Half of landlords planning changes due to tax implications

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Landlords’ Tax:

Results from a survey released today by mydeposits, the custodial and insurance-backed tenancy deposit scheme, have revealed that almost a half, 44% of landlords are planning to make changes to their present circumstances in direct response to tax changes imposed on landlords over the last 18 months. With the full effects unlikely to be felt for another three years, the buy-to-let landscape looks set for some big changes.

Since April 2016, three major tax changes have impacted landlords. Second home buyers have had to pay a 3% stamp duty surcharge, increasing tax on a £300,000 property from £5,000 to £14,000.

This was followed by the abolition of landlords’ ability to claim a 10% tax break for “wear and tear”, only letting them deduct the costs they incur. In a further blow, and the most significant yet, changes to mortgage interest tax relief brought in from April 2017, mean landlords can only offset 75% of their mortgage interest against their profits. This will fall to 50% in 2018, 25% in 2019 and to zero by 2020 when it will be replaced by a 20% tax credit.

Private landlords are a diverse group but according to mydeposits, the vast majority are individuals who own one or two properties and use buy-to-let as a part-time income supplement, rather than a full-time business, meaning they could be less likely to keep tabs on legislative changes.

Alarmingly, 26% of respondents to the mydeposits survey said they were unaware of changes affecting mortgage interest tax relief and a further 23% did not know about the additional 3% stamp duty payable on buy-to-let and second home purchases.

86% of respondents to the survey own between one and four properties, with a further 8% having between 5-10 properties. While 21% of landlords said the changes will not affect their buy-to-let business, 25% indicated they will need to increase rents to tenants.  A further 10% plan to sell up altogether, and 9% said they will switch from using a managed service through a letting agent to self-managing in order to reduce outgoings.

Although growing numbers of landlords with several properties are now setting up limited companies to sidestep the new rules, this is unlikely to be viable for smaller landlords, some of whom it would appear will be forced to increase rents or sell up. While nearly 50% of landlords said they have no intention of leaving the private rented sector, nearly 25% plan to sell up in the next 5 years.

Tony Gimple, Founding Director of Less Tax for Landlords says landlords have four options: sell up; do nothing (which will be a default decision for many); set up a limited company, which Tony doesn’t think is the best move due to remortgage costs and lending inflexibility, and seven layers of taxation in companies including inheritance tax problems; or, finally, hold property in a “Hybrid Structure”, which he describes as truly running a portfolio as a property business, whilst at the same time reducing tax leakage to the legal minimum.

Commenting on changes to the lettings landscape, Tony says: “Landlords should be running their buy-to-let portfolio as a business regardless of tax changes, and those forced out of the market will be the ones who are too highly geared with too little yield. Many landlords are trying to do everything themselves and often following unreliable or out of context information, whereas once they are professionally educated on what their options are, many choose to remain landlords and go on to prosper.”

Eddie Hooker, CEO of Hamilton Fraser, parent company to mydeposits, comments: “The results of this survey are particularly interesting for the short to medium future of the private rented sector.  Around 25% of those who responded were unaware of the changes to the tax regime on their existing portfolios which shows that more is needed to be done to help educate the market and help prepare landlords for the changes to their personal tax liabilities over the next few years.

Even more poignant however, is the suggestion that more than 50% of landlords are considering changing their behaviour to safeguard their income by either increasing rents, turning to self-management or even selling up completely.   With all the well-meaning efforts that are being made in the market to make the whole renting experience a better place for both landlords and tenants, there is now a clear danger that supply could be restricted with the knock-on effects this may cause. The right tax planning advice and income protection strategies are absolutely crucial.”

To listen to a podcast with landlord tax expert Tony Gimple, Eddie Hooker, CEO of mydeposits and Paul Shamplina, founder of Landlord Action, discussing tax changes for landlords, click here

Based in Borehamwood and now employing 180 people, Hamilton Fraser provides specialist insurance and scheme administrator services throughout the UK and abroad. Hamilton Fraser is parent company to mydeposits, Total Landlord Insurance, Client Money Protect, Property Redress Scheme and Landlord Action.

The survey was sent to all mydeposits England & Wales Custodial landlord members (8, 381 individuals). The email was opened by 3, 738 members (44.86% open rate) with a total of 469 click throughs to the survey. 306 went through to finish the questionnaire.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Half of landlords planning changes due to tax implications | LandlordZONE.

