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Budget Targets Landlords

Budget Targets Landlords

Was The Budget Really That Much Of A Surprise?

The first Conservative budget for 20 years was expected to be good for Britain; however, the reality was not what many landlords wanted to hear.

The decision to target private rental sector landlords and property investors wasn’t too much of a surprise, as the Government can plainly see where the profits are being made and they, like all the rest of the political parties, want a slice.

On the run up to the general election in May 2015 every other political party openly stated that they intended to target landlords, whilst the conservatives remained quiet, prompting a few political commentators to predict that policies would be introduced surreptitiously that would effectively put money into Government coffers.

That’s exactly what we got last week!

The key points that affect landlords from George Osborne’s budget statement include:

Benefit Cap Lowered To £20,000 (GBP)

The total amount of benefits a family can receive over the course of a year has been reduced from £26,000 (GBP) to £20,000 (GBP) – (£23,000 in London).

This is a particular concern for landlords as any loss of income from the reduced benefit cap will hit tenants’ housing benefit first.

Many private rental sector landlords are now worried about increased rent arrears and the probability that many areas of the UK will become unaffordable for large families to live in.

The Government have said that they will allocate £800 Million (GBP) of discretionary housing payments for councils to help affected tenants.

Housing Benefit Abolished For Under-21s

From April 2017 the automatic entitlement to housing benefit for 18- to 21-year-olds will be scrapped for new claimants.

Exceptions will be made for vulnerable young people, including those unable to return to their family home and claimants who were in work for six months prior to making a claim.

Working-Age Benefits Frozen For Four Years

The freeze means Local Housing Allowance (LHA) will fall further behind inflation as the chancellor seeks to stop the housing benefit bill soaring with increasing rents.

Buy To Let Landlord Mortgage Relief Cut

In a £2bn tax bombshell, from April 2017 landlords will no longer be able to claim tax reliefs worth 40% or 45% of the interest payments on their buy-to-let mortgages. Instead, the maximum tax relief will be set at 20%, although the change will be introduced over a four-year period.

Effectively it looks as though 40%/45% taxpayers will only get around half of their mortgage interest (and arrangement fees) offset against their rental income.

20% taxpayers shouldn’t see much change as all mortgage relief will be limited to the basic rate of income tax.

The effect of this will be staged meaning that

  • 25% of this extra tax will be payable on profits made in the April 2017 – April 2018 tax year,
  • 50% in April 2018 – April 2019,
  • 75% in April 2019 – April 2020
  • 100% in April 2020 – April 2021 meaning that the full effect of this change won’t be felt until the January 2022 personal tax bill is due.

Despite the staged introduction many PRS landlords have warned that this could see costs passed on to tenants in the form of higher rents.

Wear And Tear Allowance Tightened

Landlords will have to prove they have improved or maintained their rental property before they can deduct the costs from their taxed profits.

Currently, landlords can deduct 10% of the rent from their profits to account for wear and tear regardless of whether they have improved the property or not.

From April 2016 this is set to be replaced by a new system that only allows landlords to get tax relief when they replace furnishings.

Changes To Non-Domicile Rules

This change in entitlement could affect property investment and buy to let, particularly in London as people born in the UK to parents domiciled here will not be able to inherit non-dom status and people will not be able to have permanent non-dom status.

Anyone resident in the UK for 15 of the last 20 years will have to pay full UK tax.

Rent A Room Tax Free Income Threshold Raised

After 18 years, the Rent A Room tax free income threshold is being raised to £7,000 (GBP) per year. There are an estimated 19 million empty bedrooms in owner-occupied properties in England alone. Freeing up just 5% of those rooms would accommodate 1 million people. This move will also fuel the growth in short, informal lets such as the type offered by Airbnb and the like.

The tax reliefs that have been cut by Mr Osborne were hugely important for landlords in being able to offset other astronomic property costs such as lettings agent fees, landlord insurance, maintenance and repairs costs, as well as council tax.

It is still early days and we need to see how HMRC will implement some of these changes, because they may also try to find additional ways to stop property investors and landlords from profiting from property, however, there are ways to get around some of the changes introduced, including:

Tax Relief

Limited (Ltd) companies appear to be excluded from the mortgage relief cuts meaning that property investors and landlords could potentially look to purchase their future investment properties through Ltd companies.

Buy To Let mortgage lenders could become more open to this method of purchasing properties similar to the way that commercial lenders already facilitate.

