Managing investment property – Tax Returns & Making Tax Digital

This video looks at the changes in managing a property portfolio, the new code of conduct and the effect that Making Tax Digital will bring in the future.

Full text transcript below:-

David Court: One of the subjects that we always have to consider would be the managing of properties and the processes involved with that. I think it’s been interesting because of the changes that are being made at the moment to see how that affects the relationship between the landlord and the tenant. Rob, what do you think about that?

Rob Trotter: Well, we’re definitely seeing that the letting industry is becoming much more service-driven. Tenants have got much higher expectations, and they really do understand now what their legal right are and what the obligations are on their landlord. Landlords, the new code of conduct that’s coming into play from next year will really emphasise that, of what landlords must do, what agents must do, and order them to fulfil their obligations. So, yeah, I think it’s very important that landlords accept the fact that they need to service the needs of their tenants. Because if nothing else, with the lease agreements that are coming into play next year, if you have a tenant who is not happy with the way you’re managing their property, or you have an agent that is not looking after your tenant currently, that tenant will give a month’s notice and leave. And they can do that at any time.
I think focusing on good management is essential, and good management isn’t all just about finding the right tenant and getting a good high rent. Good management is about minimising the avoidable costs that you could be faced with. At the end of the day, it’s the net return you get at the end of each month which dictates how profitable or worthwhile that the enterprise is. And if you’re faced with no end of voids because your tenants aren’t happy, you’ve got maintenance costs which are escalating because they’re not being dealt with properly, that takes away from the venture overall.

Murdo McHardy: Do you think that’ll see some landlords leaving the market then, Rob, those that haven’t been as professional in the past and don’t want to bring themselves up to those standards? Or do you think that we’ll just see a general raising of standards across the piece?

Rob Trotter: It may force them to leave, because as of next the agent will be responsible for making sure that the landlord fulfils their obligations. No longer will the agent be able to say, “Well, I asked Mr. Landlord to do this and they didn’t do it, therefore there’s no further I can take it.” If the landlord does not fulfil their obligations, the agent will be obliged to report that landlord and to stop acting for them. In other words, if you are a landlord and you’re not prepared to do what you’re supposed to do and look after your tenants appropriately, you will not be able to find an agent to act for you.

David Court: But in time, that’s going mean that you’re going to need to find an agent that can actually understands and properly implement that, so there will need to be more professionalism among the agents.

Rob Trotter: Absolutely. And if you want to attract a professional, responsible, high calibre tenant, then they are going to be attracted by the landlords who have chosen the agents who are going to provide that level of service. A reputation is everything, and it’s been proven time again. Not only will tenants be attracted to those sorts of agents, those agents can arguably afford to charge higher rents because the tenant knows they’re going to get a better service. They’re willing to pay to get that response and that good service.

Murdo McHardy: As we were discussing earlier, as well, we touched on the fact that it will force landlords … or will it force landlords to make sure they maintain their properties to a higher standard and make sure they continually review where I can be adding value or where I can make sure I’ve got the best possible opportunity to get the best returns and keep my client happy?

Rob Trotter: Absolutely. Yeah.

David Court: That’s something that certainly would involve you, clearly, because of the fact that though the standard process of preparing accounts is you get the stuff at the eleventh hour before the return is due to be made.

David Miller: In fact, one of the very good things that D J Alexander do is prepare a quarterly statement for their landlords. I think the provision and the continued provision of these quarterly statements is going to become more and more important. Some people might be aware that the Revenue are introducing a new form of tax return and everyone, all tax payers, will have their own digital tax account. This is known as Making Tax Digital. Sounds like this will be introduced from April 2019, when not just landlords but other tax payers as well will be required to make quarterly submissions in addition to their annual return. It’s going to necessitate people to keep up to date and to keep good records.
There’s many advantages to that, because if somebody wants to keep a handle on their tax situation and perhaps try and drive down their tax bill, they need to know on an ongoing situation how much profit they’re making. There’s no point in waiting until the end of the year and two or three months after the fifth of April, because by then it’s too late to spend money to reduce your tax bill.

Murdo McHardy: Yeah, and that provision of information is going to be vital, as well, from a finance point of view. So with people looking to buy new properties or refinance existing ones, they’re going to need all that information, I think, for lenders going forward, as well. The record keeping side of it will be much more important going forward, I think, for tax and for lending.

Rob Trotter: And, similarly, if you allow your rental property to deteriorate over time and it’s worn out and tired, then it will not be valued at the same amount, so when somebody approaches you seeking to release some equity, there will not be as much equity there because your property has been run down.

David Miller: Well, we at Johnston Smillie over the last few have been pushing cloud-based accounting packages and more and more of our clients are taking that on board and I think that’s going to be the way of the future.

Rob Trotter: Well, it’s interesting. It was left to David to draw up the bombshell about digital tax every three months, but we’ll see how that goes. But, the essential element is to properly look after your properties and deal with them accordingly.

David Miller: Definitely.

Murdo McHardy: Accurate records, yeah.

Rob Trotter: Yeah.

David Court: Okay.