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Almost half of landlords planning changes as a result of tax implications

admin    Uncategorized     agents

Results from a survey released today by mydeposits, the custodial and insurance-backed tenancy deposit scheme, have revealed that 44% of landlords are planning to make changes to their present circumstances in direct response to tax changes imposed on landlords over the last 18 months. With the full effects unlikely to be felt for another three years, the buy-to-let landscape looks set for some big changes.

Since April 2016, three major tax changes have impacted landlords. Second home buyers have had to pay a 3% stamp duty surcharge, increasing tax on a £300,000 property from £5,000 to £14,000. This was followed by the abolition of landlords’ ability to claim a 10% tax break for “wear and tear”, only letting them deduct the costs they incur. In a further blow, and the most significant yet, changes to mortgage interest tax relief brought in from April 2017, mean landlords can only offset 75% of their mortgage interest against their profits. This will fall to 50% in 2018, 25% in 2019 and to zero by 2020 when it will be replaced by a 20% tax credit.

Private landlords are a diverse group, but according to mydeposits, the vast majority are individuals who own one or two properties and use buy-to-let as a part-time income supplement, rather than a full-time business, meaning they could be less likely to keep tabs on legislative changes. Alarmingly, 26% of respondents to the mydeposits survey said they were unaware of changes affecting mortgage interest tax relief and a further 23% did not know about the additional 3% stamp duty payable on buy-to-let and second home purchases.

86% of respondents to the survey own between one and four properties, with a further 8% having between 5-10 properties. While 21% of landlords said the changes will not affect their buy-to-let business, 25% indicated they will need to increase rents to tenants.  A further 10% plan to sell up altogether, and 9% said they will switch from using a managed service through a letting agent to self-managing in order to reduce outgoings.

Although growing numbers of landlords with several properties are now setting up limited companies to sidestep the new rules, this is unlikely to be viable for smaller landlords, some of whom it would appear will be forced to increase rents or sell up. While nearly 50% of landlords said they have no intention of leaving the private rented sector, nearly 25% plan to sell up in the next 5 years.

Tony Gimple, Founding Director of Less Tax for Landlords says landlords have four options: sell up; do nothing (which will be a default decision for many); set up a limited company, which Tony doesn’t think is the best move due to remortgage costs and lending inflexibility, and seven layers of taxation in companies including inheritance tax problems; or, finally, hold property in a “Hybrid Structure”, which he describes as truly running a portfolio as a property business, whilst at the same time reducing tax leakage to the legal minimum.

Commenting on changes to the lettings landscape, Tony says: “Landlords should be running their buy-to-let portfolio as a business regardless of tax changes, and those forced out of the market will be the ones who are too highly geared with too little yield. Many landlords are trying to do everything themselves and often following unreliable or out of context information, whereas once they are professionally educated on what their options are, many choose to remain landlords and go on to prosper.”

Eddie Hooker, CEO of Hamilton Fraser, parent company to mydeposits, comments: “The results of this survey are particularly interesting for the short to medium future of the private rented sector.  Around 25% of those who responded were unaware of the changes to the tax regime on their existing portfolios which shows that more is needed to be done to help educate the market and help prepare landlords for the changes to their personal tax liabilities over the next few years.

Even more poignant however, is the suggestion that more than 50% of landlords are considering changing their behaviour to safeguard their income by either increasing rents, turning to self-management or even selling up completely.   With all the well-meaning efforts that are being made in the market to make the whole renting experience a better place for both landlords and tenants, there is now a clear danger that supply could be restricted with the knock-on effects this may cause. The right tax planning advice and income protection strategies are absolutely crucial.”

To listen to a podcast with landlord tax expert Tony Gimple, Eddie Hooker, CEO of mydeposits and Paul Shamplina, founder of Landlord Action, discussing tax changes for landlords, click here.

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Tenant Tax (Clause 24) causing homelessness?

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Hi Team

Here is the impact of Tenant Tax (Clause 24) clearly visible. (Homelessness and Genocide of poor and sick).

It is causing Homelessness in London and will cause homelessness everywhere else in the country soon.
Click Here for article. (Or Search google for “Evening Standard Surge in rough sleeping on Tube”.)

When the winter comes, the homeless people will start to die of cold just like sick people are dying of NHS cuts. The Tory Government (Corrupt Politicians) who are handing tax money to their crony builders (by promoting Help to Buy) and extorting Landlords using Tenant Tax will be responsible for Genocide due to homelessness in cold weather just like they are responsible for sick that die from NHS cuts.

They are promoting Big Corporate Landlords just like NHS privatisation. This is prima-facie and clear-cut case of immoral and corrupt actions in high places.

God knows what Serious Fraud Office and Labour Party are doing about it. (probably Labour is complicit).

