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Private landlord CHOAS: Are new tax changes driving more landlords out of Buy To Let?
Whilst the new Stamp Duty relief scheme stole the headlines, quietly in the budget small print was the news that those who invest in property using a Special Purpose Vehicle (SPV) will, as of next year, pay an increase in Capital Gains Tax when they sell the property, due to a freeze on indexation allowance.Prior to this latest move, using an SPV as a way of holding investment property meant that a lower amount of tax was payable when such a property was sold.
It’s the latest in a line of changes that have increasingly meant that Buy To Let isn’t the straightforward investment that it used to be a few years ago.
We’ve already seen changes in the way that rental income is taxed, which although being phased in over the next two years will mean an increased personal tax bill for Landlords in January who still own properties in their own name, rather than under an SPV.
Buy To Let lending legislation has also changed, with new rules being introduced by the Prudential Regulation Authority in October, making it more complicated to obtain lending to finance the purchase of an investment property.
Those who invest in property using a SVP will pay more when they sell it
Now, with this latest change in tax meaning that landlords will not only pay more tax on their rental income, but also any profit that they make from an increase in the value of a property over the time they own it, it’s easy to understand why many investors might start to question the viability of their portfolios.The problem is, the demand for quality, privately rented housing remains strong in most areas of the UK, and therefore if more landlords choose to exit the market as a result of increased taxation, whilst this may assist some First Time Buyers to get on the property ladder – which it would appear is what the Government intended as an outcome when changes were announced in 2016 – it may also cause issues elsewhere in the property ecosystem due to a decrease in available rental properties.
If we look at the headline figures, you can see where the issues may lie.
According to the latest data available from the Department for Communities and Local Government, there are currently 23.5million residential dwellings in the UK.
14.7million are owned by their occupiers, either with or without a mortgage.
4.7million are rented privately from landlords, whilst 4million dwellings are provided by social housing.
Out of the 23.5million residential dwellings in the UK, 4.7million are rented privately
Due to the fact that, over the last few years, it’s become harder to get a residential purchase mortgage due partly to the stricter lending criteria introduced in 2014 as part of the Mortgage Market Review, as well as rising house prices together with fewer homes available on the market to buy all making it harder for would-be purchasers to buy, the demand for quality private rented housing in the UK has grown.For example, predictions from consultants PwC suggest that an additional 1.8million privately rented homes will be required by that in 2025, which would represent a significant increase in the current levels of lettings stock available.
Yet with increased taxation and costs of ownership, Buy To Let is looking less and less attractive to some landlords who are now selling up their portfolios.
Meaning that, ironically, there is less rental stock available in the market in some areas, which has led to upwards pressure on rents in many parts of the UK.
In fact, in their latest Buy To Let index released this week, national letting agents Your Move suggest that rents have increased on average at 2.4% so far this year.
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Cities such as Norwich and Cambridge have seen 6% rises in rents over the past twelve months, with the average monthly rent in the UK now at £887.As Brian Murphy, Head of Lending for Mortgage Advice Bureau, who’s Best Buys for Buy To Let mortgages has been released today explains, “Whilst interest rates remain at historic lows, it’s easy to see the initial attraction of investing in property.
Returns on straightforward savings are still very low, and historically, as an asset class property has performed exceptionally well, and rental demand continues in many parts of the UK.
That said, Buy To Let has become more complex to navigate over the past few years, not just in terms of taxation but also increased regulation, for example with Right To Rent checks and increased health and safety measures.
Whereas previously, investing in property may have been perceived as an easy way to make money, it now takes a lot of preparation and an ongoing commitment by investors to ensure that they stay on top of their paperwork and property management in order to ensure that their asset maintains it’s viability.
Part and parcel of that is, of course, taking professional advice in terms of gearing, taxation and legislation, particularly around deposit protection, as one mistake can cost a landlord dearly.”With the private rental sector playing such a key part in the UK housing market, there are companies who’ve identified a need to revolutionise elements of the process in order to support landlords and tenants.
One such company is Canopy, who provide a ‘rental passport’ service – a little bit like a ‘TripAdvisor’ for both tenants and landlords – as well as an insurance product which means that the tenant doesn’t need to lodge thousands of pounds as a rental deposit.
The Canopy insurance product instead provides the landlord with cover against non-payment of rent, damage to the property and post tenancy cleaning costs, which in most cases is more than the amount of deposit that would have to be provided by the tenant.
It’s a win-win – the landlord is better protected without the hassle of having to deal with the tenant’s deposit correctly, and the tenant is able to rent a property without having to have six weeks or two months’ rent sat in someone else’s bank account.
10 Facts about stamp duty
Wed, November 22, 2017
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10 Facts about stamp duty
Canopy insurance is backed by Direct Line and Experian, and as a bonus, offers the tenant a way to improve their credit profile, as their rental payments can then be evidenced in an Experian credit check to assist when the individual applies for a mortgage.Another company who are utilising new technology to protect both landlords and tenants are GetRentr, who provide a service that tracks regulation affecting the private rental sector to automatically monitor property portfolios for compliance in real-time.
Licensing regulations are designed to ensure rental properties meet appropriate safety standards and to flush out rogue landlords.
However, these are applied and communicated inconsistently around the country, leaving landlords liable for fines of up to £30,000.
There are currently over 500 schemes active, meaning that it’s difficult for good agents and landlords to stay on top of their responsibilities.By using available data from every local authority in the UK, the service helps letting agents and landlords to easily and cost effectively comply with regulations, which in turn will help to reduce the amount of unsafe, substandard accommodation on the market thereby hopefully making rental accommodation safer for tenants.
Whilst advances in technology are helping landlords and tenants, in an environment where private rental property has both a valuable place in the property ecosystem due to demand, yet also remains open to question around whether Buy To Let investors may deprive would-be home owners from purchasing their own property, it will be interesting to see how the latest changes in landlord taxation will play out in the coming months, and if this might, as some suspect, contribute towards the housing crisis rather than going any way to solving it.
Martin is an enthusiastic programmer, a webdeveloper and a young entrepreneur. He is intereted into computers for a long time. In the age of 10 he has programmed his first website and since then he has been working on web technologies until now.
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