#BuyToLet

Landlord Tax

A reminder to all landlords the 6th April 2017 sees the first phase in the restriction of mortgage interest able to be claimed as tax deductible by landlords.

The final phase will eventually bring the maximum down to the basic rate in 2020/21.

The Government paper is here:
https://www.gov.uk/government/publications/restricting-finance-cost-relief-for-individual-landlords/restricting-finance-cost-relief-for-individual-landlords

Landlords will be able to obtain relief as follows:
•in 2017 to 2018 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
•in 2018 to 2019, 50% finance costs deduction and 50% given as a basic rate tax reduction
•in 2019 to 2020, 25% finance costs deduction and 75% given as a basic rate tax reduction
•from 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction

According to Government figures they are expecting to raise an additional £1.3BN in tax revenue by 2021.

Buy to Let Tax Amendments to Finance Bill

I have read an article by Rosalind Renshaw which has flagged up that major amendments to the Finance Bill have been “slipped in” at committee stage, avoiding property consultation and scrutiny.

The changes if they are passed as currently worded in the Finance Bill could result in Buy to Let property owners paying Income Tax rather than Capital Gains Tax (CGT) on the profits when they sell.

Capital Gains Tax (cut in the 2016 budget) is 20% for high rate and 10% for basic rate tax payers.

Income Tax is charged at 45% for additional rate, 40% for higher rate and 20% for basic rate tax payers.

This change should it go through would double the amount of tax payable by Buy to Let investors when they sell.

The Law Society is challenging the government on this issue, and has made representations to the Government and HMRC.

It may be that the Government did not intend a material change to buy to let investors, and that the bill will undergo clarification within the bill before it is passed.

Treasury Minister David Gauke has told the Law Society that the measure was not intended to affect (buy to let) property investors, but was targeted for those in the property building industry.

Lets hope that is the case! I will keep an eye on this and report further in the news section of our website http://www.rlpm.co.uk/news.php if anything else comes to light!

Valissa Burnett
Lettings Director
Regency Lettings & Property Management

Buy-to-let lending restrictions being considered by the Treasury

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The 3% increase on Buy-to-let SDLT appears not to be just an easy tax option for the government. Reports from the Bank of England (BoE) reveal the high concern the BoE has given that Buy-to-let lending has increased by 40% since the 2008 financial crash compared to a 2% increase in owner occupier lending.

The BoE is concerned that the large levels of lending to Landlords could be a threat to banks and general financial stability, as buy-to-let landlords appear to be more vulnerable to an unexpected rise in interest rates or falls to income from void periods or decreasing rentals.

Officials on the BoE Financial Policy Committee stated in the last quarters meeting “new loans to buy-to-let investors were often subject to less stringent affordability tests than loans to owner-occupiers.”

The Financial Policy Committee is now asking for restrictions on buy-to-let lending in the same way as owner occupier mortgage lending. The Treasury are considering such actions and are consulting with the BoE, but wants to see if the 3% SDLT rises cools the market down at all.

Should such restrictions come into effect they would primarily effect large portfolio holders who rely on property portfolio price increases to remortage to raise deposits for new investments. Most large portfolio holders have very high LTV rates of borrowing against their properties.

Further interesting times ahead….

Buy To Let Landlords – Stamp Duty Tax to increase by 3% in April 2016

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Well yet another blow to buy to let property investors after the Chancellors Autumn budget announcement that from April 2016, those in England and Wales will have to pay a 3% surcharge on each stamp duty band.

For properties purchases between £125,000 and £250,000, where the stamp duty is 2%, buy-to-let landlords will pay 5%.

Based on an average nationwide buy-to-let purchase of £184,000, Landlords will pay an extra £5,520 from April 2016.

The Government will be consulting on whether commercial property investors and funds with more than 15 properties will be exempt from the new charges. Although this is likely, confirmation still needs to be received. Corporate investors such as housing associations will be exempt.

Stamp Duty Rates (on purchases)

Property value Standard rate Buy-to-let/second home rate (April 2016)

Up to £125,000 0% 3%

£125 – £250,000 2% 5%

£250 – £925,000 5% 8%

£925-£1.5m 10% 13%

over £1.5m 12% 15%

Source: HMRC

The UK property market is such a good investment that most UK Landlords will just factor in the additional costs and continue to make good returns.

There will probably be some panic buying between now and April 2016, but after that life will return to normal.

For those looking at increasing the size of their buy to let portfolio take care not to be rushed into purchases without ensuring that the property the type and in an area of demand, and also that the rental return will be sufficient to meet your needs.

Please speak to Valissa Burnett for free advice on any buy to let purchases.

For Corporate bodies and Overseas Property Investors

SDLT is charged at 15% on residential properties costing more than £500,000 bought by certain corporate bodies (or ‘non-natural persons’). These include:

companies
partnerships including companies
collective investment schemes

If the properties are not to be rented out, they may also need to pay Annual Tax on Enveloped Dwellings.

The 15% rate doesn’t apply to property bought by trustees of a settlement or bought by a UK resident company to be used for:

a property rental business
property developers and trader
property occupied by employees

The standard residential rate of applies in these cases.

Non resident companies will also have 20% Capital Gains Tax to pay when they sell the investment properties.

Those letting agents like us at Regency Lettings & Property Management Limited, who assist their clients with property investments will have a lot more work and number crunching to do when we advise our clients.