Posts with tag: section 24

The Effects of Tax & Finance Changes on Buy-to-Let

Published On: September 1, 2017 at 8:10 am

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By Paul Mahoney, Managing Director of Nova Financial

Paul Mahoney Nova Financial

Paul Mahoney, of Nova Financial

There is presently much debate in the buy-to-let community and in the press with regards to how recent events and legislative changes are likely to affect the market, and whether buy-to-let is still a viable investment option.

Although, I’m confident that if you’re reading this article, that you’d be familiar with the changes, for clarity, I will name a few;

To date, landlords have been very resilient and, although some surveys suggest a slowdown in buying appetite and some considering selling, at Nova Financial, we’ve experienced the opposite. Our clients are simply buying properties at lower values and with higher yields, predominantly in the North West of England. These properties circumvent the repercussions of the changes by generating more profit, hence tax doesn’t hurt as much. They also fit into the lower Stamp Duty thresholds and solve mortgage servicing issues.

There was speculation that the changes would result in increased rents due to landlords trying to cover their increased tax bill and buying costs, however, to date, this hasn’t occurred. I believe that many overestimate the landlord’s control over rents, as they do not set rents, the market does and, if a landlord charges too much for their property, it won’t rent. However, if the changes result in less supply of rental properties available and, given there is a growing demand, rents will go up due to the market.

The number of new purchases have fallen, especially since the introduction of the Stamp Duty premium in April 2016. This is a concern, as new builds are the new supply that is required to solve the UK housing crisis. If new builds aren’t bought, then they aren’t built, and we have very little chance of building the number of houses needed per annum. This will drive house prices and rents higher. I concur with recent comments made by Tory MP Iain Duncan-Smith, that the Government should incentivise landlords to buy new builds to help solve the abovementioned problem.

It seems very unlikely that section 24 will be reversed any time soon, especially given the Parliament’s current workload with Brexit to be resolved, however, I’d say there is a slight chance that the Stamp Duty premium could be changed. Many viewed the changes as an attempt to professionalise the buy-to-let market, which, in a way, it has done, by driving many to invest through limited companies, whether this be good or bad. It is very likely though that landlords were viewed as an easy target, due to bad public opinion, for a tax grab.

Buy-to-let is still a very viable and potentially lucrative investment. At Nova Financial, most of our clients are currently achieving net yields on funds invested of 10%+ and, add to that the average growth in housing over the past 20 years per annum of 5%+, that brings the yearly returns on cash invested to over 30%! This return may seem very high, but that’s the benefits of high levels of borrowings at low interest rates when investing in high yielding growth areas. This is what separates property investment as the clear winner from all other investment options.

If you have any questions or would like to determine how Nova Financial can be of assistance, please call 0203 8000 600, visit www.nova.financial or email info@nova.financial

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Mortgage Interest Tax Relief Changes Introduced from Today

Published On: April 6, 2017 at 8:13 am

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Categories: Landlord News

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The Government’s mortgage interest tax relief changes for landlords will be introduced gradually from today (Thursday 6th April 2017).

Mortgage Interest Tax Relief Changes Introduced from Today

Mortgage Interest Tax Relief Changes Introduced from Today

From today, the amount of mortgage interest and other finance costs that landlords can offset against tax will be reduced to the basic rate of Income Tax. The Government measure will be gradually introduced until 6th April 2020, when it will be fully implemented.

This guide explains exactly how the mortgage interest tax relief changes will affect you: /government-guide-tax-relief-changes-residential-landlords/

Landlords must note that limited companies are exempt from the mortgage interest tax relief changes, which has caused many investors to change the structure of their portfolios.

Shaun Church, the Director of Private Finance, comments on the changes: “The new mortgage interest tax relief rules for landlords are threatening to become an example of Government regulation resulting in unintended consequences. By hitting landlords’ profits, the changes may ultimately make it even more difficult for prospective first time buyers to get onto the housing ladder.

