Posts with tag: tax changes

Property Investors to be Hit By Changes to Capital Gains Tax

Published On: February 20, 2020 at 10:18 am

Landlords want government to reverse capital gains tax changes

Homeowners, second home owners and property investors face tough new rules around Capital Gains Tax beginning in April 2020, leaving them with a dramatically reduced time to settle any tax due.

From 6th April 2020, anybody selling a property will have just 30 days to settle any tax due after completion, rather than the wide ranging period of 10-22 months seen under the current regime.

Experts are warning that homeowners and investors don’t properly understand the new rules, and could face high penalties if they don’t follow them.

James Cook, Partner at law firm, Collyer Bristow said: “Under the current rules, anyone selling a property has until 31 January in the following tax year to file and settle any CGT liability, giving them potentially up to 22 months.

“From 6 April 2020, all CGT liabilities will need to be settled in just 30 days of completion of a sale. That leaves very little time to calculate the tax to be paid, report the gain, and pay tax. It is likely to catch out many second homeowners and investors who have either failed to plan for the tax charge or do not have the available cash.”

For higher rate income tax payers, the rates for CGT are currently 28% on gains from residential property and 20% on gains from all other chargeable assets. Conversely, the CGT rates for basic rate income tax payers are 18% and 10% respectively. The annual capital gains tax allowance is set to increase on 6 April 2020 to £12,500 from £12,000 in the current tax year (2019/20).

Late filing of CGT returns will leave individuals facing an immediate £100 fine with an additional penalty of the higher of £300 or 5% of the tax due if more than 6 months late. A further penalty of the higher of £300 or 5% of the tax due is payable if more than 12 months late. HMRC also reserves the right to charge £10 a day up to £900 for the period between 3 to 6 months of failing to file a return.

James adds: “The changes were first announced in 2015 but have been pushed back as HMRC was concerned that second homeowners and investors were not aware of the changes. From conversations with our clients, it appears that they are still not fully aware of the implications of the change.

“Our advice to second homeowners and investors is to calculate liabilities before any sale so as to avoid any unnecessary penalties.”

Around 80% of Buy-to-Let Mortgage Applications made by Limited Companies

Published On: October 16, 2017 at 9:43 am

Author: Em Morley

Categories: Finance News

Tags: buy to let mortgages,limited companies,mortgages,tax changes

Almost four out of every five pounds lent for buy-to-let purchases via Mortgages for Business was borrowed by a limited company landlord in the third quarter (Q3) of the year, according to the firm’s latest Limited Company Buy-to-Let Index.

Around 80% of Buy-to-Let Mortgage Applications made by Limited Companies

This represents 79% of completing buy-to-let purchases by value, up from 73% in Q2.

The index also shows that mortgage activity by landlords using limited companies remained high generally throughout the quarter. Limited company transactions (for purchases and remortgages) accounted for 48% of buy-to-let completions in Q3 by number of mortgages, and 47% by value of lending.

The increase in the use of limited companies by landlords is also reflected in statistics held by Companies House, which show that there was a spike in registration for Special Purpose Vehicle (SPV) limited companies (with property related SIC codes) in 2016, following the 2015 Summer Budget, in which the former chancellor, George Osborne, announced changes to mortgage interest tax relief for individual investors.

Steve Olejnik, the COO of Mortgages for Business, comments: “There was, unsurprisingly, a spike in SPV registrations last year, but it looks like the numbers have been increasing for considerably longer than might be expected. Looking at historic registrations, numbers have been on the rise ever since 2008, which, I’m sure you can guess, was not a popular year to start a property company.

“That said, the 2015 Summer Budget has noticeably sped things up, with 2015 and 2016 showing the strongest growth in registrations in the sample, whether proportionally or in absolute terms. Over 20,000 new SPVs were registered in the year so far compared to c.13,000 in 2014 – scaling up suggests a figure somewhere just shy of 35,000 by the end of the year, an increase of c.35% over 2016.”

He explains: “Landlords are turning to SPVs because of the benefits they bring in the form of tax efficiencies and softer affordability testing. Switching to corporate structures is not without risk, however, and we recommend all our clients take professional tax and finance advice before deciding how to proceed.”

