Whether it is in business or in life, the ability to manage one’s finances is a key requirement on the path to financial success. Landlords can appreciate this fact more than most. Regular mortgage payments and numerous expected and unexpected costs necessitate that landlords be on top of their cashflow. As such, it is important to ensure that you are using the right products and services to manage your finances. This entails everything from picking the right accountant, through to accessing the best software and bank account.
Why Do Landlords Need A Separate Bank Account?
Fundamentally, it is good practice to separate your personal and business finances. There are far more advantages to doing so than not doing so. This is especially the case when a property portfolio grows in size and scope.
If you are operating your properties through a limited company, you will need to use a business bank account, as the business is classed as a separate legal entity from the directors/owners. If you own your properties as a sole trader, you may be able to use your personal account in some cases. However, most personal accounts will have fine print which specifies that the account is not to be used for business purposes. Whilst some landlords operating a single property may be able to get away with using their personal account, the majority of landlords would be best advised to ensure they operate with a separate business bank account.
Using a business bank account is not just a necessary requirement. It can be an important step towards reducing the admin burden of operating a buy-to-let business. Separating business and personal expenses will save both time and costs when completing tax returns. Equally, where landlords may still work a full or part time job, it can be important to separate different income streams. Fully separating your personal and business finances will make it easier to assess the profitability of your properties, helping to inform the decisions you make.
Business bank accounts can support the long-term success of a property business. When using a separate bank account, your limited company will start to build up a credit history. This can be used to access business loans, financing and credit cards which can benefit your business long into the future.
Key Considerations When Choosing A Bank Account for Your Property Business
There are a number of different factors which may be worth taking into consideration when choosing a business bank account. The importance of these factors will depend on the nature and scale of your property business:
- Monthly fees
- Transaction costs
- Payment restrictions
- Security and accessibility
- Ease of use
- Integration with other systems
The most profitable landlords are the ones who are able to most effectively minimise costs. Choosing the right business bank account can be an important step in ensuring that you are not paying over the odds for something that you don’t need.
Fees and Transaction Costs on Property Bank Accounts
Unlike personal accounts, many business bank accounts can come with monthly fees and additional transaction costs. The scale of these fees and costs can vary from one account to the next. It is important to choose an account which proves to be the most economical for the type of transactions that your properties will require. If cash plays an important role in your business, be it through paying tradesman or even the potential that rent is paid in cash, you will want to choose an account which facilitates this. Equally, international landlords may wish to choose an account which supports low-cost international payments.
Unique Requirements and Payment Restrictions on Property Bank Accounts
Property businesses can have unique requirements which may need to be considered when choosing a bank account. As such, it can be important to consider the payment restrictions associated with an account and whether they may prove to be a hinderance in the future. Some accounts can have transaction size limits or cap the amount you are able to pay or receive in a given day. For landlords operating on tight timelines or routinely engaging in large transactions, it can be worth considering the limitations placed on an account.
Security, Accessibility and Ease of Use for Your Property Bank Account
The next aspect to consider is the security and accessibility of your money. If you are planning on holding a large cash buffer in the account, it is important to ensure that the deposit is protected by the Financial Services Compensation Scheme (FSCS). Accounts registered under this scheme will have their deposits protected up to £85,000 should the bank fall into financial difficulty. Additionally, it is important to ensure that you have the means to readily access and use all the features of your bank. For traditional banks, this will involve checking whether or not a physical branch is located sufficiently close enough should you need it. For digital challenger banks, you will need to be comfortable using apps and online banking for all aspects of your current account experience.
Choosing a Property Bank Account That Integrates with Your Other Systems
The final aspect to consider is whether the bank fits with the software and services you already use. If you use an accounting package, it is worth checking whether the account is set up to connect to them. Landlord Vision customers may want to ensure that the account is enabled for Open Banking so that they can quickly and easily reconcile their transactions.
The Best Business Bank Accounts for Landlords
To narrow the list of possible accounts down, Landlord Vision has selected a number of the most popular SME bank accounts and e-money providers. This list includes a mix of challenger banks, digital accounts and traditional banks:
- Co-Operative Directplus
- HSBC Kinetic
- Monzo Business
- Revolt Business
- Starling Business Banking
- TSB Business Plus
Overall Starling Bank is one of the most popular bank accounts. The bank was voted Best British Bank, Best Current Account Provider and Best Business Banking Provider in 2020. Anecdotally, the bank is popular amongst landlords generally, with many recommending the account on online groups and forums.
Landlords who prefer a more traditional form of banking may be better served by TSB Business Plus, which offers relatively competitive rates when compared against its high-street peers. Equally, HSBC Kinetic provides a nice balance between traditional high-street banking and a more readily accessible mobile application. The bank also offers attractive transaction rates, although the app does have some limitations.
Finally, landlords who have the time and desire may consider the Co-Operative Directplus account. Its introductory offer is one of the market leaders and provides 30-months of competitive rates. The limitations which come with the introductory offer are unlikely to trouble most small to medium sized portfolios. However, landlords may find themselves keen to move to another bank account as costs begin to rise.
The Co-Operative Directplus Account
The Co-Op bank offers a strong incentive to new landlords and those looking to switch. New customers are eligible for 30 months of free access to their Directplus account, subject to certain limitations. This is one of the more competitive offers available to landlords seeking traditional banking services.
Landlords who find themselves handling regular cash transactions will find the £2,000 charge-free limit to be especially appealing. That being said, the account does lack some of the additional financial services found with other online offerings. The terms for the first 30-months are some of the most attractive on the market at the moment. However, once the 30-month new-starter period expires landlords will face a £7.00 monthly fee, which is towards the higher end of the scale. What is more, the account includes automated transaction costs which might make the account less appealing.
