Posts with tag: tax changes

Campaigners against tax changes to have case heard next month

Published On: August 19, 2016 at 10:25 am

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A legal campaign to overturn the UK Government’s decision to alter mortgage interest tax relief that residential landlords can claim will be heard next month.

At the end of September, there will be a hearing to determine whether of not there will be a judicial review of the move to reduce tax relief from 2017to 2020.

Challenge

Both landlords and organisations have warned that the move could put off existing buy-to-let landlords coming into the sector. In addition, it could hit existing landlords, who could be left with little choice but to pass on this additional costs to their tenants, in the shape of higher rents.

Campaigners Steve Bolton and Chris Cooper said that they will meet with new housing minister Gavin Barwell on the 9th September, when the issue will be discussed further.

In a statement, the two campaigners said, ‘we will obviously be raising our serious concerns about the impact, making him aware of our legal challenge and doing the best job we can to help him become a supporter of our cause within Government.’[1]

Costly

The Scottish Association of Landlords and the Residential Landlords Association have both warned that these tax changes will make it easier for rogue landlords to provide sub-standard houses to tenants, due to increased costs.

Recently, a recent YouGov survey for the Council of Mortgage lenders suggested that 34% of landlords plan to reduce their investment in the sector as a direct result of the changes.

John Blackwood, of the Scottish Association of Landlords, said, ‘we know from our regular branch meetings around Scotland that landlords are already seeing increased costs as a result of tax changes. As well as impacting on individual landlords, we are concerned this could make it harder to tackle the current housing crisis by making it more difficult to attract much needed investment.’[1]

‘With the uncertain investment environment that has been created by the Brexit vote, at least in the short term, the last thing anyone in the housing sector needs is tax rises which will only make things worse,’ he continued.[1]

‘Furthermore, we are concerned that if costs increase, this could open the door for rogue landlords who don’t follow the rules on either tax or safety and quality standards at a time when real progress is being made at driving these unscrupulous players out of the market.’[1]

Campaigners against tax changes to have case heard next month

Campaigners against tax changes to have case heard next month

Restrictions

Lettings group Belvoir also said that the changes are likely to deter landlords from making further investment, which in turn will restrict the supply of available properties.

Managing director of Belvoir, Dorian Gonsalves, said, ‘Gavin Barwell, the new Housing Minister, takes swift action to unpick the disastrous tax policies that were introduced by the previous Chancellor George Osborne. We believe that the government should be taking steps to incentivise private landlords to invest in Buy to Let properties, as this is what will bring rents down.’[1]

‘If the government wants to make housing more affordable the only way to do this is to increase the supply of properties on the market. It is completely counter intuitive to restrict supply with tax changes and then not expect rents to rise. Gavin Barwell has an opportunity reverse the situation and create an environment where there is an oversupply of rental properties. This can only be achieved by incentivising landlords and making the rental market more affordable for tenants,’ he concluded.[1]

[1] http://www.propertywire.com/news/europe/uk-buy-let-tax-2016081912280.html

Landlords Most Discouraged from Investing by Mortgage Interest Tax Relief Changes

Published On: August 12, 2016 at 10:25 am

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Private landlords are most discouraged from investing further in the buy-to-let sector by forthcoming mortgage interest tax relief changes, according to a survey for SellingUp.com.

With a host of new and proposed laws and tax changes hitting landlords recently, many groups have spoken out against the Government, claiming that it is trying to discourage landlords from investing in property in order to raise revenue and stimulate first time buyers.

SellingUp.com identified the major policies involved in the Government’s clampdown on landlords and asked investors which, if any, were the most likely to put them off buying new properties.

The majority of landlords (65%) said that the forthcoming changes to mortgage interest tax relief will discourage them from investing, with the recent Stamp Duty surcharge coming in second, with 56% of landlords.

Behind is the removal of the 10% Wear and Tear Allowance, at 20%, followed by rent control plans, at 8%, and February’s Right to Rent legislation, at 5%.

However, please note that respondents were able to choose more than one answer.