“Not being able to fully deduct finance costs from their taxable income will leave some landlords with a tax bill that outweighs their profits. As a result, many will look to increase rents to compensate for the loss in revenue. Not only this, the changes are also limiting landlords’ investment appetite. With fewer landlords investing in new buy-to-let properties at a time of already restricted housing supply, and rental demand remaining high, this too could result in higher rents.”

He continues: “The only way of getting around the changes is to invest through a limited company. However, there are fewer mortgages available to these types of investors and they typically come with much higher rates of interest. There are also a whole host of tax implications to consider that make moving to a limited company structure far from a straightforward decision. Those considering it should always seek help from an independent mortgage broker, who can also provide access to a tax adviser.”

Worryingly, it was revealed yesterday that the majority of Britons are not aware of the mortgage interest tax relief changes.

If you haven’t already, it is essential that you seek financial advice regarding the new measures.

No Judicial Review of Section 24 Rules for Landlords

Published On: October 7, 2016 at 8:46 am

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Yesterday, a judge ruled against a judicial review of forthcoming section 24 rules for landlords.

Landlords Steve Bolton and Chris Cooper had joined forces to challenge the measure, which was announced in last year’s summer Budget. Chancellor George Osborne introduced the plan to restrict the amount of mortgage interest that buy-to-let landlords can offset against tax.

The Government has provided a guide on how the new tax measures, set to be gradually phased in from April 2017, will affect landlords: /government-guide-tax-relief-changes-residential-landlords/

Bolton and Cooper, who are thought to be unlikely to appeal the ruling, said they were “outraged” by the judge’s decision.

However, they added that although their legal challenge, which was crowdfunded by around £180,000, has come to an end, they will not give up their fight.

Without a judicial review or Government U-turn, the restriction on mortgage interest tax relief to the basic rate (20%) will be phased in from April next year.

Bolton and Cooper argue that the measure means that most landlords will pay extra tax, of 20% or more, on their mortgage interest. They warn that the tax landlords will have to pay could be bigger than their profit, leaving them with losses.

They insist that the real losers of the tax change will be tenants, as many landlords will be forced to put rents up or leave the market.

At yesterday’s hearing at the Royal Courts of Justice in London, Bolton and Cooper were represented by Omnia Strategy, led by Cherie Blair, whose own family is thought to own at least ten houses and 27 flats.

Blair’s legal team argued that section 24 is unlawful on the grounds that the restriction on landlords’ ability to deduct finance costs as a business expense may constitute an illegal grant of state aid to corporate landlords and owners of commercially let holiday homes, and may breach the European Convention on Human Rights.

No Judicial Review of Section 24 Rules for Landlords

No Judicial Review of Section 24 Rules for Landlords

In court, Blair was initially applauded from the public gallery, when she said that the Government was unfairly penalising individual buy-to-let landlords by “singling them out”, while allowing others, such as limited company landlords, to keep their tax perks.

However, Timothy Brennan QC, representing HM Revenue & Customs and the Treasury, said the claim was arguable: “There are cases which justify the courts looking at them in the public interest. This is not one of them.”

After the hearing, Blair said: “The court’s decision that our clients’ legal challenge should not proceed is very disappointing. Steve and Chris, and many others, have dedicated a lot of time and energy into putting forward the best case possible.

“We know the case has been supported and followed with interest by a large number of individual landlords. Many of these landlords now face challenging times ahead.”

She added: “From the outset, the legal process was just one aspect of our clients’ fight against this unfair measure. Together with their impressive and growing coalition, they will continue to engage with the Government, and the legal team wishes them every success.”

In a joint statement, Bolton and Cooper said: “We are outraged by the court’s decision. It has completely missed the opportunity to protect tenants, landlords and the housing market from the disastrous consequences of section 24.

“From April 2017, the negative impact of this previously failed tax experiment from Ireland, where rents increased by 50% over a three-year period, will be felt far and wide. Sadly, it will be tenants who are hit hardest; they are set to see unprecedented rent increases over the coming months and years, which will be a very clear and direct consequence of this ludicrous legislation.

