Incorporation Feasibility Analysis For Landlords

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10’s if not 100’s of thousands of landlords still haven’t incorporated their rental property business or even taken specialist advice on the feasibility of doing so.

We struggle to understand this given that we offer a service to consider feasibility for a fixed fee of just £400.

View Full Article: Incorporation Feasibility Analysis For Landlords

Rents soar as agents report rising tenant demand but landlord slump

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The Government’s housing policies are coming home to roost as tenant demand continues to soar but the number of landlords advertising new properties to rent plummets, it has been revealed.

RICS says that during June it found significantly more members (a net balance increase of +40%) reporting an increase in tenant demand (see graph) while the net balance of those receiving new landlord instruction sank by 36%.

An even greater number of agents told RICS that they expect rents to rise as the imbalance between supply and demand continues through the summer.

Eoin Hill of SDL Surveying in Newbury reports: “Rents for lettings are still increasing due to lack of stock, plus some landlords are quitting due to looming EPC challenges”.

David Conway of Harrow firm David Conway & Co adds: “Government anti-landlord policies will result in fewer rentals, but with increased rents.”

Soaring

Ben Twomey (pictured), Chief Executive, Generation Rent, says: “Soaring rents since the pandemic are now having a knock-on effect on the number of homes being advertised to rent.

“Many tenants might want to move but simply cannot because the rent on a new tenancy is now far higher than what they are currently paying.

“That means fewer properties are becoming available and those that do are being snapped up more quickly by tenants who do need to move. That is keeping rents high and unaffordable for many.

“To bring rents back within reach of people on ordinary incomes, the government needs to build more homes in the places people want to live. That must also include many more social homes so that people on low incomes can live near their workplaces and families.”

Read the RICS report in full.

View Full Article: Rents soar as agents report rising tenant demand but landlord slump

Bank of England sounds house price crash warning if landlords sell-up

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The Bank of England (BoE) is warning that higher buy to let mortgage rates could see landlords sell up and leave the private rented sector – or push rents up for tenants.

In its latest Financial Stability Report

View Full Article: Bank of England sounds house price crash warning if landlords sell-up

Renting reform bill progress unlikely until much later this year, admits minister

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The Government’s Renters Reform Bill is unlikely to make progress through parliament until much later this year, housing minister Rachel Maclean has admitted.

Maclean was unable to confirm when the bill would get a second reading during a Q&A with MPs from the Levelling Up, Housing and Communities committee. It is tasked with scrutinishing official policy and performance in housing.

Asked by chairman Clive Betts about the legislation’s slow progress through parliament (it was given its first reading on 17^th May but has since then ‘got stuck’), Maclean hinted that it was unlikely that it would get a second reading until after the Summer recess.

This is due to start on 20^th July and finish on 4^th September.

She said her hands were tied by the parliamentary business managers who decide how and when bills pass through parliament, and a quick look at the ‘what’s on’ website for the Commons and Lords shows no time allocated for the bill before the house rises.

Delayed

Michael Cook, Group MD of Leaders Romans Group, says: “Despite some big announcements recently from Government, it’s unsurprising that the second reading of the Renters Reform Bill is delayed until at least the Autumn.

“As an industry we are concerned that a number of the elements of the Bill are unclear and need amending to make it workable.

“Giving MPs and the Select Committee a bit more time to liaise and engage with all parts of the sector is probably not a bad thing.

“Specifically, and from both the landlords’ and tenants’ point of view, we are concerned about the impact of removing fixed terms. We also question how effective the new housing courts will be, given that we have heard of no clear plan.

“We suspect many MPs will share these concerns. This has possibly been sensed by Government and hence the brakes applied to allow for some of these issues to be addressed.”

Read more about the Renters (Reform) Bill.

View Full Article: Renting reform bill progress unlikely until much later this year, admits minister

Labour WARNED after claiming ‘most renters live in homes bought via BTL loans’

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A team of independent fact checkers and campaigners has debunked Labour’s claims that most renters live in homes bought with a buy-to-let mortgage.

Deputy leader Angela Rayner made the assertion last week, but charity Full Fact says the claim is technically incorrect, as it holds true only for the private rented sector, not for overall rentals. When social renters are included in the total, about a third of renters live in buy-to-let properties.

