Returns for landlords of student accommodation averaged 13.5% over the last year, according to Knight Frank. And thanks to a shortage of student properties, the trend is likely to continue. Better still, these returns “can be nearly tax-free” where families have a student son or daughter who can act as landlord and “skilful use is made of exemptions and allowances”.
Take a four-bedroom house that is lived in by five students. If, says Mike Warburton of Grant Thornton, the parents act as guarantors for their son, he can avoid paying any tax on rental income. How? Firstly, because the house is occupied by five people, four of whom pay rent, the son is justified in setting fourth-fifths of any mortgage interest against rental income.
In addition, he can claim “a 10% allowance of the gross rents against tax for wear and tear, which would leave only a small amount of rental income subject to tax”. And as long as that amount doesn’t exceed the son’s personal allowance of £6,475, there will be no tax to pay at all.