Key benefits include:
- An attractive introductory offer
- Competitively low rates for cash transactions
HSBC Kinetic Business Account
HSBC used feedback from 3,000 UK SMEs to develop the Kinetic Account. The account is their response to smaller digital competitors such as Starling. It aims to combine the financial and physical clout of HSBC with the technological benefits of app-based banking.
The Kinetic account can be opened digitally through the app and has been designed to provide in-depth insights and support to SMEs. Landlords will be able to better understand their cashflow, automatically categorise expenses and see account insights in line with HMRC tax coding.
However, there are downsides to the account. As the app is relatively new to the market, it is yet to offer the ability to make international payments, large payments of above £10,000 per day and business credit cards. For some landlords the transaction limit could be a deal breaker.
Key benefits include:
- A quick and easy application
- The ability to see cashflow and spending insights
- Access to a linked savings account on application
Monzo Business Account
Monzo business banking is open to UK based sole traders and limited companies. The bank provides online-only services to its customers. One of Monzo’s key selling points is its easy-to-use app which provides users the ability to set budgets and monitor spending more effectively.
Tech savvy landlords will appreciate the quick setup, spending alerts and tax saving features. All of which can be used to help trim costs and increase profitability. However, landlords who operate with large cash transactions will be inhibited by the £1,000 limit on cash deposits over six months. Equally, any property business which is held in a partnership or less conventional structure will not be able to use Monzo.
Key benefits include:
- A simple and easy setup
- Spending alerts and in-app tax saving features
- Charge free spending, whether at home or abroad
Revolut Business Account
Revolut has been challenging traditional UK banking since 2015 and offers an online-only service to its customers in the UK. The bank’s business account aims to tackle the typical costs associated with transferring money abroad, offering real rate FX exchanges on some of its paid for accounts. This makes it an interesting option for landlords living throughout Europe.
Whilst the account may appeal to international landlords, it will be less appealing to those based in the UK. The app’s interface is considered easy to use, however most of the benefits require customers to opt for the minimum paid package, which costs £25.00 pcm. This is a considerably higher monthly sum than most other competitors and comes with additional transaction costs. Although a more stylistic benefit is the free-of-charge metal cards associated with paid for accounts.
Key benefits include:
- Unique services for international landlords, allowing customers to hold or exchange 28 currencies
- An easy-to-use interface
Starling Business Bank Account
Starling Bank is an online-only challenger bank operating in the UK. The bank has no physical branches and relies on its mobile application to provide full-service banking. Starling was voted the Best British Bank, Best Current Account Provider and Best Business Banking Provider in 2020.
Starling operates both sole trader and business bank accounts. However, the sole trader account is only open to customers who already use a Starling personal account. Both accounts can be accessed with no monthly fees and no cash withdrawal fees from ATMs in the UK and abroad.
Anecdotally, Starling bank is a popular bank among landlords. The account offers an appealing combination of no monthly fees, reasonable transaction fees and a ready accessibility to online accountancy services. Equally, the banks FSCS protection makes it slightly more secure than some of the competing e-payment platforms.
Key benefits include:
- Relatively low costs compared to other accounts
- The Business Toolkit is a useful feature for landlords who do not already utilise accounting software
- A strong online offering at a time when more and more branches are closing down
Aimed at small, tech-savvy business owners, an account with Tide can be set up in close to 10 minutes. Similar to its online-only peers, Tide aims to be easy to use and accessible anywhere. The account can be entirely managed through your smart phone.
Tide’s key selling point is its ease of set up. Customers can open an account digitally, without having to attend a branch in person. Customers are able to store and upload receipts from expenses which can then be categorised using the app. Additionally, landlords who may provide additional services on top of their lettings may find the free invoicing feature helpful.
One drawback is that Tide is not considered to be a bank. As such, it is not eligible for the FSCS scheme and deposits are not guaranteed by the government. That being said, the parent company of Tide (Prepay Technologies) states that it keeps an equivalent cash reserve for all deposits to protect them should Tide become insolvent.
Key benefits include:
- Quick account set up
- The ability to easily manage the account entirely through an app
- No monthly fees on the basic account
TSB Business Plus Account
Formerly part of Lloyds Banking Group and now owned by Spanish bank Sabadell, TSB offers a single business account to customers called the Business Plus Account. The bank offers the potential to earn one of the highest liquid interest rates on your cash balances through their associated savings account.
Landlords wanting access to more traditional banking will benefit from the ability to access 300 branches, online banking, mobile banking and telephone banking. Equally, landlords with large cash balances will be able to avoid the £5.00 monthly fees on the account, making it one of the more affordable high-street banking options.
Key benefits include:
- Access to a Business Instant Access Savings Account and earn a return of 0.30% AER on balances over £5,000
- Benefit from the ability to use 300 branches, online banking, mobile banking and telephone banking
Disclaimer: This Landlord Vision blog post is produced for general guidance only, and professional advice should be sought before any decision is made. Nothing in this post should be construed as the giving of advice. Individual circumstances can vary and therefore no responsibility can be accepted by the contributors or the publisher, Landlord Vision Ltd, for any action taken, or any decision made to refrain from action, by any readers of this post. All rights reserved. No part of this post may be reproduced or transmitted in any form or by any means. To the fullest extent permitted by law, the contributors and Landlord Vision do not accept liability for any direct, indirect, special, consequential or other losses or damages of whatsoever kind arising from using this post.
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