Currently there is an environment where some people are pleading plain ignorance, some are putting their heads in the sand, and then there are those who know and are reacting positively to the coming changes in the BTL tax regime.
One thing is for sure, the property investment animal will evolve and change, it will not die. Property ownership is deep in the psyche of the population, and Britain has one of the highest number of private landlord’s in Europe.
So how are landlords reacting to the imminent changes? Some are transferring their assets into a Limited company, however, this has its own issues, such as additional stamp duty, capital gains tax and the ongoing cost of holding a company. By holding the property in a Limited company the landlord only pays cooperation tax on the profits alone, currently 20%. The number of landlords who have set up this structure has increased from 1% in January 2016 to 6% at the end of 2016, that’s approximately 120,000 landlords. The environment has also spurred some interesting tax saving structures which can be put into play, however, these have professional fees which are prohibitive to the average BTL punter.
The other option is to venture out of London, far into the wilderness; where the properties are £45,000 and the yields are plentiful. However, be warned someone could nick your boiler and the copper pipes too. By venturing out you might be breaking the first sacred mantra of property, which is Location, Location, Location.
Here is a summary of the attack by the government on landlords:
July 2015 – Government reveals plans to hike landlords’ tax bills by cutting mortgage interest tax relief to 20% between 2017 and 2020. This does not apply to limited companies, leading to many landlords buying houses through special purpose vehicles.
November 2015 – Government announces a 3% stamp duty surcharge on second homes and buy-to-let properties.
May 2016 – Bank of England governor Mark Carney says buy-to-let is risky and the Bank is monitoring it closely.
September 2016 – The Prudential Regulation Authority confirms it will bring in two waves of tougher underwriting standards for buy-to-let lenders in 2017.
January 2017 – Buy-to-let lenders begin to roll out the PRA’s changes, including assuming a minimum borrower interest rate of 5.5% for the first five years of the loan.
September 2017 – Buy-to-let lenders to enact the second wave of PRA changes, which include lenders considering future interest rate rises for at least the first five years of any buy-to-let loan.
This is unsurprising, as property is one of the few sectors which is active and producing money. Where there is frequency and money being made, sooner or later the tax man will focus on this, as on the other side of the balance sheet there is a black hole which cannot be filled.
These changes have also increased the level of deposits required when purchasing.
There is a way to cut through all the above issues, with one clean surgical cut. Where you can invest in central London from as little as £1,000, and the tax changes disappear. It’s open to HNWI or Sophisticated investors, and as always, capital is at risk. Here’s the link to find out more:
Each week, we answer a reader’s rental property question, from first-time landlords needing pointers about contracts to experienced owners. Agony Agent, is here to help!
This week's question is one that normally happens around winter and Christmas time.
Q. Richard what should I do, my tenants have split up?
A. There are a couple of points that I would recommend.
Don’t get involved. Break-ups can be dramatic and much as your tenants would love to get you involved in the nitty-gritty of the split. Don’t. It is not your place to do so. Stay professional. You let a property to responsible adults, you are not a therapist, so just stay out of the way and find out what the tenants want to do. Does one of them want to stay on? If so, are you sure they will be able to afford the rent, plus bills?
If they can afford the rent and bills, you can let them stay on, but you may want to change the tenancy agreement. If you do choose to change the tenancy agreement then you will have to refund any deposit taken and ask for a new deposit, which you’ll then have to re-protect. Please don’t miss out this step. It is very important to ensure any deposits taken from tenants are protected in one of the Government approved tenancy deposit schemes.
If you think the tenant who wants to stay can’t afford the rent on their own, and you have no legal right to chase the former tenant for rent, then you may be better off issuing a Section 21.
If they both want to leave, then you can accept a notice to quit from them, and end the tenancy in the normal manner. If there is still a fixed term to wait out, then you may still have a legal right to the rent. You might want to negotiate with the tenants on this point though, because really your new focus now should be on getting new tenants in.
If there is a history of rent arrears or persistently late rent, then you may be able to use a Section 8 to get them out. However, if you know the tenant can’t really afford to live in the property without the second income, but there have been no arrears in the past, you may have to sit and wait until the rent is sufficiently late to allow you to issue a Section 8, or until their fixed term ends. If you can’t issue a Section 8, then issue a Section 21 as soon as you can, and as soon as you believe there may be a problem. Whatever you do, always keep the lines of communication open between you and your tenants, just don’t get involved in the “he said she said”.
Just remember you are not the only person that this has happened to and that many landlords have experienced this, and come out of the other end. If it is getting too much for you, get in touch, I am more than happy to take over this situation and see it through.