“For many, it will also mean the loss of their homes, because vast numbers of landlords will be forced to exit the market. Hard-working, responsible landlords will have their pension plans in ruins, but the large corporations and the wealthiest in society, who can buy property without the need for mortgage finance, are systematically excluded from this unfair tax policy.”

They look ahead: “Now that the legal route has run its course, we will be focusing 100% of our attention and resources on taking our case more forcefully, more powerfully and more directly right to the heart of the Government.

“Our goal is simple: to abolish this tax or to remove the retrospective nature of it. We will be launching a range of lobbying, media and grassroots activism measures over the coming days and weeks. We will also be encouraging all of our landlords to write to their tenants if they have to increase their rents or sell up, clearly explaining that it is this Conservative tax policy that has forced them into this situation.”

Landlord groups have also spoken out in support of the cause.

The Chief Executive of the National Landlords Association, Richard Lambert, responds to the court ruling: “This decision is ultimately disappointing, not just for landlords, but for the tenants who will see their rents rise as a consequence of the changes to landlord taxation.

“While we have never been convinced that there was a solid enough legal case to overturn George Osborne’s decision, we hoped the courts would be prepared at least to listen to the arguments.

“We congratulate Steve, Chris and the campaign team on their determination, perseverance, and their success in raising awareness and increasing the visibility and understanding of what will be dramatic change to the ability of hard-working people to provide homes for others.”

David Smith, the Policy Director for the Residential Landlords Association, also comments: “Having provided support for this case, the RLA is disappointed it will not progress to a full judicial review.

“The campaign to seek changes that will address the more difficult aspects of recent tax reforms to the private rented sector must now focus on a political path.

“The Autumn Statement next month provides an important opportunity for the Government to make changes that will support the development of the new homes to rent the country desperately needs.

“The RLA has already met with Treasury officials to discuss the issue, and it will continue to lobby for changes that are good for tenants and landlords, whilst recognising the Government’s limited financial room for manoeuvre.”

Only One in Five Landlords Expected to Pay More Tax Under Section 24

Published On: September 8, 2016 at 9:37 am

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Only one in five landlords are expected to pay more tax when new section 24 rules, under the Finance Act 2015, are implemented from 2017.

Only One in Five Landlords Expected to Pay More Tax Under Section 24

Only One in Five Landlords Expected to Pay More Tax Under Section 24

Yesterday, Jane Ellison, the Financial Secretary to the Treasury, announced in the House of Commons that just 20% of private landlords will be forced to pay more tax when the law, which restricts the amount of tax relief that landlords can claim on their mortgage interest payments, comes in.

Ellison claimed that she does not expect the changes “to have a large impact on either house prices or rent levels, owing to the small overall proportion of the housing market that is affected”. She adds that the Office for Budget Responsibility “has endorsed that assessment”.

Ellison was responding to proposals for another review of the impact of section 24 on affordable housing. She believes that this “is unnecessary” as “the changes made by section 24 are being implemented in a gradual and proportionate way”.

From 6th April 2017, the amount of income tax relief that landlords can claim on residential property finance costs will be reduced to the basic rate of tax – 20%.

The changes will be implemented gradually over a four-year period, ending in 2020. The tax rate will firstly be reduced by 25%, then 50%, then 75%, then 100% at the end of the rollout.

The Government has put together a guide on who the change will affect and how it will be introduced: /government-guide-tax-relief-changes-residential-landlords/

A recent survey by SellingUp.com found that the one change that is likely to discourage landlords from investing further in the property market is the mortgage interest tax relief cut.

It is also a concern that the tax restriction will force landlords to put their rents up, as they face dwindling profits.

How will the forthcoming tax changes affect your position in the buy-to-let sector? And do you believe that the Government should be reviewing section 24’s impact on affordable housing?