False or misleading

Full Fact says all MPs, including shadow ministers, should correct false or misleading claims as soon as possible in their capacity as public representatives. 

The English Private Landlord Survey found that in 2020/21 the PRS in England accounted for just over 4.4 million households. Over half (57%) were BTL landlords with an existing mortgage, representing 61% of privately rented tenancies. 

Regulator of Social Housing statistics show that a further 4.4 million homes are being rented from both private and local authority registered providers. This means that roughly 8.8 million households live in rented accommodation in total, of which 2.7 (31%) million are owned by buy-to-let landlords. 

Supply gap

Although there have been concerns that rising mortgage interest rates could drive many of those landlords with existing buy-to-let mortgages out of the market, Aneisha Beveridge (pictured), head of research at Hamptons, told Full Fact: “We estimate that by the end of this year, landlords are likely to have sold 303,840 more buy-to-lets than they bought since 2016 which was when a raft of tax and regulatory changes were introduced.

“That said, these numbers won’t reflect the rise in the number of institutional investors buying-in through schemes such as Build to Rent which will have helped close some of that supply gap.”

View Full Article: Labour WARNED after claiming ‘most renters live in homes bought via BTL loans’

Horrendous overcrowding at dilapidated HMO leads to £17,000 fine for landlord

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A letting agency-owning landlord has been fined more than £17,000 for renting out one small room in an HMO to a family of five.

Ruhul Shamsuddin and his company Lordsons Estates were found guilty of 23 housing offences relating to a property in Clifftown Road, Westcliff-on-Sea (pictured).

Colchester Magistrates Court heard that an inspection in December 2021 discovered a breach of several HMO licence conditions.

Waste

Officers from Southend-on-Sea City Council’s private sector housing team found the property had disrepair to windows and staircases, a lack of fire safety, and waste underneath an outside staircase.

Officers also found evidence of overcrowding where one family, with two adults and three children, were living in one room.

The HMO licence was revoked immediately and a prohibition order served to prevent anyone staying at the house until it had been made safe.

At the sentencing hearing at Basildon Magistrates Court, Shamshuddin and the company were fined a total of £17,293.

Councillor David Garston (pictured), cabinet member for housing and planning, says landlords who exploit the vulnerabilities of people in need and provide substandard and unsafe accommodation will be caught and face the consequences.

He adds: “I’m so pleased we were able to relocate this family living in overcrowded conditions. The fact that the courts recognised the seriousness of the charges and imposed such a fine as this sends the right message out to others who may want to flout the rules.”

Lordsons Estate has an active website and is still trading but its accounts are overdue at Companies House where it currently faces an active proposal to strike off.

Read more about HMO fines.

View Full Article: Horrendous overcrowding at dilapidated HMO leads to £17,000 fine for landlord

Order of possession granted- What do I need to do next?

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Hello, I have a problem tenant and served S21 in April. Only since the S21 expired the tenant has started to default on payments and I have only made 30% of the rent.

I used the accelerated possession process to get an order of possession.

View Full Article: Order of possession granted- What do I need to do next?

Landlord mortgage arrears outstrip home owners’ as costs squeeze profitability

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Landlords’ arrears are growing at a faster rate than homeowners’, according to new research that suggests fewer investors are being shielded from economic headwinds.

Octane Capital found that buy-to-let arrears of more than 2.5% of the loan amount have risen by 42% in four years, from 4,930 in Q1 2019 to 7,030 in Q1 2023, accounting for 0.34% of total outstanding buy-to-let loans.

Similar arrears for homeowners have dropped by -8.6%, from 83,870 in 2019 to 76,630 this year, accounting for 0.87% of total homeowner loans outstanding.

While arrears are far from out of control, many mortgage holders are likely to struggle when they re-mortgage, with typical five-year fixed mortgage rates now climbing above 6%.

But Chancellor Jeremy Hunt’s mortgage charter – allowing anyone worried about their mortgage repayments to switch to an interest-only mortgage for six months without impacting their credit score – doesn’t cover landlords.

High inflation

CEO Jonathan Samuels (pictured) says mortgage rates and high inflation are stretching affordability to the limit, with landlords unable to entirely recoup their lost income in the form of higher rents.

But the research suggests levels of arrears are in no way out of control, says Samuels.