The index also reveals that pricing of buy-to-let mortgages available to limited companies saw a marked contrast between fixed and variable rate products. While fixed rate products experienced no change in pricing for two, three or five-year terms, variable rate products saw a sharp drop in pricing, down by 0.4% to 4.0%. These products are now competitive with their fixed rate counterparts.

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

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

Author: Em Morley

Categories: Landlord News

Tags: landlord law,landlord taxes,property investment,tax changes

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?

Next Property Crash Could be Triggered by Great Sell-Off by Landlords

Published On: October 5, 2017 at 9:59 am

Author: Em Morley

Categories: Landlord News

Tags: interest rates,landlord profits,mortgage interest tax relief,rent controls,tax changes

Mortgage interest tax relief changes, coupled with proposed rent controls, could trigger the next property crash, as landlords rush to sell-off their investments, warns a finance expert.

Next Property Crash Could be Triggered by Great Sell-Off by Landlords

Gary Heynes, a partner at tax and business advice firm RSM, believes that landlords could rush to put their properties on the market as the full effects of the reduction in mortgage interest tax relief, alongside Labour’s proposed rent controls, hit their profits.

He says that, as the tax relief changes are increasingly phased in, landlords could find themselves paying more in tax than the net rental income they receive.

If they cannot put rents up to cover the shortfall, Heynes claims that there would be a huge influx of properties put onto the market.

The amount of tax relief that landlords can claim on finance costs is already being cut. From 6^th April 2017, tax relief is being restricted, with the full reduction due to be in place by 2020/21.

This tax year, 25% of landlords’ finance costs will receive tax relief at the basic rate of 20%. In the next tax year, this will rise to 50% and, by 2020/21, all finance costs will only get tax relief at the basic rate.

Heynes explains that someone with a £600,000 property paying an interest-only mortgage could find that, in the future, what is now a 4% annual return on investment would be replaced with a cost of £1,700 to run the property.

“Margins are getting tighter for landlords,” he says. “Add to this a possible increase in interest rates, and the issue is exacerbated.”

He expects many landlords to simply put rents up for their tenants in order to cover the shortfall.

“However, if a Labour government is elected, rent controls are almost certain to follow, so increasing rents might not be possible,” he explains. “Higher interest rates, coupled with rent controls, would not be a great environment for personal landlords and could instigate the great sell-off, as landlords look to reinvest elsewhere.”

Heynes adds: “This response could cause the next property crash, as the property market becomes over-supplied with assets to sell, pulling house prices down, impacting equity levels and mortgage agreements.”

Do you believe that Heynes’ predictions could become a reality?

New Stamp Duty Tax Rates Announced for Wales

Published On: October 4, 2017 at 10:06 am

Author: Em Morley

Categories: Finance News

Tags: homebuyers,Stamp Duty,tax changes,Wales

The Welsh Government has announced new Stamp Duty tax rates for homebuyers in the country.

Although the changes mean that nine out of ten homebuyers will pay the same or less than they do at present, some will end up paying thousands more than they would in England.

New Stamp Duty Tax Rates Announced for Wales

The biggest change is that those buying homes worth over £400,000 in Wales will pay more than their counterparts in England.

For example, someone purchasing a £500,000 property in Wales will pay £17,500 under the new tax rates, compared with £15,000 in England.

On a £600,000 home, the bill in Wales will be £25,000, compared to £20,000 in England. And, on a £750,000 home, the tax rate in Wales will be £36,250, compared with £27,500 in England.

It’s for homes worth over £750,000 that the new tax rates will really start to hit, as the Stamp Duty owed will climb to 10%. Properties worth above £1.5m will be subject to a new rate of 12%.

However, buyers of homes worth less than £250,000 will pay up to £500 less in Stamp Duty under the new rates, while those buying properties up to £150,000 will escape the tax altogether.

In Wales, Land Transaction Tax will replace Stamp Duty from 1^st April 2018. It is the first Welsh-only tax in almost 800 years.

