Budget Tax Changes

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Budget 2018:

Before every Budget the newspapers publish articles containing their tax predictions.

I have always said that these are almost always completely alarmist and should be ignored. This year was no different. Here Nick Braun of TaxCafé gives his detailed analysis.

Just like last year there was:

• No big cut in the VAT registration threshold
• No cut in pension tax relief
• No cut to the dividend tax allowance
• No freezing of the personal allowance or higher-rate threshold
• No suspension of corporation tax cuts
• No further attack on the self employed

There was also no major fresh assault on landlords. Heaven knows the big cut in mortgage tax relief is enough to last a lifetime. But there were some property tax changes, including some unwelcome changes to main residence relief.

The main tax changes include:

Income Tax

This year the tax-free personal allowance is £11,850 and you start paying 40% tax when your income exceeds £46,350. From April 2019 the personal allowance will increase to £12,500 and the higher-rate threshold will increase to £50,000 – a year ahead of schedule.

These thresholds will, however, remain at these levels in 2020/21 and then increase with inflation each year.

Remember, if you live in Scotland you will not benefit from this tax cut because the Scottish Government sets its own income tax rates for most types of income (but not interest and dividends).

Capital Gains Tax Reliefs

From April 2020 private lettings relief (which exempts up to £40,000 per person of property capital gains when you rent out a former home) will be changed so that it is only available where the owner lives in the property with the tenant.

The final period exemption will be reduced from 18 months to just 9 months.

These changes will not increase the capital gains tax payable by landlords who sell regular buy-to-let properties but they will affect those who rent out their old homes.

The Government will consult on the changes so we will have to wait for more details.

Rent a Room Relief

This relief provides a £7,500 tax exemption if you rent out a room in your main residence. Following consultation the Government will not now include legislation for a “shared occupancy test� to prevent landlords benefiting from the relief when they let out whole properties.

Stamp Duty Land Tax

Remember this no longer applies in Scotland or Wales, just England and Northern Ireland.

From Budget day, first-time buyers relief has been extended so that all qualifying shared ownership property purchasers can benefit. This measure is being backdated to 22 November 2017 so that those who have not previously claimed will be able to receive a refund.

A consultation will be published in January next year on a 1% stamp duty surcharge to be paid by non-residents.

VAT

There were rumours before the Budget that the VAT registration threshold would be drastically reduced. This would have hammered many small businesses. The threshold will stay at £85,000 until April 2022. This means inflation will drag more business owners into the VAT system but it could have been a whole lot worse. Further changes may lie ahead once the Brexit dust has settled.

Corporation Tax

The corporation tax rate will fall from 19% to 17% in April 2020. Legislation has already been passed and will not be repealed.

Annual Investment Allowance

Capital spending by businesses on things like equipment, vans and certain assets within commercial property qualify for the annual investment allowance. This provides an immediate tax deduction for spending of up to £200,000.

The allowance will be increased to £1 million for two years from 1 January 2019 to 31 December 2020. Irrelevant to most small businesses because most spend nowhere near £200,000 per year anyway.

New Structures and Buildings Allowance

New non-residential properties will be eligible for a new 2% capital allowance.

Capital Allowances

Some assets, such as cars with high CO2 emissions, qualify for a “writing down allowance� of just 8% per year. From April 2019 this special rate will be reduced to just 6%.

Entrepreneurs Relief

If you sell your business you may be able to pay just 10% capital gains tax thanks to this relief. There are a number of qualifying criteria that must be met for at least one year before the disposal takes place. From 6 April 2019 the minimum period will be extended to two years.

Digital Services Tax

The Government is planning to introduce a 2% tax on the revenues of certain big “search engines, social media platforms and online marketplaces�. Couldn’t they have just been more open and said Google, Facebook and Amazon?

I wonder what that means for the many thousands of small UK businesses that sell their wares on Amazon. Will they be the ones who end up paying the tax in the form of higher charges?

Business Rates

The Government says it will cut business rates bills by one third for retail properties with a rateable value below £51,000 for two years from April 2019.

The Government will also consult on the criteria under which self-catering properties and holiday lets become chargeable to business rates rather than council tax.

Off Payroll Working in the Private Sector

Since April 2017, where a public sector body engages a worker providing services through their own limited company, the public sector body is responsible for determining whether the IR35 rules should apply and for paying the right tax.

From April 2020 this unpopular measure will be extended to private sector employers, except small firms.

