Posts with tag: landlord taxes

Government Urged to Halt BTL Tax Changes

Published On: April 1, 2020 at 11:09 am


Categories: Finance News

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Property management firm, Apropros by D.J. Alexander is urging the government to delay the final phase of the removal of tax relief on borrowing to buy a rented property, as well as asking for a delay to the capital gains tax reduction cut due to come into force on April 6.

Because of the COVID-19 outbreak, the property management firm thinks that the tax changes should be delayed until after the economy has returned to somewhere relatively more normal. They say that the postponement would assist landlords at a time when they may be concerned about the financial viability of their property investment.  

David Alexander, Joint Managing Director of Apropos by D.J. Alexander Ltd, said: 

“I believe that delaying these tax changes would provide a clear signal of support from the government for the sector which is facing considerable challenges during the coronavirus outbreak. Landlords, whose immediate thoughts are the safety of their tenants, will be concerned about their future in the sector once this crisis is over. Some may even be considering exiting the market so any sign that their investment will be made more viable would be welcome during these difficult times.”

“Indeed, there could be a case for reversing some of the earlier tax cuts introduced by George Osborne which have reduced the viability of the operation of many landlords in the market. While that may seem controversial it would make sense in the medium to long term to ensure that we maintain a strong and financially stable PRS at a time when it is under threat.”

He continued: “My own firm has already been approached by hundreds of property owners in the last fortnight desperate to move their properties from short term to long term letting. The result of this over supply means we may experience an excess of properties available resulting in lower rents and smaller yields.”

“Therefore, any move which can maintain income and profitability in the short to medium term makes sense to ensure the sector is able to continue when the outbreak is over, and the world is returning to normal.”

Alexander added: “Landlords and property owners will understand that they must expect to be in this for the long haul. The government is now saying it will be six months at the earliest before we can return to any sense of normality. But there will clearly be a substantial time beyond that before the market settles. It is likely that property values will be hit in the short to medium term so many landlords and investors will be unwilling or unable to exit at that point so encouragement to remain in the sector remains paramount if we are not to experience a potential shortage in the PRS in the future.”

Increasing Number of Landlords Looking to Leave Sector, Law Firm Warns

Published On: October 11, 2017 at 9:05 am


Categories: Landlord News

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Increasing Number of Landlords Looking to Leave Sector, Law Firm Warns

Increasing Number of Landlords Looking to Leave Sector, Law Firm Warns

One of the UK’s leading law firms has warned that it is seeing an increasing number of private landlords looking to reduce or sell off their property portfolios.

Irwin Mitchell claims that this is a direct result of a host of changes being forced on landlords by the Government, which have made buy-to-let a less profitable investment option.

However, the firm warns that disposing of a buy-to-let portfolio may not be straightforward, with landlords being hit by hefty Capital Gains Tax (CGT) bills.

Irwin Mitchell says that landlords are being affected not just by legal changes, but also by growing anti-sentiment amongst the public being reported in the media, against the backdrop of the housing crisis.

In recent months, landlords have had to contend with more stringent mortgage lending, particularly for those with four or more properties, higher Stamp Duty costs on buy-to-let properties, the reduction in mortgage interest tax relief, and the possibility of rent controls, as proposed by the Labour Party at its recent conference in Brighton.

A Partner at Irwin Mitchell, Jeremy Raj, says: “It’s understandable that landlords who have been hit with some difficult changes to swallow are now thinking of exiting the buy-to-let market, in order to invest elsewhere. We’ve certainly seen an increase in enquiries from landlords worried about the future market.

“However, the CGT liability that will crystallise on each property sale must be factored in when weighing up whether it is best for landlords to divest of their property portfolio.”

He adds: “If the Government really wants to help young people onto the property ladder, it needs to combine the recent disincentives in the buy-to-let sphere with fulfilling its promises to get more housing built.”

The Prime Minister, Theresa May, recently pledged an additional £2 billion for building affordable homes. But is this yet another empty promise?

Buy-to-Let Mortgage Tax Relief Changes: An Overview

Published On: September 4, 2017 at 8:10 am


Categories: Finance News

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By Dave Shelton, Senior Underwriter at Ipswich Building Society

As per the 2015 Summer Budget, landlords are at risk of running into financial struggles due to the chancellor’s decision to cut mortgage interest tax relief.

