Browsing all articles from May, 2016

“Landlord” convicted of illegal eviction and sub-letting

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A Sheffield man, Rami Nazzal, in a landmark case at Sheffield Magistrates Court, has been convicted of both illegal eviction and subletting a council house he rented, both at the same time. It is believed that this is the first case of its kind in the country following the recent introduction of new letting laws. […]


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Generation rent neglect their gardens…

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Allowing a garden to grow wild cuts a property’s value and there’s evidence that Britain’s gardens are being neglected and uncared for, as a result of the growth in the rental market. In general, tenants don’t take the same care over their gardens as do home owners. The Royal Horticultural Society (RHS) has highlighted the […]


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As buy-to-let criteria tighten, what are the options for smaller landlords?

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Lenders are ramping up their affordability calculations in anticipation of changes to landlord tax relief. Where will this leave cash-poor landlords in low yield areas?

This week, Newcastle Building Society became the latest lender to impose stricter affordability criteria for buy-to-let borrowers.

The lender follows in the footsteps of Nationwide’s specialist subsidiary The Mortgage Works (TMW), which on 11 May increased its rental cover threshold to 145%. It also cut its maximum loan-to-value (LTV) ratio from 80% to 75%. In the days since, Barclays, Foundation Home Loans and Keystone have all announced similar policy shifts.

A response to market conditions

These decisions are not out of the blue. In April 2017, the government will begin phasing out tax relief on buy-to-let mortgage interest. By the 2020–21 tax year, mortgaged landlords in higher tax bands will pay more income tax than they do now. The measures will also affect some basic rate taxpayers.

The changes taking place now will help lenders ensure that clients have adequate income to meet growing overheads. They also limit the amount that a client can borrow, particularly in more expensive areas. As costlier properties tend to generate lower rental yields, landlords will need to put up more equity to qualify for a mortgage.

This has led to worries that cash-poor landlords in areas like London and the South East will struggle. Some have commented that buy to let will become a “rich person’s game”.

Criteria improving elsewhere

The idea that TMW’s criteria would create a ‘domino effect’ has proven to have some mileage. But in other areas, lenders have become more flexible.

One big change we’re seeing is pay rate stress tests. Lenders often calculate rental cover at a notional interest rate. 5.0% is common, and the typical figure is rising as part of broader criteria changes.

But for longer-term fixed rates or loans under a certain loan-to-value (LTV) threshold, many lenders apply lower stress rates. Some even permit calculations at the product pay rate. Popular ‘lifetime’ tracker loans are often calculated at the pay rate, as there is no reverting rate.

Reducing a 5.5% stress rate by 50 basis points to 5.0% allows as much as 10% more borrowing. Depending on the area, this can mean thousands or even tens of thousands of pounds.

Treatment of limited companies

Landlords who invest through limited company structures pay corporation tax rather than income tax. Thus, the new tax relief laws will not affect them. Lenders recognise this, and what used to be a niche product has become more prominent.

In the last three months alone, the number of limited company products on Commercial Trust’s sourcing system has grown by one fifth. The average rate has fallen from 4.64% to 4.39%. And despite the wider climate of falling interest rates, the rate differential between limited company products and ordinary products has shrunk by 15 basis points.

Some lenders have exempted limited companies from their tougher criteria. Notably, Foundation Home Loans is keeping its rental cover ratio at 125% for limited company applicants.

We have also seen a few lenders eliminate the price differential altogether, pricing their limited company deals the same as their standard ranges.

Options for smaller landlords

According to the Residential Landlords Association (RLA), 84% of landlords have considered raising rents to offset rising costs.

But in areas where rents already account for two thirds of average income, this is not practical. Tenants’ finances are as large a factor in determining rent levels as supply and demand. Pushing rents too high could lead to arrears, expensive evictions or void periods. (Many landlords prefer to keep rents level to retain good tenants and avoid the costs of filling an empty property.)

Many landlords are considering setting up limited companies to limit their tax costs. Whilst potentially a beneficial arrangement, this approach is complex, and requires professional tax advice.

