Why landlords are an easy target for the taxman

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Anyone with disposable income has a choice whether to spend that money on holidays and luxury goods or to save it. Arguably, there is a middle way: investing in property. The path of a landlord, if done right, can deliver a sustainable income well into your future, making it an attractive retirement plan.

However, far from being an easy way to guarantee income, investing in property is proving costly for many landlords. It seems, perhaps, that landlords have become an easy target in the eyes of the taxman as they have a physical tangible asset. 

Tax changes affecting landlords

Over the past few years, landlords have been hit with a series of tax changes that could seriously diminish their income. Here are the biggest recent changes that affect landlords:

• Purchasing property as an individual vs company – It now makes more sense to buy property via a limited company rather than as an individual due to the tax breaks afforded to companies.
• No more wear and tear allowance ‒ Previously landlords could include reasonable wear-and-tear expenses in their tax allowances for fully furnished rental properties.  This could be anything up to 10% of your net annual rental income. Now landlords can only claim for costs arising from replacing items that HMRC deem to be domestic items that have been subject to wear and tear in their properties. It only applies when the item is unusable and genuinely needs replacing – not just repurposed for some other use. 
• Additional 3% stamp duty on second homes ‒ Building a portfolio of properties just became more expensive as the government clamps down on second homes, introducing an additional 3% stamp duty on top of an already hefty fee.
• Reduction of the full mortgage interest relief ‒ From April 2020, landlords can no longer reduce their tax bill by deducting mortgage expenses from rental income. This has been replaced by a flat tax credit of 20% of mortgage interest payments.
• Potential rise of capital gains tax ‒ While it is unclear what will happen when, it’s expected that Capital Gains Tax will rise in the coming years to bring it into alignment with income tax rates.

And, as if this wasn’t enough, HMRC are introducing a new way of tracking, calculating and submitting tax returns for landlords, known as Making Tax Digital (MTD), potentially causing further pain for Landlords. 

As part of the MTD regulations, taxpayers will need to submit their annual tax return along with four quarterly submissions using recognised MTD software. If you outsource everything to an accountant, it’s inevitable that your costs will go up as you will need to submit five returns a year. 

Get started with a free MTD account from APARI.

How can landlords rise above all these changes and still come out on top?

Despite the situation looking pretty gloomy for landlords, not to mention the challenges brought about by the coronavirus, there is light at the end of the tunnel.

By preparing now for future tax changes, while rapidly adapting to the recent changes, landlords can develop a long-term financial plan that will help balance the books.

Here’s a few ideas of what can landlords do to help themselves:

• Keep good/efficient digital records ‒ With the new MTD regulations, tax records need to be kept constantly up-to-date. While this can be difficult to achieve, it is even more difficult to pull all your records together five times a year for your accountant to process. However, tax software designed to meet the needs of MTD, such as the free version of APARI, is now available, so you can register and get used to the process well in advance. What’s more, APARI has been engaging with HMRC to provide landlords with software which is easy to use and reduces the cost of using an accountant.

• Prepare for longer-term tax planning – Where an accountant may be able to add value is in your long-term tax planning. With all the changes to the tax system that have recently happened or are planned for the near future, ensuring that you don’t overpay is going to become difficult. Your accountant should be able to help you formulate a long-term tax plan to ensure that you never overpay.
• Plan for capital gains, inheritance and income taxes ‒ Part of your long-term tax planning needs to consider potential changes to the tax rate for things like capital gains, income and inheritance. While the situation is still evolving in response to the coronavirus lockdown, you can get regular updates as part of the APARI community or through your accountant.
• Expect the government to introduce the payment of quarterly bills ‒ The APARI tax experts expect, from their conversations with HMRC, that the result of the new MTD regulations will be that landlords are expected to pay their tax bills quarterly. By getting ahead of the new MTD regulations, you can avoid being stung for two tax bills in one year, ensuring you have enough saved for your quarterly bills, if introduced.

To help minimise future pain, landlords should start their long-term financial planning now. Part of this plan will need to involve keeping good, digital records using MTD-eligible tax software to minimise accountant fees. By starting with MTD software now, you’ll be well-practiced and prepared for the tax changes. You can then engage your accountant in more value-added advice and long-term planning to avoid becoming an easy target for the taxman.

Get started with a free MTD account from APARI.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Why landlords are an easy target for the taxman | LandlordZONE.

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Government Announces that XMAS Comes Early For Property Investors & Developers

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Property investors and developers have been waiting for the Government to announce the NEW Permitted Development Rights for repurposing commercial buildings for residential use. IT’S HERE!

The Government have issued a consultation document and are looking to bring in these new permitted development rights early next year.

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Leasehold reform campaigner resigns after ‘unfair’ bullying accusation

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Colleagues of Martin Boyd (picture above, inset), who’s resigned as chair of the Leasehold Knowledge Partnership (LKP) after clashing with the Leasehold Advisory Service, have urged MPs to support him.