For many, the word tax is enough to induce a cold sweat, or a hot rage, but, with new rules being introduced in April 2017, taking three years to fully roll out, let investors across the whole of the UK should be clued up on what’s to come.

Buy-to-Let Mortgage Tax Relief Changes: An Overview

Buy-to-Let Mortgage Tax Relief Changes: An Overview

Note: This change pertains to landlords who own a property or properties in their own name only. If you own, or are thinking about owning property via a business or company, then these new rules do not apply to you.

What’s changing?

Rental income is no different to any other earned income in that it is taxable. Before these new tax relief changes came into play, landlords were able to deduct (or offset) interest payments (plus any other related costs) from their rental income before calculating tax owed. The changes mean that the amount of mortgage interest payments that can be offset against rental income is now to be gradually reduced. All landlords will be given a flat 20% mortgage tax credit instead, which will slightly reduce their tax bill, but will also mean they pay tax on buy-to-let income at the standard rate of 20%, or 40% for higher earners.

Although it sounds generous, with tax liability being reduced by a fifth due to the credit, the total amount that is taxable is actually a lot higher than it was before these changes came in. Landlords could therefore see the profit from their rentals reduced, and find that they now fall into a higher tax bracket as a result of their increased income, due to mortgage interest payments no longer being deductible from rental income.

Deductions at a glance

The percentage of mortgage interest that can be deducted from rental income before calculating tax liability is as follows:

2017 – 2018 = 75%

2018 – 2019 = 50%

2019 – 2020 = 25%

2020 – 2021 = 0%

Nothing can be said to be certain, except death and taxes

The new rules may seem off-putting, but, as they were first introduced in 2015, landlords have been given five years to come around to the idea and to make any adjustment to their finances accordingly.

New landlords will be mostly unaffected, as these changes can be calculated into the purchase of a property beforehand. Becoming a landlord can still be a profitable venture for those who are interested, but these new tax liabilities and potential costs must be factored into the equation.


Landlords Call on Government to Reverse Tax Relief Changes

Published On: July 6, 2017 at 9:35 am


Categories: Landlord News

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Landlords have called on the new Government to reverse tax relief changes, according to the latest PRS Trends Report from Paragon Mortgages for the second quarter (Q2) of the year, which is based on interviews with 201 experienced residential landlords.

Landlords Call on Government to Reverse Tax Relief Changes

Landlords Call on Government to Reverse Tax Relief Changes

The mortgage interest tax relief changes, announced in the 2015 Summer Budget by then chancellor George Osborne, are being phased in over three years, from April 2017. They mean that higher rate taxpayers can no longer offset all of their finance costs against rental income before calculating the tax due.

Following last month’s General Election, Paragon Mortgages asked landlords to rank the action they would most prefer the new Government to take to help with their lettings businesses. The highest-ranking answer was to reverse tax relief changes.

The second highest answer was for no more change, in favour of a period of stability following a turbulent two years, which also saw the introduction of a 3% Stamp Duty surcharge for additional homes from April 2016.

The third most popular action landlords would like the Government to take is an exemption from Capital Gains Tax (CGT) and Stamp Duty for those moving properties into a limited company structure – a strategy that 11% of landlords reported having already taken in Q2 2017 to help mitigate the impact of the tax relief changes.

The survey also found that 20% of landlords have increased rents in Q2, while the same number have sold properties and plan to buy no more, and 18% have repaid some or all of their mortgages.

This comes as 88% of landlords – up from 71% six months ago – say they now understand the personal implications of the tax changes. This is the highest reported figure since Paragon first asked the question in Q4 2015.

John Heron, the Managing Director of Paragon Mortgages, comments on the findings: “Having taken active steps in preparing for a difficult period of transition as the tax relief changes continue to be phased in, landlords are now facing up to the challenge ahead.

“Higher tax charges for landlords have combined with a general increase in uncertainty to drive confidence levels down. However, whilst there are signs of lower demand, it would appear that property yields are being maintained and that void periods are close to historic lows. This would suggest that, despite the negativity around the market, that the private rental sector continues to perform well.”