Landlords who already own properties personally or in a Limited Liability Partnership (LLP) may want to transfer them to a Limited (Ltd) company; however, they will be subject to capital gains tax and stamp duty.

An alternative method to transfer property ownership whilst retaining the current mortgage would be by using a deed of trust, which would transfer the beneficial ownership to a Ltd company. A good solicitor can draw one of these up for you.

Property investors and landlords could also switch their focus slightly and purchase more properties that need refurbishments.

As long as the property is in a habitable condition when purchased but still needs redecoration and comes into the lettings market before the refurb is done, most repairs such as kitchens, bathrooms, paint etc can be offset against all property income from a whole rental portfolio.

Bird_OldLadyWe will always try to keep our sector alive and rents affordable as we are providing services to people who need them, we don’t set out to rip people off, we’re not politicians, we are the ones who take the financial risks, we’re the people who provide housing and it’s our name on the deeds not yours.

You see Mr Osborne, whilst you may think that you are being clever and are tapping in to wealth generated by other people’s hard work and risk taking, well, we as landlords won’t be beaten!

 Avoid Committing Mortgage Fraud

Avoid Committing Mortgage Fraud

How To Guard Against Mortgage Fraud

Following fresh warnings from the National Fraud Authority about the rising level of mortgage fraud in the UK, lenders want more done to protect their interests.

Mortgage fraud was a widespread problem before the financial meltdown and collapse of the property market back in 2007/8 due to the availability of self- certification mortgages with buyers, brokers and mortgage advisers able to ‘self-declare’ earnings with little, if any, proof required by an industry too busy to carry out proper rules and checks on applicants.

Mortgage fraud costs the industry around £1 Billion (GBP) a year, leading the Financial Conduct Authority to want to instruct mortgage lenders to better acquaint themselves with the solicitors they work with.

The new stricter mortgage rules introduced in the Mortgage Market Review in April 2014 are intended to reduce the number of people who attempt to make false claims and self-certification mortgages are now a thing of the past.

However, this won’t stop mortgage fraud or prevent homeowners and property investors from being a victim of identity or registration fraud.

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Buy To Let Investment Beating Pension Investments

Buy To Let Investment Beating Pension Investments

Buy To Let More Popular Than Traditional Pension Saving

There has been a lot of editorial commentary in the media focusing on the surge in UK Buy To Let property investment over recent weeks.

There are numerous reports that the total value of properties owned by 2.5 Million buy-to-let investors is fast approaching the total amassed in workers’ pension schemes built up over decades of employment.

The Telegraph reckons that a total of £1.25 Trillion (GBP) has been invested in buy to let property and this figure is still increasing compared to £1.6 Trillion (GBP) that has been invested in pensions.

Changes to pension legislation announced by Chancellor George Osborne in the Spring 2014 budget, could see more money taken out of pensions and put into the UK’s Buy To Let (BTL) market.

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Buy-to-let has bounced back as a valid investment vehicle following a freeze in major investor activity as the credit crunch started to tighten its grip and lenders stopped lending.

Today, falling house prices, high rents and low interest rates are mouth watering dream conditions for property investors and the financial prospects are tempting many people into buy-to-let, however is it the right thing for everyone to do?.

Property investment experts warn that investing in Buy To Let is not a get rich quick scheme or even one-way ticket to riches, it is a get very rich slowly investment vehicle and is definitely for the long term investment strategist.

Cheaper house prices and rising rents mean better income returns, but the potential for further house price falls could still hit novice investors unless they are genuinely in for the long haul.

Professional landlords who understand their local market and have cash to invest are some of the main players taking advantage of such a strong financial position. These savvy landlords have expanded their rental property portfolios from an average of 12.9 properties in the first quarter of 2012 to an average of 14.1 properties each, in the past three months, according to specialist mortgage lender Paragon.

Data released by the Council of Mortgage Lenders (CML) the first quarter of this year showed landlord mortgage borrowing was up 32% since 2011, with almost half of the money used to purchase new rental properties.

Buy-To-Let is alive and well but property investor activity is still nowhere near the levels seen at the peak of the property boom in 2007. The CML said that buy-to-let lending is still only around a third of its 2007 levels.

The property investors are out there, finances are improving, albeit slowly, and the amount of Buy-To-Let mortgage products being offered to investors are also increasing.

Is now a good time to invest in property – YES!!!

A weak housing market can allow cash-rich landlords to snap up a bargain property – as long as educate themselves wisely and do their research carefully.

There Will Never Be A Better Time To Invest In Property

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