National Insurance Employment Allowance

This allowance gives employers a £3,000 per year reduction in their employer’s national insurance bills. There were fears before the Budget that the allowance would be abolished or cut back.

From April 2020 the allowance will only be given to employers whose national insurance bill was less than £100,000 in their previous tax year. Fortunately, therefore, most small businesses will be unaffected and will continue to enjoy this tax break.

Class 2 National Insurance for the Self Employed

This currently costs the self employed around £153 per year. It was going to be abolished next year but the Government has decided to keep it for now.

Trusts Consultation

A consultation on the tax treatment of trust will be published “to make the taxation of trusts simpler, fairer and more transparent�. That’s code for they want to tax trusts more heavily.

Pensions Lifetime Allowance

This is the amount you can save in pensions before punitive tax charges apply. The lifetime allowance will be increased in line with inflation to £1,055,000 in 2019/20.

ISAs

No increase in the £20,000 annual subscription limit. The Junior ISA limit will increase with inflation to £4,368.

Nick Braun is the founder of Tax Cafe which publishes tax guides for landlords including How to Save Property Tax and Using a Property Company to Save Tax

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Budget Tax Changes | LandlordZONE.

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Landlord Reactions To The 2018 Autumn Budget

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The key headlines affecting UK landlords are:-

The Nil Rate Band Personal Tax Allowance will increase from £11,850 to £12,500 and the High Rate tax threshold will increase to £50,000. These figures were announced in previous Budget’s as targets for 2020.

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Tenants may soon be able to sue for properties not meeting basic standards

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Along with powers given to local authorities to fine landlords up to £30,000 for properties in poor condition along with other regulatory offences tenants may soon be able to sue landlords directly for properties that do not meet basic standards

Labour MP Karen Buck’s Private Members Bill

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Government Health and Safety review for PRS

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The Ministry of Housing, Communities and Local Government have issued a press release, click here, announcing that it will instigate a Health and Safety review of the PRS:

Renters are to receive greater protection thanks to plans announced by Housing Minister Heather Wheeler MP which will overhaul health and safety standards for rental accommodation – helping to keep safe the minority of private tenants who currently live in unsatisfactory conditions.

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Heating to 21 degrees?

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Hi Folks does anyone know if there is a legal requirement to provide heating that will reach 21 C in the living room?

I have a tenant who states the temp is only getting up to 19C and the room is COLD.

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Landlords have demanded change in today’s budget

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Budget 2018:

Landlords demanded change in today’s Budget, but they won’t be deterred if it fails to emerge, that’s the conclusion of a recent survey by online letting agent UPad.

A review of mortgage interest relief on buy-to-let mortgages, and the removal of the 3% Stamp Duty (SDLT) surcharge top the wish-list of changes that UK private landlords would like to see.

Nevertheless, nonetheless they indicate that they won’t be deterred from the rental market whatever measures Philip Hammond comes up with today.

Despite the good news that tax receipts are strong, and the public sector net borrowing reached a 16 year low (April to August), the Chancellor is under intense pressure to meet the Government’s pledge to increase NHS spending. This is proposed to be £20bn by 2023, so his ability to produce tax giveaways will no doubt be offset by the looming needs of a potential economic shock caused by Brexit – landlords, don’t hold your breath!

The Survey

When asked what one wish the Chancellor could grant on October 29^th, 40% of landlords chose a review of recent changes to Mortgage Interest Relief, whilst over a quarter (26%) would like to see the 3% surcharge on SDLT applied to second and subsequent property purchases reversed.

However, should neither of these come to fruition, the landlords questioned don’t intend to make any rash decisions regarding their future in the market.

Almost a third (29.5%) stated that they’re a committed landlord and take a long-term view on managing their portfolios; a further third (32%) would adopt a ‘wait and see’ approach to better gauge how they might be affected.  Only 7% would take steps to start selling their properties.

These are characteristics that James Davis, CEO of Upad and himself a portfolio landlord, believes are indicative of the level-headed nature of most UK landlords:

“The decision to sell up isn’t instantly achievable and landlords need to factor in serving notice on tenants and possible renovations before tackling all the normal marketing and conveyancing hurdles.  Realistically you can be looking at a twelve-month timeframe to sell a rental property so whatever happens next Monday, we’re unlikely to see that happen quickly.