They say Boyd, who has been with the campaigning group for 12 years, felt compelled to step down after failing to get the backing of the Ministry of Housing, Communities and Local Government when the chair of the Leasehold Advisory Service, Wanda Goldwag, reportedly attacked him for tweeting criticisms of the Government quango.

The incident happened in 2019 at a meeting hosted by MP Sir Peter Bottomley (pictured above, left) and resulted in Boyd being accused of bullying LEASE staff – a claim he denies – and banned from its offices.

Along with campaigners including LKP patron Bottomley, Boyd has been instrumental in pushing for leasehold reform.

Social media

There’s now been an outpouring of support for the campaigner on social media, with Justin Madders MP, Labour MP for Ellesmere Port and Neston, tweeting: “You and LKP have done an amazing job in exposing the unfairness of leasehold and it’s now high on the political agenda at last, but we still have a long way to go and we need you with us in that fight.”

LKP colleague Sebastian O’Kelly (pictured above, right), who is a former Daily Mail journalist, is calling on more MPs to take up the issue.

He says: “Why should leaseholders be deprived of the services – freely given over many years – of Martin Boyd because of a series of ill-disciplined and wrong accusations by someone on the public payroll?

“If he is wrongly accused of bulling LEASE staff, they need to support him. Cladding leaseholders in particular owe Martin Boyd a debt of gratitude: it was solely thanks to him that their issues were first raised in Westminster.”

Visit the Leasehold Knowledge Partnership.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Leasehold reform campaigner resigns after ‘unfair’ bullying accusation | LandlordZONE.

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WARNING! Benefits expert reveals £19,000 risk of not archiving emails

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The UK’s leading housing benefits consultant has warned landlords to keep copies of any correspondence with the DWP and local authorities for as long as possible to avoid potential court action and fines later on.

Bill Irvine (pictured) has made the comments after a recent case. He helped a landlord client in London avoid council tax and Housing Benefit repayments of £25,000, only for the local authority to issue debt collection notices totalling £19,000 months later.

The landlord in question, who wishes to remain anonymous, had rented out a property above a shop to his local council, who then sub-let the property to two sisters.

The council paid the housing benefit for both women direct to the landlord, while the duo also received a substantial council tax rebate due to their perilous financial position.

But it was discovered that the women had illegally sub-let an attic room to a third tenant, until that point without the landlord or council realising.

Incredibly, on discovery of the illegal sub-let in 2012, the council then asked the landlord to repay the full council tax and housing benefit payments totalling £25,000.

£19,000 demand

After a lengthy series of interactions with the council, Irvine had the payment request quashed. But recently the council then returned with a demand for £19,000.

“My client was understandably worried when he received this demand. I was less so, because I knew, the council didn’t have a leg to stand on, having effectively conceded both appeals; notified the Tribunal Service and Valuation Appeal Tribunal to this effect; and quashed the overpayments,” Irvine tells LandlordZONE.

“Fortunately, both my client and I were able to produce this evidence. Consequently, a simple email to the Debt Recovery Team, including the 2013 thread of exchanges, resulted in a quick and contrite response.”

But Irvine warns other landlords that, without the email trail he and his client had to hand, it would not have been as easy to fend the council off.

“So, if you ever encounter problems like those alluded to above, make sure you keep copies, just in case something similar occurs,” says Irvine.

Need Bill’s help?  bill@ucadvice.co.uk or 07733 080 389.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – WARNING! Benefits expert reveals £19,000 risk of not archiving emails | LandlordZONE.

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How’s that fair? Holiday lets enjoy VAT break for another three months while landlords get nothing

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Holiday lets owners including Airbnb operators have been handed another tax break while traditional landlords continue to be overlooked by the Government.

Ministers have extended a reduction in VAT on holiday homes until 31^st March 2021 in response to the impact of the pandemic, but has yet to offer any financial support for landlords.

The temporary change – from the standard 20% to the reduced rate of 5% – was first introduced on 15th July in the Chancellor’s economic update and was due to last until 12th January 2021, at a cost of £4 billion.

Now it’s announced that the benefit will last until the spring.

The cut was made in response to the pandemic to support businesses severely affected by forced closures and social distancing measures.

VAT savings

The Government says: “It is important to note that it is not mandatory to pass on the effective ‘VAT saving’ to customers.

“This is entirely a commercial decision for business operators, and whether or not prices and rates are to be adjusted is for each business to decide, taking into account their own trading terms and conditions.”

The UK has one of the highest VAT rates on the tourism and entertainments sectors; most other European countries have previously taken advantage of EU rules which allow reduced VAT rates.

Read more stories about VAT and landlords.

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BREAKING: Scotland reveals six-week festive evictions ban

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The enforcement of possession orders in Scotland is to banned over Christmas, its government has announced this morning.
Bailiffs are to be prevented from enforcing evictions from 11^th December until 22^nd January.