May God help Landlords, homeless and sick in the coming times.

This crime will never pay those who are committing it.

Bhrat

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Setting up the generations against each other

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The new report by Legal and General and CEBR (Click Here to view) has been presented as yet another example of ‘intergenerational inequality,’ with particular focus on the fact that the Bank of Mum and Dad is not only used to assist offspring with property purchases, but now also with accessing rented accommodation.

The L & G report highlights the financial assistance given to access rented housing; however, its findings are that in the case of the security deposit this is given in only 10% of cases. This is excellent news; 90% of renters are able to fund their own security deposits.

What’s more, with regard to home purchase, only a tiny percentage of parents (3%) use equity release from their homes to fund assistance and once the deposit has been funded the vast majority of new home-owners have no problem funding the repayments. Indeed the report states with regard to first time buyers:

‘Once they’ve raised the initial sum, affordability, it seems, is no longer a problem.’

Although this seems like good news to me, media coverage of it would suggest otherwise, and is typical of the current tendency to use housing research as a way of setting one generation against another. As Thomas Sowell said:

“Back in my old neighborhood, there was a special contempt for the kind of guy who was always trying to get two other guys to fight each other. Today it is considered a great contribution to society to incite consumers against producers, tenants against landlords, women against men, and the races against each other.”

It is simply not the case that older generations en masse had it ‘easier’ than younger generations, especially where their housing conditions are concerned. I just broached this subject with my 82-year old mother (who divorced and left the family home, penniless, when she was 40). She had the following to say:

“When I moved into an attic flat when I was 42, I could set a jelly in the bedroom in 20 minutes. I never used to take my coat off – which was good, because if you had a visitor and wanted to get rid of them you could say ‘I’m just on my way out.”

She often tells me of the day she walked into the loo, shut the door and was faced with a rat staring at her.

My father was a German who had to go to war aged 15 and before that often slept in a barn so that his washer-woman mother could put up paying guests in her house. His parents were then kicked out of their Sudeten homeland at the end of the war, had their house expropriated and had to live in East Germany for the remainder of their days, initially surviving on nettle soup.

On what planet were these lives and lifestyles ‘having it easy?’ (I am sure many of us have stories of our cold houses, no central heating and even outside loos)

So in the specific context of housing it is incontrovertible fact that conditions have vastly improved in the Western world in recent decades, and yet Shelter in particular continues to misrepresent private housing in the UK as though it is still Dickensian (as a private landlord, constantly being libeled in this way, I am sick and tired of it).

This talking-down of the quality of lives and the concomitant setting of people against each other is so damaging as it leads youngsters to believe that life is stacked against them and they will never be able to buy a home or even rent one if they don’t have wealthy and/or generous parents. As property expert Kate Faulkner, founder of Property Checklists has been saying for some time, the message that it is impossible to get on the property ladder is false and counter-productive. It misleads young people into thinking they will never manage it. In fact it is suggested in The Telegraph article ‘Investment plan: how to get your child on the housing ladder for £230 a month’ that people can get a foot on the property ladder for just £230 a month.

It is in fact far easier now than at points in recent decades when interest rates were astronomically high and home owners had to struggle and go without to cling to the ownership of their properties; indeed many had their homes repossessed because of this.

In addition to home ownership being so much more affordable now, it has even been reported in the Times today, that first time buyers who purchased 5 years ago have made around £55,000 already in increased equity. More good news for the younger generation!

We need to get away from constantly moaning that things aren’t fair.

As the child of an unemployed father living on benefits (he left his job as a bus conductor to look after the children when my mother left), I was never given a penny by my parents and I gained a lot more self-respect from creating my own financial success in life than I would have had I been given a leg up.  Indeed, I used to help my parents out and felt pleased to do so (even when I wasn’t earning much). Many people must do this when they have poorer parents, but this flow of money in the opposite direction receives scant attention.

Young people need to realise that the more they rely on parents, the less self-respect and self-esteem they will have. They need to learn that the way forward is through hard work and saving, through practising abstinence and through patience.

Young people whom I know often want to have it all now, however – in terms of nights out, expensive clothes, beauty treatments, cigarettes and alcohol. They often live at home in their late teens and early 20s (not everyone goes to University), and use all their wages on the above mentioned pastimes and treats, don’t pay anything towards their board and lodge and don’t save at all. I know one 18-year old who lives at home, has a take-home pay of £200 a week and has spent it all within 24 hours each week on simple hedonism (including paying his debts from the week before because he couldn’t wait until he had earned the money before spending it).

Many younger people want it all now and do not have the willingness, desire or patience to save.