“Added to that, however, is that our landlords take a long-term performance view of their portfolios.  Over three-quarters of our respondents have been a landlord for more than five years and added to this, the clear majority have a very clear strategic reason for being so: for two-thirds, it’s a vital part of their pension planning, whilst for a fifth it’s their full-time job.  This isn’t something that they’ll simply walk away from.�

It is a position supported by John Socha, a landlord with over twenty years’ experience and a portfolio of 25 properties across Northampton that he’s already planning to expand.  He comments:

“The Chancellor needs to start viewing landlords, like myself, as a legitimate business rather than an activity to dabble in on the side.

“I have built a significant portfolio of properties and already have plans to expand this further, but if the Chancellor doesn’t announce positive moves for landlords, then I will need to start increasing rents as tenancies come to an end.  I’m not going to simply give up what I’ve worked hard to build.�

Upad’s research was conducted shortly after plans to introduce a Capital Gains Tax incentive on the sale of rental properties to sitting tenants of three years or more were first mooted.  Respondents were asked whether this might be a move they’d welcome, with results being somewhat inconclusive.  Whilst 37% agreed that yes this was something that they’d welcome, 33% confirmed that they weren’t looking to sell, so it wouldn’t affect them.

James Davis concludes:

“With 71% of our respondents confirming that they’ll maintain the size of their property portfolio in the coming year and a further 15% stating that they, in fact, plan to increase the number of properties they hold, committed landlords with a long-term, strategic view of their investments are unlikely to be deterred by whatever the Chancellor announces next week.

“They’re keen to maintain a cost-effective approach to managing their portfolios which is why they chose to work with Upad, but they also resent the burdensome nature of the tax regimes inflicted on them.  However, they’re aware of the vital role they play in the provision of homes when supply is so low, and demand is so high, so they remain resolute in their commitment to the Buy to Let market.�

These are the findings of research released today by leading online letting agency, Upad.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Landlords have demanded change in today’s budget | LandlordZONE.

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Taxation Questions on Formation of Property Partnerships

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I am trying to establish the CGT and Stamp Duty position on the basis of two unrelated individuals forming an ordinary partnership (not an LLP).

To simplify matters to begin with, let us assume they both own six residential rental properties worth £200,000 each

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Norwich Franchise – Lettings Director Appointed

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Lettingsupermarket.comâ„¢ are proud to introduce their Norwich lettings specialist Jenna Veneziani, director of their latest franchise, Lettingsupermarket.comâ„¢ Norwich. Jenna and her team, based in Norwich, will be providing Landlords with a personal experience and superb local knowledge to ensure that every aspect of property management is dealt with as efficiently as possible.

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LandlordZONE® Q3, 2018 Renting Survey

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Landlord Survey:

The Q3, 2018 survey of the thousands of private landlords using the LandlordZONE® website reveals that 70% of the respondents own 4 properties or less, of which 75% are self-managed. Some 60% of the respondents never let to Housing Benefit tenants. Around 10% want to buy more properties, 71% will maintain their existing portfolio size, while 19% plan on selling some units. Read on for more statistics.

Small-Scale Landlord Dominance

It is well known that the UK’s private rented sector (PRS) is dominated by small-scale landlords and survey after survey has indicated this fact. The sector is populated by these often part-time landlords, renting out their investment properties (buy-to-lets), (1) to supplement their income and provide a pension next egg, (2) when they move away with their job and want to keep their own home, or (3) when they move to a new home before selling their own property.

The results of this survey confirm this notion that the small private landlord dominates an industry within England (English Housing Survey to 2017), and this is reflected right across other UK nations. The private rented sector remains the second largest tenure now accounting for 20% of all households.

The Private Landlord Profile

The results of a recent survey by Estate Agents, Your Move showed that over 40% of buy-to-let small-scale landlords see themselves as “pension pot� landlords, most being males over the age of 45, with nearly a quarter (23 per cent) of the sample having been a landlord for 15 years or more.

“Accidental� landlords – those who were not expecting to be landlords, are most likely to be female and under the age of 45. These were the second most common type of landlord (29 per cent), followed closely by the professionals, landlords doing it as a full-time job or career (20 per cent).

Nearly three in ten (29 per cent) of “pension pot� landlords saw their rental properties as a business, with more than half (53 per cent) investing in more than one property. It was found that these landlords are more likely than the other groups to build a personal rapport with tenants and want tenants who will protect their investment.