SellingUp.com also found that the majority of landlords surveyed owned multiple properties, with 60% owning between two and nine properties, while 29% hold more than ten. The remaining 11% own just one property. These figures contrast to recent research, which suggests that most landlords manage their investments part-time and own just one rental property: /majority-landlords-part-timers-just-one-property/

The policies that the landlords were asked about were:

Mortgage interest tax relief

Section 24 of the Finance Act 2015 will phase out the tax relief on mortgage interest for landlords to the basic rate of tax. The law is due to come into force from April 2017. The Government has provided a guide for landlords on how the change will affect them: /government-guide-tax-relief-changes-residential-landlords/

Stamp Duty surcharge

As of 1st April 2016, those buying an additional property, either a buy-to-let investment or second home, are charged an extra 3% in Stamp Duty. We have a guide on how the tax hike is calculated: /landlords-guide-3-stamp-duty-surcharge/

Wear and Tear Allowance 

The automatic 10% Wear and Tear Allowance for landlords was abolished in April 2016. Now, landlords can only claim for actual expenditure.

Right to Rent 

As of February 2016, landlords are legally obliged to conduct immigration status checks on all prospective tenants. If they do not comply with the law, they could face fines of up to £3,000.

Rent controls 

During the London mayoral election race, Sadiq Khan pledged to fight for rent controls in the capital. However, since he has been elected, he seems to have gone quiet on the topic. Recently, the Residential Landlords Association (RLA) claimed that rent caps would spell disaster for tenants: /rent-controls-spell-disaster-tenants/

Landlords, which new/recent policy is likely to discourage you from investing further in the sector?

Landlords told to be aware of tax restrictions

Published On: July 25, 2016 at 9:18 am

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Buy-to-let landlords should pay close attention to tax rules coming into force for residential property in April 2017, or they could face serious consequences.

That is the view of London Chartered Accountants Blick Rothenberg, who have moved to stress the potential costly future facing landlords.

Changes

These tax changes were announced during last year’s Summer Budget, but HMRC only issued guidance on them on Thursday.

The additional 3% stamp duty surcharge has been prominent in the buy-to-let sector, but the restrictions in mortgage interest tax relief could have far-reaching consequences.

Mortgage interest tax relief will limit the amount of interest a residential landlord can deduct to calculate their income tax liability. These restrictions are coming into force in April 2017, being phased in over 4 years until it takes effect in April 2020.

Awareness

Nimesh Shah, partner at Blick Rothenberg, noted, ‘investors in residential property need to be aware of this marked new change and need to start planning for their portfolios now. Whilst the additional 3% SDLT has created the most anxiety amongst buy-to-let investors, the restriction to interest relief may have been overlooked, but this is likely to have greater longer-term effect on after tax returns.’[1]

HMRC say in their latest guidance that ‘all residential landlords with finance costs will be affected, but only some will pay more tax.’  The statement is quite misleading as the changes could have quite far reaching effect, which most buy-to-let landlords will not appreciate,’ he added.[1]

Landlords told to be aware of tax restrictions

Landlords told to be aware of tax restrictions

Rises

Shah went on to note that, ‘A number of individuals have picked up a buy-to-let property in recent years, whether that is an investment property to supplement earnings, a second home which is occasionally rented out or a property which they have inherited and decided to let out.’[1]

‘It is wrong for HMRC to say only some will pay more tax, as entitlement to child benefit, personal allowance and the pension annual allowance will all be affected indirectly through how this new measure operates in practice.  It would also not be an unreasonable assumption to say that the majority of buy-to-let landlords will be higher or additional rate taxpayers and they will be affected without question.  This change will capture a large proportion of the buy-to-let landlord population.’[1]

Impact

When the measures were announced in the Summer Budget, the measure was described as limiting interest relief at the 20% basic rate. However, the actual workings of the restrictions will have a larger impact.

