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High proportion of UK landlords considering ways to combat tax change
Some 40% of landlords in the UK are either seriously considering forming a limited company in order to limit their exposure to changes that will restrict mortgage interest or will be looking into the option in the coming months, according to new research. However, the research from the National Landlords Association (NLA) found that so far only 1% had actually incorporated, which the NLA says can be explained by the high cost of transferring property held personally into a company. The findings also show that 31% have no intention of moving their portfolio to a limited company and that 29% are still unsure about whether they will incorporate or not. Mortgage interest relief for individual residential landlords, which will be restricted to the basic rate of income tax of 20% by 2021, will begin to be phased back from April 2017. The changes will mean that landlords will no longer be able to deduct the cost of mortgage interest before declaring their taxable profit, and will instead receive a tax credit of 20% of their mortgage interest costs. The NLA has labelled the changes the Turnover Tax, because landlords’ tax will be calculated on rental income they earn, rather than their profits, forcing many basic rate payers into a higher bracket and leaving higher and additional rate payers with considerably bigger tax bills. Landlords structured as companies will be exempt from the changes, instead paying corporation tax, currently 20%, on their profits alone. ‘Transferring personally held property to a limited company isn’t a straightforward process, so it’s not surprising that so few have taken this action so far. Landlords need to do their research but many will realise that incorporating simply doesn’t stack up financially; doing so will incur capital gains and potential stamp duty charges, which means the process may be prohibitively expensive,’ said Richard Lambert, NLA chief executive officer. According to Richard Price, executive director of the UK Association of Letting Agents (UKALA), if landlords follow through with these intentions then it’s likely that more and more will take a hands on approach to managing their portfolios in the future, which would mean less business to go around for agents, and certainly less of a need for full service offerings. ‘The changes to taxation are forcing landlords to re-evaluate their businesses and their place in the market, so our advice for agents is to begin talking to your clients about their intentions over the next few years, and consider how you’ll meet their changing needs in a way that is distinct from your rivals,’ he pointed out. Continue reading
Latest survey shows decline in home ownership in England has halted
A decade long decline in home ownership in England has been halted with the latest figures showing that more than 14 million people owned their home in 2015. The data from the English Housing Survey reveals that out of the 22.5 million households in England in 2014 to 2015, the number of people owning their own home in the past year has remained static the first time this has happened since 2003. It also shows that more than half of local authority tenants and a third of housing association tenants expect to buy their current home and there has been an increase in better homes with the number of properties failing to meet the government’s Decent Homes Standard continuing to fall and down by 3.1 million on 2006. ‘In 2010 there was a housing market where buyers couldn’t buy, builders couldn’t build and lenders couldn’t lend. Our efforts are turning that around with more than 270,000 families helped into home ownership through government backed schemes since 2010, while the number of new homes is up 25% over the last year,’ said Housing Minister Brandon Lewis. ‘And we’ve set out the boldest ambition for housing in a generation, doubling the budget so we can help a million more people into home ownership, while delivering a bigger, and better private rental sector,’ he added. Lewis said that the survey also provides evidence that the government’s decision to reinvigorate and extend its flagship Right to Buy scheme has boosted the aspiration of social housing tenants with those expecting to buy their current home rising from 35% in 2010/2011 to 42% in 2014/2015. More than 46,000 people have taken up the chance to buy their home through the reinvigorated scheme since 2012 with councils delivering replacement properties on a one to one basis ahead of schedule. Lewis added that house building is at the heart of the government’s long term economic plan with more than £20 billion committed over the next five years to help meet its ambition to deliver one million new homes. Details from the survey show that among owner occupiers, the proportion of households who owned outright remained larger than the proportion buying with a mortgage, although not in London. In 2014/2015, there were more outright owners at 33% than ‘mortgagors’ at 30%, a continuation of the trend first identified in 2013/2014. This was not the case in London where there were more mortgagors at 27% than outright owners at 23%, which the report says is most likely as a result of the younger age profile of the population in London. The private rented sector remained larger than the social rented sector. In 2014/2015 some 19% or 4.3 million of households were renting privately, while 17% or 3.9 million of households lived in the social rented sector. There was no change in the size of either sector between 2013/2014 and 2014/2015. There has been an increase in the number of families with dependent children… Continue reading
Residential rents in England and Wales up 3.6% year on year
Rents in England and Wales increased by 3.6% year on year in January with the East Midlands and the East of England lead rental growth, up 5.9% and 5.8%. This means that rents re growing quicker in these two regions in London and landlords overall have seen total annual returns reach 12% or £21,988 in absolute terms since November 2014. The data from the buy to let index from Your Move and Reeds Rains also shows that the average rent is now £790 per month and the proportion of late rent fell in January to 8.2% compared to 9.3% in December 2015. In London rents rose by 5.7% on an annual basis, marginally slower than 6.3% recorded in December. At the other end of the spectrum rents are lower than a year ago in the South East and North East regions, both seeing a 1% annual fall. Meanwhile the slowest annual rent rises are in Wales, up just 0.6% since January 2015. Six out of 10 regions have witnessed monthly falls in rents, in line with the overall month on month trend across England and Wales. This is led by London, with rents in the capital 0.7% lower than in December. Taking into account both rental income and capital growth, the average landlord in England and Wales has seen total returns of 12% over the 12 months to January, up from 11.2% in the 12 months to December, a 14 month record since total returns stood at 12.3% in the year to November 2014. In absolute terms this means that the average landlord in England and Wales has seen a return of £21,988 over the last 12 months, before any deductions such as property maintenance and mortgage payments. Of this, the average capital gain contributed £13,594 while rental income made up £8,394 over the 12 months to January. Rental yields have so far proved resilient in the face of price rises, the report also shows. The gross yield on a typical rental property in England and Wales, before taking into account factors such as void periods, is steady at 4.9% in January, the same as in December 2015. On an annual basis, this is fractionally lower than the 5% gross yield seen a year ago in January 2015. ‘Buy to let returns are building and property prices are picking up as the housing shortage across the UK intensifies. Landlords’ balance sheets are looking healthier than at any point since 2014, and property investors are looking at an excellent rate of return from their portfolios,’ said Adrian Gill, director of estate agents Reeds Rains and Your Move. ‘With house prices rising rapidly into the New Year, this acceleration will be a welcome addition to the wealth of landlords on paper, while solid rental yields are underpinning total returns pushing well into the double digits,’ he added. He believes that the current fuss over the… Continue reading