The Size of the Rental Market

The proportion of private rented sector households renting has doubled since 1996-97 and the overall size of the private rented sector has increased over this time from 2.1 million households in 1996-97 to 4.7 million households in 2016-17. The sector grew a little between 1996-97 and 2006-07, but growth accelerated after 2006-07, with over two million additional households added to the sector. However, growth now appears to have slowed more recently.

The increasing size of the private rented sector means that across most age groups (with the exception of aged 75+), the number of private renters has increased in the last 20 years even where the proportion of private renters in that age group has not. For example, the number of private renters aged 16-24 has increased from 365,000 to 513,000 even though the proportion has decreased (from 18% to 11%).

Where the proportion of private renters has increased, the increase in numbers has been particularly pronounced. There were more than three times as many 35-44 year olds renting privately in 2016-17 than 20 years ago: an increase from 331,000 households in 1996-97 to 1.1 million in 2016-17.

Tenure by Value

According to property agents, Savills (Residential Property Focus 2017 issue 1, chart above), the value of property in the UK rental market is a massive £1,400bn, and according to the statistics produced by the LandlordZONE® Q3 2018 survey, some 70% of this property is owned by landlords owning less than than 4 rental units, which would equate to an investment of £980bn, or just short of £1trillion.

The Survey Results:

Question 1 – Properties owned: How many rental properties do you own?

Number of Properties owned by Landlords

LandlordZONE® – A Chart showing Landlord Property Ownership

As the chart above shows, only around 5% of landlords in the survey sample own more than 20 properties, with around 41 per cent owning no more than two properties and 70% owning no more than four properties. These are figures produced in October 2018 by the LandlordZONE® survey, quite closely reflect figures produced through available national statistics.

How many landlords use agents?

Question 2 –Do you use an agent or manage your tenancies yourself?

The shear amount of new legislation, regulations, taxation rules and general “red tape�, now affecting landlords means that the DIY landlord needs to have quite a bit of knowledge and ideally experience if he or she is to stay out of trouble. So, the temptation to use a professional agent is now greater than ever. However, in these days of increasing costs and taxation, one area where landlords can save a lot of money is by self-managing, so there is a countervailing motivating factor which says, “do-it-yourself�.

The survey found that one-quarter (25%) of landlords are using letting agents, as opposed to the LandlordZONE® user survey which shows (75%) are managing their own properties. That would make perfect sense as those visiting the website do so, in the main, to find information and get advice, to keep themselves up-to-date on lettings management.

Question 3 – In the next 12 months, are you planning to buy more properties, maintain your existing portfolio, or sell some properties?

Despite the government’s tax changes, countless new regulations, and threats to the shorthold tenancy, with the proposed introduction of a mandatory 3-year tenancy, landlords are still optimistic about buy-to-let.

The saving grace is the growth of renting and the continuing healthy demand for rental accommodation. Recent research by Hamiltons International, the sector to continue growing and reach six million households by 2025. By 2022, 20.5% of households will be renting in Great Britain, they say, up from 19.4% today

A new sentiment survey by Your Move interviewed almost 1,100 landlords in June this year and its survey report shows that around 52 per cent of landlords surveyed felt positive about their position in the current economic climate. This compares to only 16 per cent who felt negative about their prospects as landlords. The majority approach to the general outlook was confident, despite the stricter regulatory and tax changes introduced over the last couple of years.

These results compare to the LandlordZONE® survey which gives around 10% wanting to buy more properties, over 71% maintaining their existing portfolios, and 19% selling some units.

Question 4 – What is your 12-month property market outlook?

The survey results from LandlordZONE® visitors show that roughly 22% are very positive, 55% are neutral, and 24% are negative on in the prospects of the buy-to-let market in the future.

With Brexit uncertainty, a Budget on the horizon, a stagnating housing market, and issues over Universal Credit, its perhaps not surprising that some landlords have the jitters, but when 77% of our landlord visitors are either positive or neutral, that must be a good sign.

Question 5 – Do you currently accept benefit recipients as tenants?

It is not unusual for private landlords to advertise properties to let stating that they will not accept applications from Housing Benefit (HB) claimants. This often raises the question of whether such restrictions amount to unlawful discrimination.

Despite the controversy over this, a 2018 House of Commons briefing paper “Can private landlords refuse to let to Housing Benefit claimants?� The paper discusses private landlords’ reluctance to let to Housing Benefit claimants and considers whether this is a form of discrimination. It concluded that it is unlikely to amount to direct discrimination as income and employment status are not protected characteristics under the Equality Act 2010.