A less drastic measure, and one all landlords should consider, is a portfolio review. It may be possible to increase equity in more highly-geared areas through property improvements, overpayments or switching to a part or full repayment mortgage. (Though be aware of early repayment charges (ERCs) if considering either of the latter two options.)

The investment climate of the property sector has never been immutable. There are always changes, and though there may be setbacks in the short term, forward-thinking investors have always adapted and found new ways to prosper.

Just be sure to consider all your options and speak to the appropriate professionals to help determine the best route forward.

Written by Ben Gosling at  Commercial Trust Ltd


View Full Article: As buy-to-let criteria tighten, what are the options for smaller landlords?


Landlords to Energy Efficiency improvements

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From the 1st April 2016 all domestic tenants are given the right to request energy efficiency improvements to their properties. From 1st April 2018, all private rental properties must achieve an energy efficiency rating of at least E on their Energy Performance Certificate (EPC). Initially, the regulations will only apply on the granting of a […]


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Electrical safety standards – David Smith blog

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The decision to introduce a new power to impose electrical safety standards on the PRS was a key late amendment to the Housing and Planning Act. In his latest blog post RLA policy director David Smith discusses the new legislation and the potential impact of the changes. He said: “As with much of the Act […]
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National Landlord Investment Show is heading to London

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Date: Tuesday 21st June 2016

Doors Open: 9am – Close – 5pm

Location: London Olympia Conference Centre, Hammersmith Road, London, W14 8UX

Register and attend the show to receive a maximum of 5 CPD points towards your landlord accreditation

Book Your Free Tickets Here

Please note: Attend the Hertfordshire Landlord Investment Show and we will give you FREE tickets to our Landlord Investor Race Day at Epsom Downs – Thursday 7th July – See tab on the left hand side for more details.

Due to the massive success The National Landlord Investment Show we are delighted to announce the show is heading to back to Olympia for a 3rd YEAR running!  At our last show at Olympia in November 2015 we had over 2500 attendees through the door in one day, this year we are expecting the show will be Bigger and Better!

The show will attract Landlords, Investors, Developers & Property Professionals.

If you are Interested in Investment Opportunities, Landlord TAX, Buying at Auction, Finance/Mortgages, Landlord Insurance plus much more…..then this is the show for you.

30 plus seminars delivered by industry experts.

Come and meet over 80 exhibitors within buy-to-let.

Industries exhibiting include:

• Legal Services

• Buy-to-let mortgages

• Landlord Insurance

• Referencing

• Letting Agents

• Online Agents

• Property Management

• Local Council

• Tenancy Deposit Scheme

• Landlord Tax Advice

• Landlord Associations

• Buy to let opportunities

• Local Tradesman


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Brexit, Brunsure or Bremain?

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Brexit, Brunsure or Bremain?


We’ve seen all sorts of expert reports about how Brexit would affect the economy, and we’ll probably see a few more yet, but with each one, I don’t know about you but I get more and more confused and unsure, swayed both one way and then the other.

A report produced by Cebr, an independent economics and business research consultancy established in 1993, for NAEA and ARLA, provides forecasts and advice specifically aimed at property and is perhaps something worth paying attention to for those of us involved.

The Report’s Key findings include:

• In June, the UK will hold a referendum on whether or not to remain a member of the European Union. A scenario in which the UK votes to leave the EU (Brexit) would have far-reaching consequences on the country’s property market.

• Savills, a real estate services provider, estimates that in 2013/14 68% of buyers in the prime London market were UK nationals. Out of all the prime sales to non-UK nationals in the year to June 2013, 16.5% were to nationals of European countries.

• Not all UK regions would be impacted equally following Brexit. London has by far the highest share of EU nationals and nearly all of the prime investment property is located in the capital.

• Based on the Office for National Statistics’ projections, under the low migration scenario (which becomes more likely following Brexit) the population of the UK would be smaller by 1.06 million people in 10 years compared to the principal forecast. Lower immigration would mean less people looking for accommodation which would reduce the demand for housing.

• Brexit would also impact the supply side of the property market. The construction sector is already facing skill shortages and 4.7% of the UK’s construction work force was born in another EU country.