Would you like to see the Government reverse tax relief changes?

Landlords Still have Appetite for Future Property Investments, Claims Study

Although most have been affected by recent and ongoing restrictions to tax relief on finance costs, landlords still have an appetite for future property investments, found a recent study by Mortgages for Business.

Landlords Still have Appetite for Future Property Investments, Claims Study

Landlords Still have Appetite for Future Property Investments, Claims Study

Results from the latest Property Investor Survey show that the proportion of landlords seeking to expand their portfolios has grown to 48%, up from 45% in November last year and 41% a year ago, shortly after the 3% Stamp Duty surcharge on additional properties was introduced.

The survey was conducted over a two-week period in May this year, having been sent to Mortgages for Business clients, and advertised on social media and landlord forums. A total of 186 property investors completed the study, answering questions on their portfolios and how they are financed.

At the same time, landlords have been increasingly opting for five-year fixed rate mortgages, rather than three-year fixes. In May 2016, three and five-year fixed rate deals were each preferred by roughly one in five landlords (18% and 21% respectively).

In the time since, however, there has been a huge shift in investor preferences. Five-year fixed rate mortgages are now the preferred option for 42% of landlords, up from 33% in November last year and twice that of May 2016.

Three-year fixed rate deals, meanwhile, are now less popular than even ten-year fixes, being chosen by just 5% of respondents – less than a third of the proportion last year.

The COO of Mortgages for Business, Steve Olejnik, comments on the study: “Although we expect buy-to-let lending to reduce somewhat this year, these results demonstrate that landlords are a resilient bunch, capable of adapting their investment strategies to successfully accommodate the new fiscal and regulatory landscape. Incorporation is becoming a standard practice and the move towards five-year fixed rates allows landlords to maximise their borrowing options.”

When asked how investors were adjusting to the changing economic environment, 62% claimed to have consulted a professional tax adviser.

Of these, the majority (34%) had sought advice specifically because of the changes to tax relief on finance costs, while 28% said that they already had an existing relationship with a tax adviser.

Although it is positive to see many landlords seeking professional advice, Mortgages for Business urges the remaining 38% of investors to ensure that they understand how their tax liabilities may be changing.

Paragon Updates Buy-to-Let Range with Longer Term in Mind

Published On: May 3, 2017 at 9:09 am


Categories: Finance News

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Paragon Updates Buy-to-Let Range with Longer Term in Mind

Paragon Updates Buy-to-Let Range with Longer Term in Mind

Paragon Mortgages has updated its buy-to-let range with longer term products in mind, for both property purchases and remortgages.

The fixed rate products, which are available to individual landlords and limited companies, include two and five-year fixed rate deals for self-contained units, Houses in Multiple Occupation (HMOs) and multi-unit blocks (MUB).

As landlords continue to put longer term plans in place – with the phasing in of the Government’s reduction in mortgage interest tax relief now underway – highlights of the updated range include two five-year fixed rate products and a five-year stepped fixed rate deal.

Available from today is a five-year fixed rate product at 3.75%, with a 1.50% product fee at 75% loan-to-value (LTV) for single self-contained units, and a five-year fixed rate deal at 3.85%, with a 1.50% product fee at 75% LTV for HMOs and MUB.

The five-year stepped fixed rate product is at 3-4%, with a 2% product fee at 75% LTV for each property type.

Interest coverage ratios on these products are unchanged, starting at 125% at 4%, graduated to reflect each landlord’s individual tax status.

In addition to these new longer term offerings, the specialist lender’s range of shorter term, two-year fixed rate products has also been refreshed, with highlights including a two-year fix at 3.20% for lending up to 65% LTV, and another at 3.30% for lending up to 75% LTV.

The Managing Director of Paragon Mortgages, John Heron, comments on the updated range: “Our range of mortgage products is designed with a diverse market in mind, catering for different types of landlords with individual requirements.

“With the tax changes now being phased in, and continued challenges for landlords over the long term, these products support long term planning and reflect the trend we’ve seen of a preference towards longer term fixed rates.”