Of course, landlords sometimes have no choice in the matter, if one of their existing tenants decides to claim benefits because they are short of funds.

The results of the LandlordZONE® survey on this show that around 60% of respondents never let to HB tenants, only 3% mostly let to these types and around 37% do sometimes let to them.

Question 6 – How easy is it to find new tenants in your area?

This is perhaps as good an indication as any of the state of the letting market today. The LandlordZONE® user base is predominantly UK, with around 30% from London and the South-east and the rest spread evenly throughout the country, most in the main conurbations such as Birmingham, Manchester, Leeds, Bristol, Edinburgh etc.

The survey shows that 75% of landlords are reporting that finding tenants is easy – there is ample tenant demand in their own locations, and though we don’t have a breakdown on where these locations are, it is likely to be the main conurbations. 24% are finding it not so easy to let, and just 2% report that they find it difficult to find tenants.

Question 7 – What is your view on the proposed introduction of mandatory 3-year tenancies?

The jury is currently out on the decision as to whether a compulsory 3-year tenancy is introduced in England, as we await the result of a government consultation exercise.

The new proposal would bring in a tenancy where there is a six months’ probationary period, at which point the landlord could bring the tenancy to an end if all is not well. But if this becomes law, when this 6 month hurdle is passed, the landlord is tied-in for the duration – for the remaining two and a half years, whatever happens next. During this period though, the tenant can walk away with just a short period of notice.

It would be a major transition away from the current shorthold tenancy where the landlord can use the section 21 no fault eviction process after the initial 6 months, providing the fixed term has expired. Basically, under the current rules, it means the landlord has a degree of control and protection, should things go wrong. Under the proposed scheme, and under Labour’s plans, all this is lost.

The results of the LandlordZONE® survey shows a surprising degree of tolerance for the idea, with around 30% of landlord respondents either positive (15%) or neutral (16%), but 69% would be definitely against.

Question 8 – What do you think the impact will be of Brexit on the private rental market, if any?

There has been a lot of debate about Brexit and how it will impact the property market and the economy as a whole.  So how is it likely to affect buy-to-let investors? The short answer is that it cannot be known for sure, but generally, anecdotal evidence shows that landlords and investors fall into two camps: there are those that worry that Brexit will have a big impact on them and are reducing their exposure to UK property as a result, and those that see this as a buying opportunity.

The results of our survey show that LandordZONE® visitors are in the main in the negative camp at around 70%, while 15% are positive and another 15% neutral on the matter.

Question 9 – How will the letting fee ban affect your business?

First trailed in 2016, one of the major changes coming in next year will be the ban on letting fees charged to tenants. Under the new regime, tenants will only be able to be charged for rent, deposit, and reasonable amount of penalty if they default on their contract. This is more likely to have a serious effect on letting agents rather than private landlords as most private (DIY) lettings don’t involve any charge to the tenant, or if there is one, it is usually a small amount.

Most letting agents on the other hand rely heavily on these fees for a large part of their income. Passing on higher charges to their landlord clients is likely to be restricted because of competition, but some of this charge will be passed on, and in any case the measure is likely to result in higher rents for tenants.

The survey found that 63% of respondents were neutral on the issue, with 6% positive and 31% negative.

Question 10 – How will the introduction of mandatory client money protection (CMP) affect your trust in letting agents?

The Government has announced that legislation will be brought forward to introduce privately-led CMP schemes and civil penalties of up to £30,000 for agents who fail to comply with the scheme. According to industry estimates, £2.7 billion in client funds is held by letting agents at any one time.

Currently, CMP is voluntary with approximately 60% of letting agents signed up to a scheme. By making CMP mandatory it will ensure that every letting agent is offering the same level of protection, giving both tenants and landlords the financial protection that they need against an agent going bust, or absconding with their money.

As three-quarters of the respondents in the survey sample don’t use agents, it’s perhaps not surprising that 40% thought it would have no effect on them, 38% don’t know, 19% were positive about the change and 5% negative.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – LandlordZONE® Q3, 2018 Renting Survey | LandlordZONE.

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New PIP Property Seminar date in Brentwood – Invitation to readers

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Come join us on Wednesday 28th November at Marygreen Manor Hotel in Brentwood, Essex for our last PIP seminar of the year, to talk everything property investment! Whether you are a seasoned investor or new to property, you won’t feel out of place as the night is for YOU.

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