Landlords on the edge

cliff edge
istock_pitr134_ce
Share this content
Tags

Buy-to-let landlords are being pushed over tax cliff edges, as their taxable income is increased by restrictions on the amount of interest they can deduct from their rents.

Profit forecast  

Back in 2015 I warned that individual landlords would face huge tax bills, as the tax relief on interest and finance charges connected with letting residential was gradually reduced, from a 25% restriction in 2017/2018 to 100% block from 6 April 2020. This restriction does not apply to corporate landlords, or those letting furnished holiday lettings or commercial property.

The higher income tax bill is partially softened by a tax credit equivalent to 20% of the blocked interest, but it is the amount of taxable income which determines eligibility for many allowances, and has a knock-on effect for other taxes.

The Low Income Tax Reform Group (LITRG) has identified over a dozen unintended consequences of the restriction on interest deductions, which I’ve categorised below.

Marriage allowance 

Where taxable income exceeds the basic rate band (£50,000 in 2019/20, £43,430 for Scottish taxpayers) the marriage allowance is withdrawn. This is the transferable part of the personal allowance which can only be utilised if the recipient doesn’t pay tax at rates higher than the basic rate, or the intermediate rate (21%) in Scotland. Thus just £1 of income in the higher rate band means all of the marriage allowance is lost, worth £250 for 2019/20. 

Personal allowance

The personal allowance is tapered away by £1 for every £2 of taxable income over £100,000, producing a marginal tax rate of 60%, or 61.5% for Scottish taxpayers.

Pensions allowance

The pensions annual allowance is reduced by £1 for every £2 until it reaches a minimum of £10,000, where net adjusted income exceeds £150,000. If pension contributions are paid in excess of the annual allowance, taking account of any unused allowance brought forward, the taxpayer will be subject to a pensions annual allowance charge at their highest marginal tax rate.

Parents hit

Where one or both parents has taxable income over £100,000, they are not eligible to have a tax-free childcare account. Breaching this income threshold will also mean the family loses entitlement to 30 hours free childcare. The family can also be hit by the high income child benefit charge (HICBC) which will claw back child benefit paid to the family by 1% for every £100 of the higher earner’s taxable income over £50,000.

In both cases the income of the higher earning partner effects the entitlements of the whole family. 

Parents who are liable to pay child maintenance will find they have to pay larger amounts based on their taxable income.

Student loans

Individuals who have outstanding undergraduate student loans have to pay 9% of their taxable income above these thresholds:

  • £18,935 for plan 1 loans
  • £28,725 for plan 2 loans

Those who have also taken out a postgraduate loan must pay an additional 6% of their taxable income above £21,000 from 6 April 2019. The interest restriction could easily push a landlord over these thresholds from 2017/18 onwards.

Savings income

Taxpayers who have significant savings income may enjoy their interest tax-free where it is covered by their personal savings allowance (PSA), or the starting rate for savings (0% on up to £5000).

The PSA is set at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers, but is withdrawn for those in the additional rate band. The restriction on interest deductions may thus reduce the savings allowance to £500 or nil, and eliminate the band available for the zero rate on savings.

Where a landlord has savings income, but also has  property related loans on which the interest deduction is restricted, it would make sense to use those savings to reduce debt in the property business.   

Other taxes  

An increase in taxable income will have a greater effect for Scottish taxpayers as there are more tax bands and higher income tax rates in Scotland. The tax credit for Scottish landlords is still 20%, although the intermediate rate in Scotland is 21%. 

The rate of CGT payable is dependent on the level of the taxpayer’s taxable income. The interest restriction could result in the taxpayer paying CGT at 20% rather than at 10%, or at 28% on residential property gains rather than at 18%.

As dividends are taxed as the highest slice of income, the interest restriction could push the dividend income into a higher tax band, attracting tax at 32.5% or 38.1% rather than at 7.5%.

Advise your clients

The knock-on effects of the interest restriction in 2017/18 will have been relatively minor as only 25% of interest was blocked. You will see a far greater impact in the 2018/19 tax returns, and this should be projected forward for 2019/20 and 2020/21 to take action before it’s too late.

About Rebecca Cave

Consulting tax editor for Accountingweb.co.uk. I also co-author several annual tax books for Bloomsbury Professional and write newsletters for other publishers.