The new regulations, which will be introduced in the Scottish parliament imminently, are designed to offer tenants protection from eviction during the festive break, reduce the burden on local authorities to find accommodation for those who are evicted and stop the spread of Covid.

The only exception to the new eviction ban will be tenants involves in serious anti-social and criminal behaviour, and domestic violence.

Scotland’s Housing Minister Kevin Stewart (pictured, below) says: “We took early action to, in effect, halt eviction action until March 2021 due to the pandemic.

“We have supported tenants throughout this difficult period through a number of actions including increasing our Discretionary Housing Fund from £11 million to £19 million to provide additional housing support and shortly we will introduce our Tenant Hardship Loan Fund.

“We are now taking this additional, temporary step after carefully assessing the unique housing situation created by the pandemic.

“A temporary ban on carrying out evictions will give additional peace of mind to tenants over Christmas and into the new year.

“It will also prevent additional burdens being placed on health and housing services, during a time where they are already working hard due to the impact of the pandemic.

“It will allow tenants who are facing eviction, and may decide to take the opportunity to form extended bubbles over the festive period in line with relaxed guidance, time to effectively self-isolate afterwards should they come into contact with a positive person.”

Read more about evictions.

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Stamp duty on main residence?

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I owned 2 properties – 1 that I rented out, and lived in my other property as my main residence. I sold my main residence on 29th May 2019, bought 2 more BTL properties and I am living in a static caravan.

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EICR – Rogue electrician scam?

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I hired an electrician for an EICR, which he failed and said it needed a new consumer unit to pass EICR, which I agreed, and he completed the job and issued a “satisfactory” EICR.

It only raised my suspicions after I subsequently gave him EICR for two more properties (almost new build)

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HMRC stamp duty clarification to give landlords significant rebate windfalls

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Landlords who have bought mixed-use properties could be due a big windfall after HMRC clarified stamp duty payment rules

HMRC says that when claiming the relief on purchases of mixed-use buildings, tax should be calculated without using the 3% surcharge, even for purchases made by companies.

This means that the effective tax rate might be lower than 3% and those who claimed the relief within the last four years (having paid tax including the 3% surcharge) are due a refund.

When buying a building with retail premises and four flats above it for £1.5m, landlords will now save £27,000 in stamp duty surcharges, according to tax advisers Blick Rothenberg.

If the commercial unit is worth £150,000 and the residential units worth £1.35m, then £19,950 of stamp duty would be payable – made up of £13,500 due on the flats plus £6,450 on the retail premises.

In the past, £40,500 would have been charged on the residential properties, bringing the total tax bill up to £46,950.

The clarified rules will also make it more attractive for landlords to buy mixed use buildings in future, according to partner Sean Randall (pictured), who says it’s good news for buyers of mixed use buildings, irrespective of the size of the residential element.

He adds: “A significant tax saving may be due, for example on a single mixed use building containing four flats, as well as on a purpose-built private-rented sector development containing 2,000 flats.”

Read more about stamp duty.

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PROPERTY PIONEERS: Meet the WeChat king of UK’s Chinese buy-to-let community

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The UK property market will remain popular with Chinese investors despite Covid and Brexit, according to the UK Chinese Landlords Alliance.

It’s confident that the Chinese community will continue to see buy-to-let as a relatively safe investment and, as they work and save hard, they’ll still have the necessary capital to buy a wide range of properties around the UK.

Junhua Zhu, the Bromley-based founder and chairman, tells LandlordZONE that the Chinese community are mainly anti-Brexit, after experiencing divisions and civil wars in their own country.

“There was a drop in interest after the vote because overseas investors were nervous and most are still concerned about how it will work, but I believe confidence will return in the next few years,” says Zhu.

Zhu first started sharing his experience of building up a property portfolio in the UK on WeChat, the Chinese multi-purpose messaging, social media and mobile payment app.

“My popularity grew as people realised I knew what I was talking about,” he explains. “I then started my own group which grew really fast and I now run seven groups with between 2,000 and 3,000 people following me.”

Malaysia

About 80% of members are based in the UK, with the rest mainly in China and Malaysia – almost all are ethnic Chinese.

Those based overseas or who are less confident tend to invest in modern blocks and use agencies to manage properties, says Zhu, while those working here buy larger houses that generate more income.

He recognises that as English isn’t their first-language, it can be hard for some to navigate the buy-to-let process, and as flats are the norm in China, he gives potential investors insight when they’re looking to buy larger houses.

As relationships in the alliance have formed, some members now make joint investments, and as its profile has grown, property developers regularly approach it to discuss possible opportunities. “As the economy isn’t going to rocket soon, after Covid, property in the UK is a safe investment,” he adds. “As we don’t see interest rates going up, even if the market doesn’t boom, our costs are under control.”

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – PROPERTY PIONEERS: Meet the WeChat king of UK’s Chinese buy-to-let community | LandlordZONE.

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