Posts with tag: landlord taxes

Could the Buy-to-Let Sector Harm the UK Economy?

Published On: March 12, 2016 at 8:21 am

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The buy-to-let sector has boomed in recent years, fuelled further by landlords rushing into the market since the start of the year. But could this surge harm the UK economy?

The Deputy Governor for Financial Stability at the Bank of England (BoE), Sir Jon Cunliffe, recently told a House of Lords committee that a huge rush of buy-to-let landlords may sell en masse if tax rates rise or higher interest rates reduce their profits.

He believes that this could cause significant house price declines and subsequent threats to the UK economy.

Could the Buy-to-Let Sector Harm the UK Economy?

Could the Buy-to-Let Sector Harm the UK Economy?

Lending data from the BoE shows that buy-to-let mortgages have risen from 11.3% of all new loans in the third quarter (Q3) of 2007 to 15.6% in Q3 2015.

Cunliffe says that if any changes are made in the economy to tax or interest rates, landlords may suffer dismal returns or even losses. This could then cause a mass of landlords to leave the buy-to-let sector and cause instability throughout the UK economy.

In last year’s Budget, the Chancellor announced several changes to landlord finances.

From April 2017, buy-to-let landlords will lose the ability to offset all of their mortgage interest against income tax on rent.

Two landlords have been leading a legal challenge against the change, and HMRC is expected to respond by 16th March.

Additionally, the automatic 10% Wear and Tear Allowance will be replaced from 1st April. Landlords will only be able to claim back on work that has actually been completed.

And while significant figures such as Cunliffe have expressed concerns over these additional costs, research among landlords suggests that rents will be forced up as a result, and many are thinking of leaving the sector. In fact, a recent study from the National Landlords Association (NLA) has found that the number of landlords thinking of leaving the buy-to-let sector has quadrupled in six months in central London.

However, economic analysts expect any interest rate rises to be postponed until 2020.

Indeed, the buy-to-let sector is proving buoyant at the present time. Since the beginning of the year, there have been many reports of a booming market, as landlords look to expand their portfolios ahead of the 1st April Stamp Duty deadline.

As of 1st April, buy-to-let landlords and second homebuyers will be charged an extra 3% in Stamp Duty on properties worth over £40,000. Conveyancers have recently called for the plan to be scrapped.

Although it is expected that buy-to-let investment will decline after the surcharge is introduced, the booming market suggests that landlords are confident in the sector and do not expect the forthcoming tax changes to be much of a threat to their finances. If landlords stick with the sector, perhaps the economy will not fare too badly.

Number of Landlords Looking to Sell Quadruples in Six Months

Published On: March 11, 2016 at 9:35 am

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The number of residential landlords in central London who are looking to sell their rental properties has quadrupled since last year’s Budget, according to new data from the National Landlords Association (NLA).

Number of Landlords Looking to Sell Quadruples in Six Months

Number of Landlords Looking to Sell Quadruples in Six Months

When surveyed before last year’s Budget, just 4% of private landlords had plans to sell property. However, the proportion has almost quadrupled, rising to 19% when surveyed in January this year.

The 15% growth in intention to sell rental property is the highest seen across the UK in the past six months.

The smallest increase in intention to sell was from residential landlords in the North East, rising from 17% in June last year to 24% in January – up by just 7%.

The reduction in mortgage interest tax relief for individual residential landlords – announced in last year’s Budget – will leave many landlords making losses, forcing some basic rate tax payers into a higher tax bracket, and leaving higher and additional-rate tax payers with significantly higher tax bills.

The NLA has named the change the Turnover Tax, as landlords’ tax will be calculated on the rental income they receive, rather than their profits.

The CEO of the NLA, Richard Lambert, says: “Local property markets vary greatly across the United Kingdom, but we are seeing a loss of confidence across the board as many landlords realise they won’t be able to remain in the market.

“If landlords follow through with their intentions over the coming months, this could lead to a massive sale of property, as we have previously warned. However, this may not be a straightforward process, especially for those with stock in low demand areas.”

He adds: “We urge those considering selling up to think about when they will need to do so, and to plan ahead now in order to minimise the risk of losing money as a result of a failure to sell.”1 

How many landlords plan to sell around the UK?

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Are you planning on leaving the private rental sector or reducing your portfolio due to the tax changes?