Mr Shah explains, ‘Currently, buy-to-let landlords can deduct all their interest cost to calculate rental profits.  When the new measure takes full effect, the interest cost will be completely disallowed in computing rental profits and instead a tax credit equal to 20% of the interest will be given against the person’s income tax liability. Whilst this may sound like what the Government intended the measure to achieve, the fact the interest is completely disallowed means the individual will have higher overall taxable income.’[1]
‘This could push an individual into a higher rate of income tax (40%/45%), start to reduce their personal allowance (if their income now starts to exceed £100,000), affect their entitlement to child benefit and restrict the amount on which they can claim tax relief for pensions.’[1]

[1] http://www.propertyreporter.co.uk/landlords/landlords-urged-to-pay-attention-to-changes-in-residential-property-tax-rules.html

 

 

Demand for Buy-to-Let to Remain Strong This Year, Believe Brokers

Published On: July 21, 2016 at 9:27 am

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Despite recent tax changes for landlords, many mortgage brokers believe that demand for buy-to-let investment will remain strong during the second half of the year, according to a new study by Legal & General.

Although the Government recently introduced a 3% Stamp Duty surcharge for buy-to-let landlords and second homebuyers, scrapped the 10% Wear and Tear Allowance, and plans to implement a

Demand for Buy-to-Let to Remain Strong This Year, Believe Brokers

Demand for Buy-to-Let to Remain Strong This Year, Believe Brokers

reduction in mortgage interest tax relief, buy-to-let still remains an attractive investment option at a time of low savings rate and stock market uncertainty. Average buy-to-let returns currently beat all other mainstream investments.

Yesterday, we released the Government’s guide to mortgage interest tax relief changes: /government-guide-tax-relief-changes-residential-landlords/

The Legal & General research shows that brokers in Scotland are the most confident in buy-to-let’s future, with 63% of Scottish brokers predicting that the sector will remain the same size as last year in 2016, despite a surge in activity in 2015.

This positivity north of the border is joined by confidence from brokers in Nottingham, where 57% expect the buy-to-let market to either expand or remain the same this year, followed by 49% in London.

However, confidence in the future of the buy-to-let market varies massively across the UK, with a huge 71% of intermediaries in Manchester believing that there will be a reduction in the sector this year.

The Director of the Legal & General Mortgage Club, Jeremy Duncombe, comments: “Despite a whirlwind of changes to the buy-to-let market, including the Government’s Stamp Duty hike and the reductions in tax relief on the horizon, it’s clear that a large number of brokers remain confident that buy-to-let will remain strong in 2016. Though there are concerns that Government interference could mean a reduction in buy-to-let activity this year, our research shows that many brokers in both England and Scotland believe the market to be well positioned to absorb the impacts of these measures.

“Even now, amid the uncertainty brought about following June’s referendum result, borrowers will be looking to remortgage their buy-to-let properties as a potential reduction in rates looms. Brokers need to grasp this opportunity by contacting their books now to ensure these individuals get the crucial advice they need when it comes to securing a better rate on their mortgage.”

Do you believe that the buy-to-let sector will remain strong over the next few months?

Landlords to sell up following tax changes

Published On: June 16, 2016 at 11:15 am

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Concerning new research suggests that thousands of landlords will be forced to sell their properties in the coming years, following George Osborne’s tax changes on the buy-to-let sector.

The study was conducted by estate agent Maskells and concludes that changes to stamp duty, mortgage tax relief and lending criteria will make it harder to make substantial profits from buy-to-let. In turn, this could see landlords driving up rents and deterring potential renters.

Buy-to-let sales

Apart from the extra 3% stamp duty surcharge being imposed from April 1st, the amount that landlords can claim in mortgage interest tax relief is to be limited from 2017. This, it is feared, will cut landlords’ returns, especially higher rate taxpayers.

Maskells suggest that the tax measures imposed by Mr Osborne will see an additional 163,000 homes come onto the market by 2017/18. These, the estate agent believes, will be as a direct result of the changes.

In some areas, this could result in an oversupply of homes for sales, which in turn will put downward pressure on property prices.

