Posts with tag: landlord taxes

Government Challenged on Need for Landlord Tax Changes

Published On: March 6, 2017 at 10:34 am

Tags: landlord taxes,mortgage interest tax relief,tax changes,tax relief

The Government is facing a challenge from the Residential Landlords Association (RLA) on the need for forthcoming landlord tax changes.

Government Challenged on Need for Landlord Tax Changes

The Government is being challenged to admit that the reasons for changing the way that landlords are taxed are flawed.

In a recent statement in Parliament, a Treasury Minister, Jane Ellison MP, argued that plans to restrict tax relief on landlords’ finance costs “will reduce the tax advantage landlords have over homeowners in the property market”.

This assertion was rejected last year by Paul Johnson, the Director of the Institute for Fiscal Studies, who said that the tax system “is not, and was not, even before the recent changes, more generous to people buying to let”.

Unlike homeowners, landlords pay Capital Gains Tax (CGT) when they sell a property, as well as paying Income Tax on their rental yield.

With a former member of the Bank of England’s Monetary Policy Committee expressing fears that landlords will need to raise rents by between 20-30% to accommodate the extra costs of the landlord tax changes, the RLA is warning that the policy risks “considerable hardship for tenants”.

The organisation is writing to the Office for Budget Responsibility to provide clarification on the tax burden on landlords compared with homeowners.

From 6^th April 2017, the amount of tax relief that landlords can claim on their finance costs will be reduced to the basic rate of Income Tax.

The Chairman of the RLA, Alan Ward, says: “We are now weeks away from a tax change that risks investment in new homes and will cause considerable hardship for tenants.

“It is troubling that ministers have not published any evidence to back up their assertions that landlords are taxed less heavily than homeowners. This is no way to make policy.”

He urges: “We call on the Government to use the Budget this week to halt its planned tax changes, which will do little to provide the new homes to rent they claim to want.”

Landlords Taking Out Commercial Loans to Avoid Tax Changes

Published On: February 27, 2017 at 9:24 am

Author: Em Morley

Categories: Finance News

Tags: buy-to-let landlords,commercial,landlord taxes,limited companies,mortgage interest tax relief,tax changes

The proportion of landlords intending to take out commercial loans to fund their property purchases has doubled over the past 18 months, as investors look for ways to avoid the forthcoming changes to landlord taxes.

Landlords Taking Out Commercial Loans to Avoid Tax Changes

The study, by the National Landlords Association (NLA), found that the number of landlords who said they planned to use commercial loans has risen from 10% in 2015 – when the tax changes were first announced – to 19% at the end of last year.

The tax changes will be introduced from April this year and will, once fully implemented in 2021, prevent landlords with buy-to-let mortgages from deducting their interest payments and other finance costs from their turnover before declaring their taxable income.

The rise in the proportion of landlords looking to take out commercial loans coincides with a 500% increase in the number of landlords who have formed a limited company over the past year. This has grown from 1% in January 2016 – around 20,000 landlords – to 6% by the end of last year – approximately 120,000 investors.

Landlords who own their properties in a limited company structure will avoid the tax changes and instead pay Corporation Tax, which is currently at 20%, on their profits alone.

The CEO of the NLA, Richard Lambert, comments: “Over the last year, more than one hundred thousand landlords have formed a limited company in order to beat the tax changes, and this overlaps with an increasing intention to look to commercial loans to fund future purchases.

“While commercial loans are available to non-incorporated landlords, they tend to be a source of funding more commonly used by limited companies looking to expand their property portfolios, so we’d expect to see this trend develop as the year plays out.”

He continues: “However, we know that the Treasury is concerned by the drop in tax revenues as a result of businesses across the economy incorporating to reduce their tax bills, and the Chancellor hinted at a review into the matter during his Autumn Statement last year.

“With this Government’s recent track record in mind, we’d advise any landlords who have yet to incorporate to wait to see whether a consultation is launched in the Budget before making a decision.”

Are you thinking of taking out a commercial loan for future purchases?

Tenant Demand Still Rising Despite Government Intervention in Buy-to-Let

Published On: February 21, 2017 at 9:24 am

Author: Em Morley

Categories: Landlord News

Tags: landlord taxes,private rental sector,tax changes,tenant demand

Tenant demand for private rental housing is still rising, despite Government intervention in the buy-to-let sector, reassures Paragon Mortgages following its latest Private Rented Sector Trends report.

