The changing face of HMOs
In recent years HMO properties have changed beyond recognition. Long-gone are the days of damp student digs in undesirable areas. Stricter regulations and local licensing have increased the quality and managed the density of HMOs, whilst demand from young professionals with greater expectations have driven the finish (and yields) of HMOs to new highs.
HMO tax considerations
From a tax perspective, HMOs are largely the same as conventional buy to let properties, with legal ownership playing a significant role in determining how profits are taxed.
The biggest difference normally stems from the fit out costs to convert properties into HMOs. This may be as simple as furniture, fixtures and fittings, but often involves larger capital expenditure to increase the number of bedrooms or bathrooms, or to comply with national and local regulations. For the most part, tax relief is no longer available for this expenditure, although it will often reduce your tax liabilities should you go on to sell the property. For larger HMO conversions there may be a case for pursuing tax relief on certain expenditure in communal areas.
Some HMO landlords, faced with the removal of mortgage interest relief (known as “section 24”) are choosing to convert their properties into furnished holiday lets (for example, to let via Airbnb or holiday websites), which includes serviced accommodation. If the furnished holiday let criteria is achieved, mortgage interest relief is available, along with additional tax reliefs which better suit this operating model.
Our accountancy service
How we help HMO landlords
If you are considering investing in a HMO property we can help you model and decide the best approach for ownership to maximise your returns, or if you’d like to convert an existing property we can help you understand the tax and yield impact. We can also help you understand the risks and benefits of converting an existing HMO into a furnished holiday let.
If you are self-managing your HMOs, our accounting app allows you to manage tenants and rent payments, as well as keep track and claim for any expenses incurred (such as utility bills, Netflix payments, redecoration costs, etc). We are also here to support you on a day to day basis. Our team will manage the tax compliance for your portfolio and they will prepare and file your tax returns, including company accounts for company-owned properties.
You’ll also have access to our accountants for tax and business advice, allowing you to ensure your property portfolio is working as hard as possible to deliver your goals.
Take a tour of our service →