In a nutshell, working hard, saving and being self-sufficient should be promoted to the younger generation. The satisfaction of achieving your own success is priceless.

The ‘Bank of Mum and Dad’ needs to lay off  and allow their children to stand on their own two feet.

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Section 21 – time limits, forms and retaliatory eviction

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This is the fifth post in my 2017 Legal Update series.

We have had two posts already in this series on section 21 but there is still a way to go. Today I am going to be looking at the remaining ‘Deregulation Act’ amendments.

If you are in Wales, you can ignore this post as these rules don’t apply to you. But don’t think you are let off the hook as new rules will be coming into force in Wales later once the Renting Homes (Wales) Act 2016 is implemented.

Note that the rules in this post will only apply to tenancies in England which started or were renewed on or after 1 October 2015.

However, if by any chance you are reading this after 1 October 2018 – note that these rules will apply to ALL assured shorthold tenancies.  Provided they are in England.

Time limits

Under the old rules, you could serve a section 21 Notice on day one (or preferably day 2) of the tenancy and then base a claim on it 5 years later – so long as no new tenancy agreement had been given to the tenant.

But no longer! The Deregulation Act brought in ‘use it or lose it’ rules which mean you can’t use your section 21 notice more than six months after it was served (or in some cases more than four months after its expiry date).

There are also restrictions on when you can serve your notice.

It cannot now be served during the first four months of the FIRST tenancy. Which means that you can serve it at any time during a renewal (so long as the original tenancy was over four months long).

I am afraid though that this means that for a six months fixed term it is not possible to serve a valid section 21 notice which expires on the last day. Sorry.

Section 21 Forms

One of the problems with section 21 notices and the mistakes that people kept making, was that we did not have an official form.

Thankfully this has now been provided and must be used for all English tenancies which started or were renewed on or after 1 October 2015.

If your tenancy started before then and has not been renewed since, I would advise that you use one of the older forms though. The prescribed form sets out all the legal obligations under the Deregulation Act – which don’t apply to you. So (unless you have complied with them voluntarily – not a bad idea) it could cause confusion.

As set out above, after 1 October 2018 the new official form must be used for ALL assured shorthold tenancies in England (but not in Wales, although the Welsh will no doubt have their own form by then).

Retaliatory Eviction

Do you remember in an earlier post in this series, I talked about tenants whose landlords threatened to evict them if they complained about the condition of the property?

That is known as ‘retaliatory eviction’ and is a bit of a scandal. After all tenants should not be at risk of being evicted if they simply ask for their property (for which in many cases they are paying quite a high rent) to be put into proper repair.

Tenant’s organisations have been calling for something to be done about it for years, and at last measures were put in place in the Deregulation Act 2015. I should emphasise that for most landlords it won’t be a problem.

Here’s how it works:

If a Local Authority serve an ‘improvement notice’ on a landlord, requiring them to do works to put the property in a proper condition, then the landlord will not (in most cases) be able to serve a valid section 21 notice during the following six months.

Also – if the tenant has previously complained about one or more of the items mentioned in the improvement notice – any section 21 notice served by the landlord after their complaint and before the service of the improvement notice – will be rendered invalid.

The act also provides that when tenants make a complaint the landlord must provide a response within 14 days:

• Saying what they intend to do to address the complaint, and
• Giving a reasonable timescale for doing it

However, it is not clear whether or not complying with this will save the landlord’s section 21 notice served in advance of the improvement notice. Which is odd.

I would emphasise again that for most landlords, the retaliatory eviction measures are not going to be a problem – as their properties are too good to ever be the subject of an improvement notice.

Improvement notices can only be served by Local Authority Environmental Health Officers after an inspection of a property has disclosed a ‘category 1’ or ‘category 2’ hazard. These only apply to serious problems and an EHO is not going to serve an improvement notice on a minor issue just to please a tenant.

So, you do not need to worry about malicious or ‘devious’ tenants arranging for this simply so they can stay in the property without paying rent.

Further information:

There is a lot of information about all this on my Landlord Law Blog.

My Landlord Law membership site has a lot of guidance on section 21 including a guide which you can follow to check that you have complied with all the rules.   We also have the new section 21 notice (with a special version for agents to use) as well as the old notice for pre 1/10/15 tenancies and for landlords in Wales.

If you want to bring a claim for possession against your tenants using section 21, Landlord Law also has a detailed guide to help you bring proceedings without having to use a solicitor.

Members can also ask me ‘quick questions’ in the members forum area.

You can find out more about Landlord Law here

This is the end, thankfully, of our look at section 21. Next time I will be writing about the new rules in the Housing and Planning Act 2016.