• The UK’s membership in the EU gives the country status as a ‘gateway to Europe’. This has a direct impact on the property market: for commercial property, the substantial presence of foreign firms boosts demand. For residential property, demand is impacted by the large number of foreign staff that relocate to the UK as part of their firms’ involvement in the country.

• Should the UK remain in the EU we expect the average UK home to cost £303,000 by 2018. This compares to £290,800 in 2017 and £278,500 in 2016. Under the Brexit scenario we expect the average UK home price to stand at £277,600, £288,900 and £300,800 in 2016, 2017 and 2018 respectively.

• The cause behind the slower rate of growth in the event of a Brexit will be the London market as the capital’s safe haven status would be damaged and the decision to relocate by some foreign firms would dampen demand.

• Under the Bremain scenario we expect the average London house price to stand at £536,000, £564,500 and £599,200 in 2016, 2017 and 2018 respectively. Under the Brexit scenario we expect prices of £533,700, £559,300 and £591,700 respectively.

• When we consider these price differences alongside the total number of dwellings in London, the cumulative difference (or hypothetical loss) in property value reaches £8.2 billion in 2016, £18.3 billion in 2017 and £26.5 billion in 2018.

• The impact of Brexit on the rental market would be minimal in the first 2-3 years following the referendum. However, country-wide rents could be impacted more severely in the long term. UK residents born in other EU countries are far more likely to be private renters. Therefore if fewer EU nationals move to the UK in the long term there may be a more noticeable impact on demand levels.

You can read the full report here

As this is the last newsletter before we know the results of the referendum on EU membership, we are running a poll here which we anticipate will produce some interesting results.

If I was a betting man, which I am not, I would say the vote will give a reasonable majority to remain. This is based on some advice I read from a respected source about watching betting odds, and these being more reliable than polls. The last UK election was a case in point.

Currently the odds have shortened on staying in, the last time I looked, 6 to one on for staying. That means a £60 bet would net you £70 – your original stake plus a £10 win. Not a great outcome as a bet. Alternatively, the odds for coming out are 3 to one against. That means a 60 bet would net you £240 – your £60 stake plus a £180m win, a much better proposition, but less likely to happen. I hope I got all that right as I don’t know about placing bets and about any tax involved, so the betting people here may correct the technical details, but the principle it correct I’m sure.


View Full Article: Brexit, Brunsure or Bremain?


Property Tax Round-up 2016

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Over the last year or so there have been several major changes in the way landlords are taxed. Here, property taxation expert Nick Braun, founder the highly respected, gives a comprehensive summary of the main changes affecting buy-to-let landlords, and gives some valuable tips on how to deal with them:

Stamp Duty Land Tax – Non-Residential Property

From 17 March 2016 new rates for non-residential property (typically commercial property) have been introduced. Instead of paying tax at a single rate, you now pay tax at a combination of rates.

The new rates are as follows:

£0 to £150,000 – 0%

£150,001 to £250,000 – 2%

£250,000+ – 5%

If you pay £300,000 for a non-residential property, you will now pay nothing on the first £150,000, 2% on the next £100,000 and 5% on the final £50,000 – £4,500 in total. Under the old system you would have paid 3% on the whole amount – £9,000.

Stamp Duty Land Tax – Additional Residential Properties

From 1 April 2016 higher rates of stamp duty land tax apply to purchases of “additional” residential properties (typically rental properties and second homes) in England, Wales and Northern Ireland.

Higher rates of land and buildings transaction tax also apply to purchases of additional residential property in Scotland. Note, the rules are different in some respects to those that operate in the rest of the UK.

The higher SDLT rates are 3% above the standard rates:

£0 to £125,000 – 3%*

£125,000 to £250,000 – 5%

£250,000 to £925,000 – 8%

£925,000 to £1.5m – 13%

Over £1.5m – 15%

*Only applies if total price is over £40,000. For purchases at £40,000 or less no stamp duty land tax is payable.