He adds: “The Chancellor’s mortgage forbearance measures are designed to reassure people who are worried about the impact of rising rates, and it’s welcome these measures have been introduced before the horse has bolted – cases of arrears need to be tackled before people fall into trouble.

“We’d still recommend mortgage holders to keep paying their loans as normal unless they are in need of emergency action, as measures like interest-only loans will only result in higher payments down the line to compensate.”

Read more about mortgages. 

View Full Article: Landlord mortgage arrears outstrip home owners’ as costs squeeze profitability

A taxing time for landlords…

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Changes in tax rules for buy-to-let landlords have definitely made the business of letting property more challenging, particularly with those who have taken on big mortgages to buy their rental properties.

The removal of mortgage interest relief (Section 24 of the Finance Act) and the substitution of a 20% tax credit, means that in theory it is possible for your buy to let business to be making a loss but still attract some tax liability. Clearly an undesirable situation in anyone’s book – see below for more detail.

Other tax changes added on make it far less profitable for the individual to rent out property. Most landlords are in the business to give them additional income and capital gains long-term, a vehicle to save for a pensionable income in retirement. But with additional regulation in the offing, on top of an already highly regulated sector, and possible further tax changes, its understandable there’s a lot of concern for landlords.

By international comparisons, the UK has one of the highest taxed regimes

Labour’s plans

Labour’s plans give little by way of comfort or reassurance for the small-scale landlord. Labour’s deputy leader Angela Rayner has suggested recently that if elected the party should raise taxes on savings and investments and has promised to look at raising the tax on the rent received from buy-to-let properties.

In a speech in May, Tulip Siddiq, shadow economic secretary to the Treasury, said the party was committed to “unlocking capital”. “Unearned income [such as rent on buy-to-let property] is taxed at a much lower rate than earned income,” she said. [Labour will ensure] anyone who has worked really hard doesn’t pay too much tax. This requires new thinking in terms of regulation and government tax policy. We want to make sure unearned income is taxed properly and we don’t feel that it is at the moment.”

It has been mooted by Labour that a large increase in capital gains tax is on the cards if Sir Keir Starmer, the Labour leader, wins the next election. This debate among senior Labour figures will likely to cause some alarm among savers ahead of the election and could prompt a rush to sell-off assets, including buy to let properties.

Labour’s stated plans to reimpose the cap on tax-free pensions savings has also resulted in warnings in some quarters where many high earners could be encouraged to take retirement early, before the next election, to try to avoid the reimposition of this levy.

Sir Keir and Yvette Cooper, the shadow home secretary, recently refused to rule out an increase in the levy and comes on top of a Labour raid on the middle-classes, including reversing the abolition of non-dom status and the cancelling of charitable status tax breaks for private schools.

The “think tank” report

Labour’s promises, it would seem, are as nothing to the tax change suggestions, put forward in a recently published report by the Resolution Foundation. In the report the Resolution Foundation argues that the country needs a completely new tax strategy to raise growth and reduce inequality.

The report’s suggestions include a hike capital gains tax (CGT), and to subject pensions to inheritance tax (IHT). These proposals are among other measures suggested by this influential think tank to radically change the tax regime in the UK.

Election promises

Ahead of the upcoming election, says the RF report, “the two biggest parties are taking very different approaches to tax policy: one is proposing large tax rises to fund new spending; while the other is likely to offer large tax cuts funded from higher borrowing.”

But it says, “The tax system should aim to create a level playing field for taxpayers, preventing well-advised rich people using its complexity to reduce their bills.”

This think tank is arguing that capital gains tax should be increased to align with the tax rates on employee earnings, including both income tax and national insurance (NI), so the top rate of CGT under the RF proposals would reach 53 per cent for second homes and 37 per cent for shares.

This would be partially offset, it says, by going back to giving an allowance for inflation. In the case of dividends it says, the basic rate of tax on dividends should be increased fro the present 8.75 per cent to 20 per cent, with the higher and additional rates to be cut by about 2 percentage points.

The RF thinks that inheritance tax should be applied to pensions and that the current residence nil-rate band allowance should be ended. Currently this allowance increases the inheritance tax-free threshold from £325,000 to £500,000 for people leaving their home to their children or grandchildren. But to off-set this it proposes lower rates of IHT of 20 and 30 per cent be introduced to make this tax more progressive.