Tessa Shepperson is a specialist landlord & tenant lawyer and runs the popular Landlord Law online information service.

To see all the articles in my series please Click Here

Additional course below:

Landlords – if you want to avoid legal problems, penalties and fines, this online course is just the job Please Click Here

The course will have a special 30% discount for PP118 readers via a coupon ( pp118cc30 ) due to expire in 3 weeks time.

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HMRC using “big-data” to uncover the tax dodgers

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Landlords and Tax:

The revelation that almost 50% of landlords who had registered for the property licensing scheme in Newham – something all landlords there must do if they want to let property in the borough – had not registered for or filed a self-assessment tax return.

Of the 27,000 landlords registered on the scheme it seems that HMRC found almost half (13,000) are not registered for self-assessment, and it has estimated that in this borough alone buy-to-let tax evasion could be losing the Treasury £millions.

Whether Newham as a borough is representative of the UK as a whole as regards landlords is open to question, but when these figures are extrapolated across the country, even with conservative estimates, it is clear that it we are talking big numbers for income losses for the Treasury.

Writing in the FT, finance expert Merryn Somerset Webb, who is editor-in-chief of MoneyWeek says:

“Use the average rent in the area (just over £16,000 a year) and £166m of gross rent is not being declared. Assume a 10 per cent profit margin and an average tax rate of 30 per cent (some will be 20 per cent payers and some 40 per cent) and HMRC is down £4.8m in revenues in one London borough alone… There are about 1.75m landlords in the UK. Let’s assume that across the country there’s a little less cheating than in Newham. That would give us 500,000 non-declarers. Assume their gross rents are much lower than those in London — let’s say £10,000 a year. Then assume a similar profit margin and blended tax rate and we end up with £150m in evaded tax.”

Add to all this the cheating that goes on in the “black economy” by the “ghosts” who declare none of their moneymaking activities and the “moonlighters” who don’t declare all of them and you have a major opportunity for a modern digitally savvy HMRC to capture £millions in lost revenue.

Hence HMRC’s programmes aimed at catching the worst offenders, including the “Let Property Campaign”. This gives landlords an opportunity to bring their tax affairs up to date if they are an individual landlord letting out residential property in the UK or abroad, and to get the best possible terms to pay the tax owed. For landlords owing tax on letting income a voluntary disclosure will get the best possible terms giving them 90 days to calculate and pay what is owed.

Things are likely to get a lot tougher for tax dodgers of all stripes in the future: For example, it is likely that before getting licences of any kind, be they landlords of houses in multiple occupation (HMOs) and in selective licensing schemes, taxi drivers and restaurant owners, all will need to be registered with HMRC for self-assessment before a licence is issued.

HMRC has, since 2011, been using a “data mining” computer system called “Connect” which has the ability to sift through huge amounts of seemingly unrelated data: bank and PayPal accounts, online (e.g. Gum Tree) and local paper ads, credit card data, property transactions, company ownership records and names and addresses from such as Airbnb, and foreign currency exchange, to name just a few sources.

I addition, HMRC have at their disposal detailed statistical data for inter-firm comparisons across the whole country, and advance artificial Intelligence (AI) computer programmes with the ability to scour through a company’s accounts in minutes, a task that would otherwise take a human hours to audit for patterns of behaviour that would indicate cheating.

Social media is another source of information that the revenue are using to catch offenders: Facebook, Twitter, and even people appearing in television programmes have been caught out revealing their cheating.

All that is not to mention the amount of information HMRC gather from voluntary informants. A new hotline has been launched to allow the public to report evasion and tax fraud. It has always been a common source of information which HMRC can act on: marriage and business partner bust ups and petty jealousies often result in details of all kinds of tax scams and money squirreled away.

Vary rapidly then, HMRC are dragging themselves into the 21^st Century with their advance investigation techniques, methods of operating which not only reduce the manpower needed to track elicit behaviour. It will make it very difficult for those who set out to cheat, or those who just conveniently “forget” to be open and honest about their affairs, to hide “under the radar”.

It might not sound much when a small landlord or moonlighter dodges a bit of tax, but when undeclared income opens the door to a rage of other benefits, such as tax credits, not only does society lose the tax, it could be paying out thousands in tax credits on top.

Penalties for cheating can be severe, and the cost of a full investigation can be high, not just in money terms for professional fees, penalties and interest, but also in personal time and stress. A minor oversight or even an innocent mistake could result in an investigation going back six years, whereas deliberate fraud could result in an investigation going back twenty years.

HMRC Property Income Manual

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