For example, if you buy a second home for £300,000, you will pay 3% on the first £125,000, 5% on the next £125,000 and 8% on the final £50,000 – £14,000 in total. That’s £9,000 more than someone who pays SDLT at the normal rates!

The higher rates are payable if at the end of the day of the transaction you have more than one residential property and you are not replacing your main residence.

The higher rates do not apply if you are simply replacing your main residence, even if you own other residential properties. So someone who owns a big portfolio of buy-to-let flats will not have to pay the higher rates when they replace their main residence.

When replacing your main residence, however, timing is everything. If you buy a new main residence before selling your old one you will have to pay the higher rates of stamp duty land tax. Thankfully, as long as you sell your old home within three years, the additional SDLT can be refunded.

Nevertheless this is a cruel rule for a couple of reasons. Firstly, from a cashflow perspective, someone who buys a new main residence for, say, £500,000 before selling their old one will have to stump up an extra £15,000 at a time when their finances could be under enormous strain.

The new rules may also prove cruel to landlords and second home owners who sell their main residence and rent before buying a new main residence.

If you own any other residential property and wait more than three years to replace your main residence, you will have to pay the higher rates of stamp duty land tax and the extra tax will not be refundable.

Married couples are treated as a single unit and therefore cannot avoid the higher rates by purchasing one property each. If either of them owns more than one residential property at the end of the day of the transaction they may pay the higher rates.

For example, if the family home is owned solely by the wife, the husband cannot avoid the higher stamp duty rates if he alone buys a holiday home.

Initially, the Government considered an exemption for companies and funds making “significant” investments in residential property. In the end it was decided that all investors will pay the same stamp duty land tax. The higher rates will apply to all companies purchasing residential property (including their first purchase of a residential property).

Capital Gains Tax Rates

The main rates of capital gains tax were reduced on 6 April 2016 as follows:

• From 18% to 10% – Basic rate taxpayers

• From 28% to 20% – Higher rate taxpayers

Where the individual is entitled to Entrepreneurs Relief, the gain is taxed at 10%. Entrepreneurs Relief is generally only available when you sell or wind up a trading business.

Sadly, the 18% and 28% rates still apply to gains arising on disposals of residential property.

The lower rates do, however, apply to sales of commercial property (except where a business owner disposes of his trading premises and Entrepreneurs Relief is available).

CGT Payments – Residential Property

In the 2015 Autumn Statement it was announced that, from April 2019, capital gains tax due on disposals of residential property will have to be paid within 30 days of the disposal.

Main Residence Exemption

Two key changes have been made in recent times:

• The final period of ownership exemption for principal private residences has been reduced from three years to 18 months.

• Non-resident individuals are subject to CGT on UK residential property gains arising after 5 April 2015.

Changes have also been made that will affect those who want to make main residence election for overseas homes and non-residents with UK homes.

Replacement Furniture Relief

From 6 April 2016 the 10% wear and tear allowance has been abolished and replaced with a new ‘replacement furniture relief’.

This allows all landlords to claim the actual cost of replacing furnishings (movable items) in fully or partly furnished residential properties, including furniture, electrical equipment, white goods, carpets and other flooring, curtains and kitchen utensils.

Interest & Finance Costs

In utter defiance of the basic principles under which businesses are taxed, the Government has decided to restrict tax relief for interest and finance costs paid by individual landlords who own residential properties.

The new rules will not apply to commercial property or furnished holiday lettings or to properties held inside companies.

Higher-rate tax relief for interest and finance costs will be phased out over a four-year period commencing in 2017/18, as follows:

• 2017/18 – 75% deducted as normal, 25% at basic rate only

• 2018/19 – 50% deducted as normal, 50% at basic rate only

• 2019/20 – 25% deducted as normal, 75% at basic rate only

• 2020/21 – All relieved at basic rate only from this year on


Oz has a salary just in excess of the higher-rate tax threshold each year. He also receives rental profits of £40,000 before deduction of interest costs which amount to £20,000 each year. Oz will pay tax as follows on his rental income:

By the time we get to 2020/21 the tax Oz pays on his rental income will have increased by £4,000.

