Posts with tag: tax changes

Landlords Taking Out Commercial Loans to Avoid Tax Changes

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

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?

Tenants could face rent rises of 30%, warns peer

Published On: February 17, 2017 at 9:50 am

Author: Em Morley

Categories: Landlord News

Tags: Buy-to-Let,landlords,mortgage interest tax relief,tax,tax changes

Tenants could face potential rent increases of between 20 and 30 per cent as a result of tax changes hitting landlords, according to a former independent member of the Bank of England’s Monetary Policy Committee.

David Miles, now Professor of Financial Economics at Imperial College London, has called for the current 3% stamp duty surcharge and changes to mortgage interest tax relief to be scrapped.

Significant Rent Rises

Mr Miles estimates that, ‘rents would need to rise between 20 and 30 per cent’ in order to offset the Government’s measures.

Responding to the argument put forwards by former Chancellor George Osborne that tax changes are helping first-time buyers, Miles observed: ‘Aspiring first-time buyers are hardly helped by squeezing the supply of rental property and driving rents up.’[1]

Continuing, he said: ‘It’s strange to believe that having households channel more of their savings into US Government bonds or into equity issued by German companies is to be preferred to their investing in providing rented accommodation in the UK.’[1]

Tenants could face rent rises of 30%, warns peer

This analysis from Miles is included in the latest comments from the Residential Landlords Association, which claims that a majority of landlords could be negatively impacted as a result of the tax changes.

The RLA has called for the Government to use the extra revenue generated from the stamp duty levy to stop the implantation of mortgage interest tax relief changes. At the very least, the Association wants to see it applied only to new borrowing for new housing.

[1] https://www.lettingagenttoday.co.uk/breaking-news/2017/2/tenants-face-rent-rises-of-30-warns-ex-bank-of-england-chief

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?

Peer slams Government plans for sector as hypocritical

Published On: February 8, 2017 at 10:00 am

Author: Em Morley

Categories: Landlord News

Tags: landlords,private rental sector,tax,tax changes,White Paper

As the sector continues to react to yesterday’s White Paper, one leading peer has offered his thoughts on the proposed changes.

On the whole, recent housing policies impacting on the private rental sector, such as clamping down on rogue landlords and longer tenancies, have been welcomed.

However, landlords still fear the tax changes ahead, which could serve to increase rents at a time when the Government has promised more affordable houses to rent.

Crucial

Steve Bolton, founder of Platinum Property Partners and co-leader of Axe the Tenant Tax coalition, agrees that ‘a fair and affordable rental market is crucial.’[1]

Bolton believes it is encouraging that longer tenancies are being supported, as this will serve to offer peace of mind to both landlords and tenants alike.

He observed: ‘We absolutely need to get more homes built and faster. Improving property supply-both in the homeowner and rental market-is key if we are too slow rising house prices and rents.’[1]

Derail

While the Government has committed to increasing the availability of homes in the White Paper, Mr Bolton is fearful that buy-to-let tax changes due to come in force in April could, ‘seriously derail investment in the rental sector.’[1]

Peer slams Government plans for sector as hypocritical

‘The proposed tax changes will hit private landlords’ profitability and inevitably cause some to leave the market altogether, restricting the number of rental homes available,’ he noted. ‘How can the Government say they are committed to improving homeownership and reducing rents while simultaneously introducing a tenant tax that will only result in higher rental costs and therefore making it harder for people to save for a deposit?’[1]

Data in the White Paper shows that 65% of private tenants are happy with their tenure, in comparison to 48% in 2004-05.

Concluding, Bolton said: ‘All the good thinking in the white paper is completely derailed by this hypocritical approach. It’s clear that landlords are providing an essential service – yet they are being squarely punished for it. If the government truly wants to improve homeownership levels, and make renting more affordable for all, they need to abolish this ludicrous tax change sooner rather than later.’[1]

[1] https://www.landlordtoday.co.uk/breaking-news/2017/2/the-governments-private-rented-sector-policy-is-hypocritical

Important Changes to Lettings Legislation for 2017 and Beyond

Published On: February 3, 2017 at 11:22 am

Author: Em Morley

Categories: Landlord News

Tags: landlord law,letting agents,lettings law,tax changes

Lettings legislation has been making the headlines over the past year, so what can we expect for 2017 and beyond?

