More than any other area of being a landlord, the financial aspects are the most complicated, whilst also being possibly the most important to understand. Many of the issues that arise through being a landlord all come back to one thing – money. And money is the driver for most of us taking on rental properties, right? Get clued up, know your stuff and don’t get lost in the financial jargon…
This is your rental income as a percentage of the property’s value. For example, if you paid £100,000 for a flat and received £200 per week in rent, then your annual rental rate would be £10,400 and your rental yield would be 10.4% (100,000 divided by 10,400).
A law, or set of laws, suggested by a government and made official by parliament.
It’s basically the technical term for overdue rent. If someone is in rent arrears, they are in debt after missing one or more of their rent payments.
This is where a landlord retakes possession of their house when the tenant misses the rent payments.
Landlord Possession Claim
You can apply for this through the courts in the event of a repossession. It’s sometimes quicker than applying for a standard possession order and there’s usually no court hearing. It costs £355.
Tenancy Deposit Scheme
Every landlord must put their tenants deposit in a government-backed tenancy deposit scheme where it is protected to prevent it being lost or unfairly withheld. There are three schemes available to use; the Tenancy Deposit Scheme, the Deposit Protection Service or My Deposits. Refraining from using one of these schemes will result in penalties.
A disagreement or argument, in this case usually between a landlord and a tenant.
This is the act of restoring and refreshing a property, such as updating the decor and making improvements.
This essentially refers to the market value of a property or group of properties at a specific point in time.
This is the amount that would be paid for the rental of a similar property in the same condition and in the same area.
A compulsory contribution to state revenue. The amount of tax that an individual pays is calculated by the government based on their income and the money they make on their business. Tax is also added to the cost of some goods, services and transactions. Landlords pay tax on their rental income. The government use tax money to help provide funding for public services such as the NHS, education and the welfare system, as well as investment in public projects such as roads, rail and housing.
This is the tax paid on your property documents during the sale or transfer of the property. You must pay Stamp Duty if you buy a property or piece of land over a certain price in England and Northern Ireland.
Mortgage Interest Tax Relief
Mortgages taken out after 31 December 2012 do not qualify for mortgage interest tax relief, however it is tax relief based on the amount of qualifying mortgage interest that you pay in a given tax year for your principal private residence i.e. your home. Mortgage interest tax relief was due to be abolished entirely after 21 December 2017, however it has been extended to 2020 with plans to cease entirely from January 2021.
This is essentially any program or incentive that reduces the amount of tax owed by an individual or business entity. Being a landlord used to mean that you could take advantage of significant tax relief by offsetting your mortgage interest payments, but the new rules introduced in April 2017 may mean that landlords will now pay more tax on their rental income.
How much income tax you are required to pay each year depends on which taxpayer bracket you fall into. This is based on how much of your income is above your Personal Allowance and how much of your income falls within each tax band.
This is the amount of income that you don’t have to pay tax on. The standard Personal Allowance is £11,850 but this may be bigger if you claim something such as Marriage Allowance or Blind Person’s Allowance.
A financial gain. For a landlord, this would be the difference between the total amount earned from your rental property and the amount spent on fees, tax etc.
The Financial Crash
A financial crisis is any variety of situations in which some financial assets suddenly lose a large part of their value, such as houses. The most recent and commonly spoken about are the financial crisis of 2007-2008, also known as the global financial crisis, and the 2008 financial crisis which is considered by many economists to have been the worst financial crisis since the Great Depression of the 1930’s.