However, the extra tax payable in the intervening years is less because the interest deduction is only partially withdrawn.

The purported objective of this reform is to make the tax system “fairer”, reducing the tax benefits enjoyed by landlords with “higher incomes”. However, the change will affect many ordinary landlords.

Example – Old Interest Rules

It’s the 2020/21 tax year and Katerina is a full-time landlord who owns a portfolio of rental properties producing net rental income of £125,000 per year. This is after deducting all the expenses of the business except her mortgage interest.

Her portfolio is heavily geared and her interest payments are £75,000 per year. Thus her true rental profit is £50,000 per year. We’ll assume Katerina has no other income but does receive around £2,500 in child benefit and is the highest earner in her household.

Assuming there was no restriction to her mortgage tax relief, Katerina would have taxable income of £50,000 in 2020/21 (if she had any more income she would be a higher-rate taxpayer). The first £12,500 would be tax free thanks to her personal allowance and the final £37,500 would be taxed at just 20% producing a total income tax bill of £7,500. (The Government has promised to raise the personal allowance to at least £12,500 by 2020/21 and the higher-rate threshold to at least £50,000.)

Furthermore, because her taxable income would not exceed £50,000 she would not have to pay the child benefit tax charge and would keep all of her £2,500 child benefit.

Her total after-tax disposable income would therefore be £45,000.

Now let’s see how Katerina will fare under the proposed new restriction to mortgage interest relief.

Example – New Interest Rules

Because her mortgage interest will no longer be a tax deductible expense she will have a taxable rental profit of £125,000. With this much income she will lose all of her income tax personal allowance. Thus the first £37,500 will be taxed at 20% and the remaining £87,500 at 40% resulting in tax of £42,500.

Against this she will be able to claim a tax reduction of 20% of her mortgage interest (£15,000) leaving her with a total tax bill of £27,500.

She will also have to pay the full child benefit charge and will effectively lose £2,500 of income, so her final after-tax disposable income will fall from £45,000 to £22,500:

£125,000 net rent – £75,000 interest – £27,500 tax = £22,500

With her after-tax income falling by 50% it is unlikely that Katerina will be able to cover her household expenses and she will probably have to take drastic action to shore up her finances.

As you can see, the main victims of this change will not be high income earners, but landlords who have big buy-to-let portfolios with fairly modest amounts of equity, i.e. those who earn significant amounts of gross rental income but have fairly modest rental profits because most of it goes in mortgage interest payments.

They will end up being forced to pay tax at 40% (and possibly 45%) on profits they haven’t actually made and may face other tax penalties, e.g. the loss of their income tax personal allowances and child benefit.

It’s a populist but ill-conceived tax reform.

Strategies for Minimising Your Property Tax Bill

Taxcafe has published a brand new guide called Landlord Interest which explains how you can beat the tax increase by:

• Postponing tax deductible expenses

• Increasing tax deductible expenses (without suffering real economic loss)

• Accelerating finance costs

• Making pension contributions

• Reducing buy-to-let mortgages

• Selling properties

• Investing in other types of property

• Converting properties to a different use

• Using alternative investment structures

• Transferring properties to your spouse/partner

• Using a company

Taxcafe publishes a wide range of property tax and business tax guides.


View Full Article: Property Tax Round-up 2016


Report on the Landlord Law Conference 2016

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You may remember from past LandlordZONE newsletters that our Landlord Law Conference took place on 12 May in Manchester.

It was our best Conference yet and it was lovely to see so many people from the North who had not been able to make it to our previous events.  You can see some of them in the Flickr slideshow you can see here.

The speakers were fantastic.  David Smith was, as always, excellent.  We are particularly grateful to him for stepping in at the last moment and covering the Sue Lukes talk on Right to Rent as she had broken her ankle and was unable to attend.

We had a couple of new speakers – barrister Peter Marcus did a very entertaining talk on landlords repairing obligations, and it was lovely to welcome Giles Peaker (of Nearly Legal fame) who spoke on the HHSRS.

Other notable talks were from Warren Spencer on Fire Safety, Sam Madge-Wyle on what happens when parties to a tenancy die, and of course John King from our sponsors TDS talking on adjudications.