Landlords to sell up following tax changes

Landlords to sell up following tax changes

Charles Curran, principal at Maskells, commented that, ‘the buy-to-let market has provided so much of the rental stock the country depends on, but the government’s tinkering could lead to a sell-off.’[1]

‘This situation does seem akin to a slow motion train crash: buy-to-let landlords with mortgages are standing on the track in a game of chicken with regulatory locomotive, hoping to time their exit as best as possible. This high-risk game will almost undoubtedly leave casualties,’ he added.[1]

[1] https://www.landlordtoday.co.uk/breaking-news/2016/6/landlords-set-to-offload-property

 

Landlords Consider Buying Overseas Property to Avoid Tax Changes

Published On: May 20, 2016 at 8:59 am

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Around a quarter of landlords (23%) are considering buying an overseas property to avoid tax changes introduced by Chancellor George Osborne.

The research, conducted by PropertyLetByUs.com, found that the Government’s new tax measures might push some landlords out of the UK into foreign markets, in an attempt to secure better returns on their investments.

A separate report also claims that the tax changes will drive much-needed landlords out of the private rental sector.

On 1st April, a higher rate of Stamp Duty was introduced for buy-to-let landlords and second homebuyers. Additionally, from April 2017, the amount of tax relief that landlords can claim on their mortgage interest payments will be cut to the basic rate.

The PropertyLetByUs.com survey asked landlords to name their top overseas property locations. Unsurprisingly, France took the top spot for one in five investors (23%). Spain came a close second (18%), followed by Italy (11%), Bulgaria (3%) and Germany (1%).

It is estimated that a quarter of overseas buyers that own second homes in France are British, making them the largest group of international owners.

Landlords Consider Buying Overseas Property to Avoid Tax Changes

Landlords Consider Buying Overseas Property to Avoid Tax Changes

The firm states that if landlords are considering buying an overseas property, it is vital that they educate themselves about the different laws and taxes they will face in their chosen country. Holiday home insurance firm Insure My Villa has lots of helpful tips and advice on being an overseas property owner.

The Managing Director of PropertyLetByUs.com, Jane Morris, explains: “Each country has different tax laws relating to property and they can change quickly, with little warning. For example, in 2012, the French government imposed a 15.5% social charge on capital gains from the sale of second homes or rental income – a measure which was estimated to bring in €250m a year. Tax on rental income rose overnight, from 20% to 35.5%, while capital gains tax on property sales rose from 19% to 34.5%.

“These new tax measures hit overseas investors hard and meant that for example, a British couple who bought a French property for €200,000 20 years ago and were selling it for €750,000 would have to pay almost €60,000 in social charges, on top of the existing capital gains tax. They received no credit against their UK tax bill for this amount.”

She continues: “This onerous tax measure was overturned in 2015 by the European Union’s top court, who deemed it illegal and ordered the French government to reimburse tens of millions of euros to British and other EU non-resident owners who rented or sold their properties in the past two to three years.

“Clearly, overseas property taxation can be more costly than the UK, despite often much lower property prices. It is important that landlords take into account potential tax hikes and don’t get sucked into all the marketing hype that surrounds overseas property investment. Property experts will often highlight new markets they appear to be investment hotspots and you may be able to find bargains in countries where prices have fallen dramatically, but it’s often wiser to buy in more established markets.”

The firm has put together some helpful tips on investing in overseas property:

  • Make sure your property is easily accessible with good amenities nearby. You should also take into account the holiday season in the area, as many tourist destinations shut down at the end of the season.
  • Do some research on the rent price of similar properties in the area. Even better, if the property you are buying is already being rented out, find out how much the current owner charges and how many weeks per year it is occupied.
  • It can be wise to market your property through a local estate agent, but you must remember to take fees into account. Cheaper marketing options include holiday rental websites and word of mouth through family and friends.
  • You must pay income tax on the rent you receive. However, you can deduct some expenses from your rental income to reduce taxable profits. Here is more information on calculating your taxes correctly: https://www.justlandlords.co.uk/news/government-produces-online-tax-tutorial-landlords/