The pension tax-free lump sum, RF is proposing, currently capped at £268,275, should be capped at £100,000., while at the same time NI would be scrapped on employee pension contributions and added to employer pension contributions instead.

Other RF proposals include:

• Cancel (at least) 1p of the 2p corporation tax cut planned for April 2020.
• Completely replace council tax with a progressive property tax – including a tax free allowance – based on up-to-date values (and allow local authorities to raise additional money to build new homes via a property tax building precept).
• Cut residential stamp duty, except for the purchase of additional properties.
• Support further progress on occupational pension saving among low- and middle earners during a period of rising minimum pension contributions by providing a flat rate of income tax relief; and exempting employee pension contributions from employee National Insurance, funded by capping tax-relieved lump sums drawn at retirement to £40,000.
• Introduce a new ‘NHS levy’. This would include charging employee and self-employed National Insurance contributions on the earnings of workers over the State Pension age. It would also place a charge that mirrors employee National Insurance contributions on private occupational pension income, but initially at half the main rate and with a higher starting threshold.
• Abolish inheritance tax and replace it with a lifetime receipts tax with lower rates and fewer exemptions. This should be levied on recipients, with a tax-free allowance to encourage broadly shared inheritances. The existing system could alternatively be tightened by freezing its thresholds, focusing reliefs, removing the normal gifts exemption, and closing pension inheritance loopholes.
• Scrap forgiveness of Capital Gains Tax upon death, at least for additional residential properties and assets qualifying for Business Property Relief or Agricultural Relief.
• Scrap Entrepreneurs’ Relief, or potentially lower its threshold from £10 million to £1 million.
• More broadly, improve the governance of tax expenditures by treating them more like departmental spending.
• Equalise self-employed and employee NICs by raising Class 4 NICs.41
• Levy employer NICs or an equivalent tax on PAYE-registered companies that use self-employed labour (including owner-managers).
• Abolish the marriage tax allowance.
• Abolish Lifetime and Help to Buy ISAs (though technically these are spending measures).

Labour’s re-think?

The only saving grace in all this: it is purely advisory and Labour has more recently stated that it will follow Tory tax policies should it win the next election. A new labour government would have no extra money for public services it has admitted and it would continue Tory tax policies if it should win the next General Election. Both Keir Starmer and his shadow chancellor Rachel Reeves, have stated that while the current cost of living crisis continues, the Tory tax policies will continue, even for the highest earners.

This promise would exclude the range of levies already announced by Keir Starmer, including adding VAT to private school fees.

The current buy-to-let taxes for landlords

From the last September the Stamp Duty threshold was raised to £250,000, a figure which includes buy-to-lets and second homes, with the current 3 per cent surcharge for these. These levels are currently set to stay until March 2025. Here are the current Stamp Duty rates in England and Northern Ireland:

Domestic items relief

The “Domestic Items Relief” replaces what was a blanket 10 per cent Wear and Tear Allowance that landlords could claim against rental income annually. Under the new scheme landlords can only claim for the actual cost of replacing furnishings supplied, for example: moveable furniture, TVs, carpets, curtains, washing machines, microwaves, fridges and crockery.

Fitted items such as baths & toilets, kitchens, heating systems etc., can be repaired or replaced under allowable expenses, but cannot be claim if they are improvements. The latter would have to be capitalised and added to the value of the building.

Mortgage interest relief

Since April 2020, a 20 per cent tax credit for mortgage interest payments replaces the ability to deduct the full mortgage interest payments as an expense.

Before 2017, when the new regime phase-in started, landlords could deduct mortgage interest payments from their rental income. Now, landlords must add the rental income (less allowable expenses) to their other sources of income, increasing their taxable income amount, before deducting the tax credit, which sometimes pushes them into a higher tax band.

View Full Article: A taxing time for landlords…

Latent Gains Impact On Finance Cost Tax Credits + CGT At Incorporation Of Property Rental Businesses

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Latent Gains occur when the total liabilities of a property rental business exceed the total acquisition costs of the business, also known as ‘Base Costs’ for CGT calculation purposes.

This is why it is so important for Accountants of property rental business owners to maintain an accurate balance sheet in addition to profit and loss accounting and filing tax returns.

View Full Article: Latent Gains Impact On Finance Cost Tax Credits + CGT At Incorporation Of Property Rental Businesses