For more advice for landlords on how the changes will affect you, this piece by a leading finance expert will help you understand the impact: /contrary-to-popular-belief-buy-to-let-is-not-dead-insists-finance-firm/

1 http://www.landlords.org.uk/news-campaigns/news/proportion-london-landlords-looking-sell-quadrupled-in-last-six-months

Landlords’ Challenge of Tax Relief Reduction to Receive Response from HMRC

Published On: March 8, 2016 at 12:38 pm

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Two landlords’ legal challenge of Clause 24 of the Finance (No. 2) Act 2015 will receive a response from HM Revenue & Customs (HMRC) by 16th March 2016.

Under the clause, landlords will not be able to deduct the cost of their buy-to-let mortgage interest as a business expense from their rental income by 2020. This will mean that their rental income will be added to any other income, potentially pushing them into the next tax band.

Therefore, tax will be paid on turnover, not profit, meaning that tax could be due on non-existent income. For some higher-rate taxpayers, mortgage costs above 75% of their rental income will mean they make a loss on their buy-to-let investment.

Landlords' Challenge of Tax Relief Reduction to Receive Response from HMRC

Landlords’ Challenge of Tax Relief Reduction to Receive Response from HMRC

The clause, announced by Chancellor George Osborne in the 2015 Budget, has received criticism from buy-to-let landlords, who have often invested in property to boost their pension pots.

The measure is part of the Government’s plan to turn generation rent into generation buy. Meanwhile, some believe that the Government is favouring large-scale investors over smaller private landlords.

Landlords Steve Bolton and Chris Cooper are leading a legal challenge in an attempt to bring a judicial review of the reduction in mortgage interest tax relief, which will be gradually imposed starting in 2017.

Cooper is a modest investor and part-time landlord, who is boosting his pension through buy-to-let, while Bolton owns around 20 residential and commercial properties, and is also the founder and owner of Platinum Property Partners, a buy-to-let training franchise.

Cherie Blair’s Omnia Strategy has been appointed to represent the landlords.

The application has been filed and signed off by the firm, which gives HMRC and the Treasury until 16th March to respond with an Acknowledgement of Service. This must detail the grounds on which the departments intend to contest the challenge.

The challenge will argue that the Government’s tax change flouts “a long-established principle of taxation that expenses incurred wholly and exclusively for the purposes of the business are deductible when calculating the taxable profits”.

The landlords have set up a crowdfunding page, which had raised just over £50,000 from 740 supporters in January.

A statement from the landlords says: “We expect the Government to respond aggressively. We are hoping for a positive result, but are mindful both that judicial review proceedings are inherently difficult and also that, even if we win, the Government might introduce changes or new measures that are more defensible legally, but still unattractive and problematic for hard-working private landlords.”1

We will keep you updated on the landlords’ case and continue to provide information for landlords on all issues affecting the buy-to-let sector.

1 https://www.facebook.com/clause24/posts/1107773035932366

Government’s Intervention in the Housing Crisis has Been “a Step in the Wrong Direction”

Published On: March 4, 2016 at 12:13 pm

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A new report from the Institute of Economic Affairs states that almost all of the Government’s interventions in the housing crisis have been “a step in the wrong direction”.

The paper, by Dr. Kristian Niemietz, particularly criticises the Help to Buy scheme, Inheritance Tax and tax changes for buy-to-let landlords.

Government's Intervention in the Housing Crisis has Been "a Step in the Wrong Direction"

Government’s Intervention in the Housing Crisis has Been “a Step in the Wrong Direction”

However, it believes that the Stamp Duty reforms of December 2014 have been a step in the right direction, but still criticises it for hindering those looking to downsize. It was recently reported that the majority of homebuyers have saved money under the new system.

The paper claims that the prohibition to build on the greenbelt is not just outdated, but conceptually wrong and should be abolished entirely.

The document especially criticises the forthcoming changes to landlord taxes, notably the reduction in buy-to-let mortgage interest tax relief. It says: “Letting a property is a business like any other and the cost of servicing the mortgage is a business cost like any other. Thus, the tax system should treat it as such.” 

On the subject of the shortage of housing, the report states that not only is the UK’s stock inadequate, but it is mostly in the wrong place.

It adds that there is no specific shortage of social housing, private rental properties or first time buyer homes, but an overall shortage of affordable housing across all tenures.

It does not believe that boosting homeownership should be a policy aim in itself, but that the Government should strive to improve general affordability.

Dr. Niemietz’s report states that the housing crisis was caused by high costs of buying and renting.

It has found that both house prices and rents are among the highest in the world, both in absolute terms and in relation to average earnings.

Since 1970, house prices have risen by four and a half times after inflation, says the study.

It claims that no other OECD country has experienced price increases on this scale, or anywhere near the enormity seen in the UK.

OECD countries consist of the world’s wealthier states, including the USA and Canada.