Replies

Please login or register to join the discussion.

avatar
By Jholm
21st Jun 2019 17:25

Potentially unpopular solution to stop complaints:

Sell the property to avoid the issue, creating availability in the market for new first-time buyers that were supposed to benefit from the introduction of the restrictions.

Thanks (10)
avatar
to Jholm
24th Jun 2019 10:12

What about landlords providing affordable accommodation for those who either don’t want to buy or can’t afford to buy (irrespective of the supposed skew that landlords place on the market) Property ownership isn’t for everyone and by forcing landlords out at the bottom of the market particularly you are restricting tenant choice. It is time we abandoned this idea that the Englishman’s gone is his castle and reverted to a more varied property market much as they have in Europe.

Thanks (7)
avatar
to AmandaElliott
24th Jun 2019 10:44

What's the definition of affordable housing? Its a genuine question and I've never got a straight answer. Thanks.

Thanks (0)
avatar
to AmandaElliott
24th Jun 2019 11:11

b*llocks no landlord does it as social good who are you kidding??

Thanks (4)
avatar
to Iain Mcritchie
24th Jun 2019 14:40

So renting a clean and well decorated house to a single mother with 2 small children and keeping the rent fixed and low for 5 years ( until a small increase below market rate had to be made due to the costs of complying with all the red tape around) is doing no social good - think again. I know the landlord - it isn’t the only property they rent to people who are on benefit and they struggle to keep the rent affordable. They aren’t on their own and they shouldn’t be penalised. They are creating their own retirement fund so they won’t burden the state later on. You are plying the politics of envy.

Thanks (8)
avatar
to AmandaElliott
24th Jun 2019 22:03

Honestly you believe that?

Go read some stats on housing in the UK.

Then look at how many MPs are multiple home owners..

You helping the single mum, by the state assuming buying a home for your friend.

The state controls the supply of the assets as well though planning.

You need to think at a macro level and stop thinking I.

Renting is fundamentally bad for the vast majority that have to rent.

Thanks (1)
avatar
to Iain Mcritchie
25th Jun 2019 11:58

That’s a blanket statement- renting is bad for the vast majority- how so? There has to be a market for different types of housing provision. Private landlords are part of that landscape.

Thanks (0)
avatar
By kjevans
to Iain Mcritchie
24th Jun 2019 17:23

But why should they be treated any differently from any other business?

Thanks (1)
avatar
By AW71
21st Jun 2019 18:08

I won't cry. At present a lot of properties in my area that go up for sale then become bought by landlords limiting an already overly limited buyers market.

Thanks (5)
to AW71
24th Jun 2019 17:06

I know you won't cry because you are obviously not a landlord and so you are not affected by this tax. So what exactly is stopping other buyers from buying the properties? It is not like the landlord who buys it in the end is twisting the seller's arm to sell it to him?
You can't blame landlords for being able to afford a property (after saving for many years) which most youngsters or first time buyers cannot because house prices have shot up so much.

Thanks (1)
avatar
By kjevans
to Nefertiti
24th Jun 2019 17:27

Most landlords buy at a lower price than a private buyer would be willing to pay, so it's not landlords forcing up prices - in fact prices are really low now, in my area as low or lower than they were 10 years ago. Perhaps it's because people can't get mortgages (or can't be bothered to save for a deposit as holidays and flat screen TVs are more important). It used to be that renting was as usual as owning, but we seem to have forgotten that

Thanks (1)
avatar
22nd Jun 2019 09:49

You think that's bad... wait until interest rates rise and Corbyn is in Number 10. Then all the landlords that incorporated will have a nasty tax bill when they try and realise their investments.

My money is on some sort of restriction on the NTLR losses for a company in regards to residential property next.

Fairly easy tax grab which will raise very few complaints from the vast majority of the electorate.

The buy-to-let boat left quite a few years ago.

Thanks (1)
avatar
By schocca
to Adam12345
24th Jun 2019 11:09

Ah yes, but if you do that, you affect ALL residential property companies... it's not all BTL landlords you know...

But as all landlords in any shape or form are seen as "bad" (including social housing projects), then I see another easily generated housing crisis in the making. Considering that housing needs have significantly changed in the last three decades (including a very large student population vs 30 years ago), it's going to be a mess. Sigh.

Thanks (3)
avatar
to schocca
24th Jun 2019 11:17

Yes it hurts the newer landlords the most with debt.

We need a land tax, paid by the owner and regulated rental that protects the tenants.