Tenant Demand Still Rising Despite Government Intervention in Buy-to-Let

The Government’s plans to restrict tax relief on buy-to-let finance costs, which were announced in the 2015 Summer Budget, compounded by the 3% Stamp Duty surcharge, caused uncertainty amongst the landlords surveyed, with the proportion of those expecting to sell their properties reaching its highest ever level (25%) in the first quarter (Q1) of 2016.

However, as the tax relief changes edge closer, landlords have begun to develop strategies to mitigate the impact of the reduction, causing the number of landlords looking to sell to drop to 17%, while the proportion of landlords considering a buy-to-let property purchase grew to 13% in Q1 2017, up from a record low of 9% in the same period last year.

Tenant demand

Of the 204 landlords surveyed, 94% described tenant demand as stable or growing, with less than one in 30 suggesting a decrease.

Tenant demand continues to affect average void periods, which remain unchanged at 2.7 weeks, with 48% of landlords reporting that their properties stand empty for less than two weeks. Average yields are also remarkably stable, at 6.1%.

Property purchases

Among the landlords looking to purchase, they are most likely to buy terraced houses (62%), flats/maisonettes (31%), or semi-detached houses (23%). Notably, the proportion most likely to buy flats/maisonettes has dropped from 67% in the previous quarter.

The Managing Director of Paragon Mortgages, John Heron, says: “With no material improvement in the supply of new housing against a background of strong population growth and household formation, it is no surprise that landlords are continuing to experience strong rental demand. It is promising, therefore, that there has been some improvement in landlord buying intentions, albeit from a low base.

“Any boost this gives to improving supply to the sector, however, needs to be balanced against the additional upward pressure that we are likely to see in rents as a result of the phased impact of the changes to the taxation of rental income.”

Have you experienced stable or even growing levels of tenant demand?

Landlords are Planning Ahead to Mitigate Tax Relief Changes

Published On: February 16, 2017 at 9:57 am

Author: Em Morley

Categories: Landlord News

Tags: landlord taxes,mortgage interest tax relief,tax changes,tax relief changes

Landlords are starting to take action to mitigate the forthcoming tax relief changes that will be introduced from 6^th April 2017, according to the latest Private Rented Sector (PRS) Trends report from Paragon Mortgages.

The report, which is based on interviews with a panel of more than 200 experienced landlords, shows a modest improvement in optimism as they begin to plan ahead for the tax relief changes.

Landlords are Planning Ahead to Mitigate Tax Relief Changes

Despite turbulence following the announcement from the Government in 2015 that tax relief on buy-to-let finance costs will be reduced and Stamp Duty increased, 22% of landlords surveyed are now more optimistic, as they come to terms with the impending changes.

While the majority (65%) of landlords report no change in sentiment, 12% still said that they are now more pessimistic, down from 18% three months ago.

This coincides with rising levels of awareness about the implications of the tax relief changes, as 58% of landlords reported having already taken, or making plans to take, action ahead of April.

The most commonly reported actions were to increase the rent charged to cover some or all of the higher costs (24%), to maintain their current properties but not buy any more (21%), and to sell some of their properties and not buy any more (16%).

As a result, buying intentions, which remain some way off their peak, are slightly improving, with 13% of landlords expecting to purchase a buy-to-let property in the next quarter, up from 11% in the third quarter (Q3) of 2016.

While a higher proportion of landlords (17%) expect to sell, this is down from 21% three months ago.

As is expected in the current market, tenant demand remains high, with 94% of landlords describing the market as stable or growing, and fewer than one in 30 suggesting a decline.

Tenant demand continues to impact average void periods, which remain unchanged at 2.7 weeks.

Landlords will be pleased to learn that the rental market showed strength at the start of this year.

The Managing Director of Paragon Mortgages, John Heron, comments on the study: “We’ve reached a critical time for landlords looking to plan ahead, and this is reflected in the Q4 report. It’s clear that landlords’ understanding of the changes has improved and that more landlords are developing a clear strategy to address the impact of the changes.

“However, despite increasing optimism, we must remain cautious. The changes have not started to be implemented yet and the full impact will not be felt for many years. Whilst it is predictable that landlords will seek to increase rents in response to higher costs, this clearly will not be good news for tenants, particularly those that are already struggling to save for a deposit.”

How do you plan to mitigate the tax relief changes?

