let my tenants change supplier if they wish: it is their money and I hope they will stay a long time; other landlords expressly forbid changing suppliers.

Whenyou buy the property, there will already be suppliers. As it can take sum time to switch, you might want to stick with who you've got. I can imagine all sorts of problems if you startthe switch and then get tenants in before the switch has completed.

Ray .

7:38 AM, 12th March 2015
About 4 years ago

Good point thanks Mike, I may just change the tariff and leave with the existing suppliers.

The flat will need some renovation so I plan to get this done over 1-2 months and then start renting out to lower risk tenants (non DSS) so there could be time to switch suppliers if need be (i.e in my personal residence I pay Thames Water a fixed amount every month regardless of usage, it would be great to have the same setup in the flat).

There is an economy 7 heating system and I noticed there were no "normal" radiators, they seem to be electric heaters...which may require "modernising".

- Depending on costs, I may seek an alternative to install a Combi boiler and normal radiators
- Would it then be better to change tariff from economy 7 to a more normal tariff

I have a basic understanding that economy 7 only suits a particular audience...whereas I am looking to rent to someone who works 9 to 5 in retail/ high street shop etc (due to location of flat), no pets or smoking, ideally 25+ but willing to take over 20 years if they appear mature. So perhaps I need a more normal tariff...

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