We also had some wonderful exhibitors including Tom Entwistle from LandlordZONE who we were delighted to welcome to the Conference at last.  Others included previous exhibitors such as the RLA, ARLA, Envirovent and the Property Redress Scheme, and new exhibitors such as Property Principles and Grant Erskine – our first architect exhibitor.

The Hilton did us proud – the food was delicious and the day went like clockwork.

Next year we will be returning to the Eastern Counties as we have found a fabulous new venue just outside Norwich – the Sprowston Manor Hotel & Country Club – which, as well as wonderful conference facilities, has its own golf course, swimming pool and sauna (for delegates staying over).
The date is 19 May 2017 so please mark that in your diary and keep it clear!

Tessa Shepperson
Landlord Law


View Full Article: Report on the Landlord Law Conference 2016


How Can Buy-to-Let Landlords Beat the Budget Rap?

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The changes announced in the Budget aimed at curbing the residential buy-to-let market have been well documented and have now come into force.

This has led to a noticeable slowdown in London – where average house prices are much higher and therefore subject to more stamp duty – and a minor boom in the East and South East, where properties are more affordable, but still within the capital’s highly prized and ever-widening commuter belt.

The 3% stamp duty increase on second properties was introduced last month and the reduction in landlords’ mortgage interest tax relief will be phased in from 2017, so how can landlords best deal with the new regulations?

The more interest you pay, the more you’ll be affected, so a long-term fixed rate mortgage could have a significant impact on your net profits. Therefore, it’s worth considering the slightly riskier option of a short-term fixed rate mortgage with a lower interest rate.

Another option would be to place your property portfolio into a limited company structure. Your mortgage options would be a little more limited, but any profits would be subject to corporation tax, which can be significantly lower than income tax.

Speaking of which, landlords have previously been able to deduct mortgage costs from their rental income and only pay income tax on the balance, but that’s no longer the case.

One workaround might be to transfer ownership of one or more of the properties in your portfolio to your spouse – providing he or she pays a lower rate of income tax. You should ensure doing so won’t take them into a higher tax band, though.

Shifting focus from residential to commercial property could also be a worthwhile consideration. Yes, the legal fees are usually higher and the contracts are longer, but commercial property is subject to the new lower rates of Capital Gains Tax (residential isn’t) and stamp duty has been reduced for commercial properties worth up to £1.05 million. It might be out of your comfort zone, but there appears to be an opportunity to get more bang for your buck!

Another popular strategy with canny investors is to appoint a managing agent for your portfolio. The cost of doing so is tax-deductible, so you’ll be able to offset those management fees against your income and further reduce your tax liability.

One coping mechanism that we wouldn’t recommend, however tempting it may be, is to hike up rents for your tenants. This would be short-sighted for a number of reasons, but ultimately, most tenants are paying as much as they can afford already, and the Help-to-Buy scheme is making it easier for them to buy, so why push them in that direction?

So, is it all doom and gloom for property investors? Not really. Despite the changes, low borrowing rates should ensure a decent yield for buy-to-let landlords for the foreseeable future – especially if you’ve bought well. As a long-term, capital growth tool, there really isn’t anything out there that can compete with property investment, particularly at the more affordable end of the market.

Another silver lining is that the recent changes have levelled the playing field for landlords with lower incomes – like pension pot investors – meaning they’re in a better position to compete with the big guys.

First-time buyers could also benefit from more readily available affordable property, and possibly lower prices, should the buy-to-let market start to shrink; however, I don’t expect to see a dramatic decline in buy-to-let any time soon. Or at least until next year’s tax returns are completed and the impact of these changes is felt more keenly.

Article Courtesy of: Rana Miah

Rana is a seasoned commentator on financial matters and one of the minds behind Just Mortgage Brokers ( He has worked in the financial services industry for nearly 15 years, for a market-leading insurer, one of the UK’s largest estate agents and as the senior partner at a mortgage broker firm.


View Full Article: How Can Buy-to-Let Landlords Beat the Budget Rap?




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