RLA Calls on Government to Delay Tax Changes Following Higher than Forecast Stamp Duty Revenue

Published On: February 1, 2017 at 9:29 am

Author: Em Morley

Categories: Landlord News

Tags: landlord taxes,mortgage interest tax relief,Stamp Duty,tax changes

The Residential Landlords Association (RLA) has called on the Government to delay its forthcoming tax changes for buy-to-let landlords, following the release of figures that show higher than forecast Stamp Duty revenue as a result of last year’s surcharge introduction.

RLA Calls on Government to Delay Tax Changes Following Higher than Forecast Stamp Duty Revenue

Since April 2016, purchasers of rental properties and second homes have been charged an additional 3% in Stamp Duty. At the time, the Government predicted that the surcharge would raise an additional £630m in the first year.

However, figures published yesterday from HM Revenue & Customs (HMRC) show that in just the first nine months, the tax hike had brought in £1.19 billion – £560m more than forecast for the whole year. If this rate continues, the RLA warns that revenue for the year will exceed £1.58 billion – almost £1 billion more than projected.

In November, the Office for Budget Responsibility predicted that, in its first four years, the surcharge would raise £3.1 billion more than expected.

The RLA is calling on the Government to use this extra revenue to scrap planned tax changes to the amount of relief that landlords can claim on finance costs, and prevent investors from leaving the sector or increasing rents.

One RLA survey found that 58% of landlords are considering further reducing investment in rental properties because of the tax changes. Some 66% of investors feel the tax changes will place upwards pressure on rent prices.

At the very least, the RLA believes that the Government should delay the introduction of the restriction, which is planned for April, to enable a better assessment of the likely impact of the tax changes to be conducted.

The Policy Director of the RLA, David Smith, says: “In raising nearly twice as much in just nine months as the tax was predicted to make in one year, this Stamp Duty windfall gives the Government a chance to back the rental market and support the development of new homes, which we desperately need.

“At no stage has evidence been published to support the assertion that landlords are taxed more favourably than homeowners, or that they are squeezing first time buyers out of the market. Assessments by the Institute for Fiscal Studies and the London School of Economics contradict the Treasury’s position completely. It is also nonsense for HMRC to suggest that one in five landlords will be affected by the mortgage interest changes, when what matters is the number of properties affected.”

He continues: “The Government has received far more money than it expected. We urge them to use this to support the country’s tenants and undertake a fuller impact assessment of a policy that has the potential to cause untold damage to the rental market.”

Do you support the RLA’s call for a delay in the introduction of the tax changes?

Rents to Rise by 4% Outside London This Year, Claims Rightmove

Published On: January 12, 2017 at 9:28 am

Author: Em Morley

Categories: Property News

Tags: landlord taxes,rent prices,rental yields,rents,tax changes

Asking rents will rise by 4% outside London this year, according to Rightmove.

Rents to Rise by 4% Outside London This Year, Claims Rightmove

Last year, the property portal reports that asking rents increased by 3% outside London, but dropped by 4.4% within the capital.

The highest growth in rental prices of the year was recorded in the northern regions of Yorkshire and the Humber and the North West. However, all regions outside London saw a rise.

In inner London, rents fell by 5.2%, while there was a smaller decline of 2.5% in outer London.

The Head of Lettings at Rightmove, Sam Mitchell, considers the future of the rental market: “This year will be one of caution for buy-to-let investors, due to tighter lending criteria and increased Stamp Duty.

“We definitely won’t see the spike in Q1 purchases that we saw last year, as landlords rushed to buy before last April’s new Stamp Duty deadline.”

He also assesses how further changes will affect the sector: “If the tax changes being phased in from this April lead to even fewer buy-to-let purchases and some landlords deciding to sell, then a tightening of supply in some areas will lead to increasing rents.

“We forecast that asking rents could rise by 4% outside London by the end of 2017, though in London, prices are likely to stay flat.”

Mitchell advises landlords on the best locations to invest: “Investors looking for the strongest yields could consider investing in certain areas in the North West, where both demand and yields are high.

“Those with a number of properties in the capital may find that tenants are more price sensitive, so setting realistic rent levels will be the key to avoiding void periods.

“In order to mitigate this, we would recommend landlords asking for longer tenancies to help secure a steady rental income over the next few years while they adjust to what the tax changes will mean for them.”

While recent reports claim that rental yields are expected to drop below the five-year average this year, landlords should be aware that strong returns are still possible in some locations.