The report also found that UK house building has sat at the lowest rate of construction than any other OECD country for over three decades. Earlier this week, it was claimed that UK housebuilders are restricting supply in order to keep house prices high.

Find the full report by Dr. Niemietz here: http://www.iea.org.uk/sites/default/files/publications/files/IEA%20Housing%20Crisis%20Briefing%20Feb%202016.pdf

The Private Rental Sector Will Continue to Grow, Despite Clampdown on Landlords, Says Savills

Published On: February 24, 2016 at 3:54 pm

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Over the last few months, landlords have been subject to forthcoming changes to the buy-to-let market, which could dampen future investment. However, Savills believes that the private rental sector will continue to grow, despite the measures.

The Government has announced a series of policies designed to clamp down on buy-to-let investors and increase homeownership in the country. The changes to landlord law and finances are detailed here: /contrary-to-popular-belief-buy-to-let-is-not-dead-insists-finance-firm/

The Private Rental Sector Will Continue to Grow, Despite Clampdown on Landlords, Says Savills

The Private Rental Sector Will Continue to Grow, Despite Clampdown on Landlords, Says Savills

Despite the changes, demand for rental properties appears to be as high as ever, with the latest forecast from Savills suggesting that the sector will continue to grow for years to come.

The country’s strengthening economy and improved employment figures, which have hit an all-time high recently, would usually push up the number of homebuyers. However, the continuing surge in house prices – the average is edging closer to £300,000 – means that many people are still priced out of the property market, leaving the private rental sector in a state of constant expansion.

Savills reports that the Government’s statistics reveal the private rental sector has grown by around 17,500 homes per month for the ten years to the end of 2014. The firm believes that this growth will continue over the next few years, with Government policies designed to dampen the market having only a minimal impact.

Despite continued demand, private tenants may start to feel the pinch, as landlords are forced to raise rents in response to changes to their finances.

At present, there are 4.6m households in the private rental sector, with 260,000 added each year, says Savills.

But even with the Government trying to push for increased homeownership, it is only expected to bring around 40,000 new homeowners per year from the private rental sector, meaning that rental market growth will still continue, rising by only 15% less than the current level, at 220,000 per year.

With constant high demand expected for the sector, institutional investors are seeking clarity from the Government regarding their exemption from certain policies.

Originally, it was stated that institutional investors (those purchasing 15 or more properties in one transaction) would be exempt from the Stamp Duty surcharge arriving in April, but this has not been confirmed.

Additionally, landlords that operate as limited companies will not be subject to the cut in mortgage interest tax relief, set to be implemented gradually from 2017. Over 40% of landlords are looking at forming a limited company to avoid the change.

If large-scale investors are not exempt from the Stamp Duty surcharge, there is a risk of a lack of money, and therefore shortage of supply, coming into the private rental sector.

Conveyancers Express Concern over Short Timeframe Between Budget and Stamp Duty Change

Published On: February 3, 2016 at 12:53 pm

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Conveyancers have voiced their concerns over the short timeframe between the next Budget and 1st April, when the new Stamp Duty surcharge for landlords is set to be enforced.

Conveyancers Express Concern over Short Timeframe Between Budget and Stamp Duty Change

Conveyancers Express Concern over Short Timeframe Between Budget and Stamp Duty Change

The final rules on the changes to Stamp Duty for buy-to-let investors and second homebuyers will be announced by Chancellor George Osborne in the Budget on 16th March 2016.

This leaves just over two weeks before the tax change is implemented.

Rob Hailstone, of conveyancing membership body The Bold Group, insists that this does not leave conveyancers nearly enough time to adapt to the change.

He believes that there would be an insufficient period for conveyancers to: understand the full impact of the changes; advise their clients accordingly; create processes to ensure that the correct returns are submitted within the short timeframe; and obtain any additional tax that may be due.

Additionally, Hailstone warns that investors may not be able to fund the extra tax that they have not budgeted for. For example, a buyer will need an extra £9,000 for a £300,000 property purchase.

Hailstone also notes that since the Land Registry does not process the registration of two transactions simultaneously, in most cases, at least one of the buyers will legally own two properties for a number of days before the registration of the purchase and sale are completed.

He adds that very often, legal ownership does not transfer for weeks or even months after the completion date.

Hailstone calls for the implementation of the Stamp Duty surcharge to be delayed by at least three months.

The Conveyancing Association also believes the time between the final policy details being revealed in the Budget and enforcement of the change is too short, and that a delay is necessary.

To keep up-to-date with all changes to landlord taxes, remember to check LandlordNews.co.uk for the latest buy-to-let advice.