The Chief Executive of NAEA Propertymark (the National Association of Estate Agents), Mark Hayward, says: “This is a welcome move for the Welsh housing market, and we’re pleased the Welsh Government has listened to our proposals to raise the band for this lower rate. The rate up to which buyers won’t have to pay any Stamp Duty will be £150,000 from 2018 – the same value as the average house price in Wales.

“This means a huge number of house buyers will no longer have to pay any Stamp Duty at all. However, the move creates further bands for properties in excess of £250,000, and those properties will now attract a higher rate of Stamp Duty Land Tax than they would have previously.”

Changes to Stamp Duty in England and Wales, introduced by the former Chancellor George Osborne, who abolished the slab structure, have had mixed results, and led to criticism that prior hikes in the purchases of expensive properties have severely slowed and damaged the London market.

While purchasers of cheaper properties were intended to pay less, escalating house prices have, in practice, meant larger bills for some homebuyers.

Below, we will compare the current Stamp Duty tax rates to those that will be introduced in Wales from next year:

Current:

Up to £125,000: No tax
Between £125,000-£250,000: 2%
Between £250,000-£925,000: 5%
Between £925,000-£1.5m: 10%
Above £1.5m: 12%

New rates:

Up to £150,000: No tax
Between £150,000-£250,000: 2.5%
Between £250,000-£400,000: 5%
Between £400,000-£750,000: 7.5%
Between £750,000-£1.5m: 10%
Above £1.5m: 12%

Landlords must remember the Stamp Duty surcharge that was introduced in April 2016, which means that those buying additional properties are subject to an additional 3% Stamp Duty rate.

Scrap Mortgage Interest Tax Relief Changes, RLA Urges Government

Published On: September 27, 2017 at 8:54 am

Author: Em Morley

Categories: Finance News

Tags: Autumn Budget,mortgage interest tax relief,tax changes

The best way for the Government to support the country’s small-scale landlords would be to scrap its controversial reduction to mortgage interest tax relief, insists the Residential Landlords Association (RLA).

The RLA has submitted requests to the Government ahead of the 2017 Autumn Budget on 22^nd November 2017. We have the National Landlords Association’s recommendations here: /nla-recommendations-treasury-autumn/

Scrap Mortgage Interest Tax Relief Changes, RLA Urges Government

The RLA’s main point of focus is that the Government should follow the lead of Ireland by scrapping the mortgage interest tax relief changes.

It is also calling for action on the mortgage lenders that prevent landlords from offering longer tenancies, which some renters want, and the introduction of a scheme allowing tenants with good payment histories to have them recognised by credit reference agencies.

But the submission isn’t all about problems; the RLA includes viable solutions.

It has put forward a number of proposals, including calls for the Government to introduce tax incentives for landlords that are willing to sell their properties to sitting tenants, those offering longer tenancies, and those investing in energy efficiency improvements.

The organisation believes that, where a landlord is prepared to sell their property to a sitting tenant, the 20% rate of Capital Gains Tax (CGT) should be applied, rather than the current 28%.

DJS Research findings for the RLA show that 77% of private landlords would consider selling their properties to tenants if the tax liability was waived.

The group would also like to see unused and abandoned plots of public sector land redeveloped as new sites for private rental sector homes, as all projections indicate that demand for rental housing will continue to grow, with predictions that 25% of all homes will be in the private rental sector by 2021.

But supply is a huge problem. And, although the Government has encouraged greater institutional investment in the private rental sector, evidence suggests that this will never be enough to meet the rising demand.

The RLA insists that the market will continue to be dominated by individuals and small firms letting a few properties – and these people need support.

It has been campaigning tirelessly for the reversal of the changes to mortgage interest tax relief since they were announced, with thousands of members either contacting or meeting their MPs to press home the devastating consequences of the plans on their tenants and businesses.

The Chairman of the RLA, Alan Ward, says: “RLA research shows many landlords have stopped investing in more properties as a result of recent tax changes, instead moving into short-term holiday lets or ceasing to rent to groups deemed high risk, such as the young and those on benefits.

“These decisions have far-reaching consequences for a country in the grip of a housing crisis, and we will do everything in our power to convince the Government that this unfair tax must be reversed.”