From the 3% Stamp Duty surcharge on buy-to-let properties, to the Right to Rent scheme, these ongoing changes to lettings legislation mean that it is more important than ever for landlords to fully understand their responsibilities.

Romans letting agent has reviewed the recent changes and highlighted some key lettings legislation changes for 2017 and beyond:

Buy-to-let tax restrictions – April 2017-2020

From April 2017, mortgage interest tax relief will start to be restricted to 20% for buy-to-let landlords. The restriction could affect investors who are both basic rate and higher rate taxpayers. The changes will have the greatest impact on higher rate taxpayers, and landlords with high mortgage costs and low rental incomes. Due to the changes, some landlords could also be forced into the higher tax rate.

Important Changes to Lettings Legislation for 2017 and Beyond

The change will be gradually phased in from this April:

From 6^th April 2017 – The existing system can still be claimed on the first 75% of landlords’ finance costs, including mortgage interest. The remaining 25% will have the new system applied (basic rate of tax).
From 6^th April 2018 – The amount of tax relief that landlords can claim on the existing system will drop to 50% of their finance costs. The remaining 50% will have the basic rate of tax applied.
From 6^th April 2019 – The tax relief using the existing system can only be applied to 25% of landlords’ finance costs. The remaining 75% will be at the basic rate.

From 6^th April 2020 – Landlords will only be able to claim tax relief using the basic rate of tax. The tax relief will be given as a reduction in tax liability instead of a reduction to taxable rental income.

Housing and Planning Act 2016 – April 2017

This piece of lettings legislation became law back in May 2016, and is expected to come into force by April 2017 – once the second legislation has been drafted. The purpose of the act’s rogue landlord and letting agent database is not to ban property managers from operating. The idea is to enable local authorities to monitor the activity of rogue landlords and letting agents, and effectively target enforcement action. The act covers four areas: electrical safety requirements; Client Money Protection; rent repayment; and banning orders.

Electrical safety requirements – Regulations will require portable appliance testing (PAT) and an electrical safety check of wiring. Timeframes have not yet been confirmed, or which tenancies these regulations will apply to. There will be penalties for non-compliance.
Client Money Protection (CMP) – This will mean that all letting agents must have CMP, which will protect landlords and tenants. A date has not yet been agreed.
Rent repayment – If a landlord is convicted of not having a license for a House in Multiple Occupation (HMO) under the Housing Act 2004, they could be ordered to pay the tenant or a local authority up to 12 months’ rent. The tenant or local authority will make the application to the First-tier Tribunal. An order may be made if the landlord: fails to comply with an improvement or prohibition order; unlawfully evicts or harasses a tenant; does not comply with a banning order.
Banning orders – If a local authority believes that a landlord or letting agent should be banned from letting or managing a property, it should apply to the First-tier Tribunal for a banning order. The ban will last for a fixed term of 12 months. It will be a criminal offence if the ban is breached – landlords/letting agents could be imprisoned for up to 51 weeks or be fined up to £30,000. The rules are expected to be in force by April 2017.

Further guidance is expected from the Government before the database of rogue landlords and letting agents is implemented, which is expected from 1^st October 2017.

Minimum energy efficiency standards – April 2018

Tenants are already able to request consent from their landlords to carry out energy efficiency improvements on their rental properties. Landlords are not able to unreasonably refuse consent.

However, from 1^st April 2018, rental properties entering into new lets or renewals will be required to have an Energy Performance Certificate (EPC) rating of E or above. A penalty of up to £4,000 will be imposed for breaches. The regulations will affect all existing tenancies from 1^st April 2020 onwards.

Stay on top of lettings legislation

With so many changes to lettings legislation over the past and coming years, it is vital that landlords and letting agents stay on top of their obligations.

The easiest way to understand your responsibilities is by keeping up with the latest updates from the sector. Our online news portal is completely free to use, while our handy monthly newsletter is also free and includes the important changes that you need to be aware of. Sign up here: www.34.207.192.121/register/