With the aim to remove homes from being the investment vehicles they become.

Thanks (1)
avatar
By schocca
to Iain Mcritchie
24th Jun 2019 11:46

One persons investment = one persons tenancy.

No investment opportunity = no tenancy...

Unless you believe in council housing for all? Just remember that we were in this hole for the whole of the 1980's and it was a mess.

So will repeating the same mistakes yield a better answer?

Thanks (1)
By DJKL
to Iain Mcritchie
24th Jun 2019 17:11

What about those landlords who actually build the flats, they take nothing from existing stock, they increase the number of properties available to rent.

Groups like ours were at the vanguard of this ,we built 61 flats in the mid 1990s and rented them out until circa 2010-2014 when they were all (but one) sold. Build to rent had not then really been invented in the UK.

You might argue using corporate beasts solves the issue but we built 34 in a partnership and 27 in a partnership between a partnership and a limited, if we had not sold out (not because of the interest rules, we sold before they came in following the banking crisis) we would be in real cashflow problems now.

Anyone who believes that one can impose charges/taxes/changes on a property market and expect it to function as before really does not understand property, given these sorts of changes and the climate it creates, how easy will it be getting funding for build to let, all build to let will be forced into corporate shells (until, of course, they also get attacked in which case extracting oneself from them is a whole new degree of complexity) and it is that climate, and uncertainty , that will reduce the numbers built in the first place- the law of unintended consequence.

Building properties like these is not a short term project, one can be 2-3 years at the planning/consultations/ reports , another 2 years sorting warrants, finance and building- as a business the fact that politicians can turn a business model on its head by legislation, for projects with a long gestation period, means fewer are prepared to try doing it- you try a £10 million project and 50% in have the ground taken from under you and see if you can salvage anything- it is all risk/reward, and knee jerk politicians have added a lot more risk.

Pre 2008 the unquoted private sector built circa 30% of all house completions in the UK, that shrank post 2008, it started to show signs of life again by circa 2014 and then this sort of legislation makes everyone think- maybe sitting on the pot is too dangerous, less properties get built as a result, no problem is solved, we merely get virtue signalling.

Meantime those with deep pockets, the financial institutions etc, they can afford to take a punt on build to rent, the rents will be annuity substitutes, they appoint impersonal managing agents who have little to no empathy with the tenants and that is the new paradise created- your landlord becomes the equivalent of a utility company helpline.

Rent controls, well what happens, you want a flat in say Stockholm to rent, well start saving your blackmarket key money because without it you could wait a very long time.

https://www.theguardian.com/world/2015/aug/19/why-stockholm-housing-rule...

Over my years here we have created planning permissions for over 300 properties as our sideline business-we are a commercial property investment group- likely the next area to be attacked with ever more stringent ECPs- I doubt we will now build any more houses/flats. I doubt we will take the risk of some half baked politician virtue signalling with blunt legislation that kills the good, the bad and the ugly with no discrimination.

You reap what you sow.

Thanks (5)
avatar
By kjevans
to Iain Mcritchie
24th Jun 2019 17:31

Tenants are far too well protected already - they can go 6 months without paying any rent before being evicted and they can trash their houses without being prosecuted for criminal damage and they can spend their housing benefit - paid for by us - on anything they like without being done for benefit fraud.

Thanks (5)
avatar
to kjevans
24th Jun 2019 22:02

Guess your not tenant then right?

Try students made to sigh leases for 12mths when the are in university for 9mths. guaranteed by parents?

No wonder our youth are struggling.

Thanks (1)
to Adam12345
24th Jun 2019 13:08

Adam12345 wrote:

Fairly easy tax grab which will raise very few complaints from the vast majority of the electorate.

Fundamentally I feel that is all it was and not a case of social justice to the renting population no matter how it was spun.

And yes I am a private landlord who just had an eye on a little retirement planning quite a number of years back as annuity rates tumbled, final salary schemes disappeared and an ever increasing state pension retirement date that continues to disappear off into the sunset.

It is what it is and its a case of put up, shut up or move on. Goal posts are moved and you just have to get on with it.

The same happened with the dividend tax allowance and those retirement planners with a portfolio held outside of ISA's. It takes quite a number of years to transfer over at £20k a pop.

Yet another example of unintentional consequences from those in central government and their ivory towers.

Not going political but if the Tories are hitting the middle masses like this, I dread to think what the other two so called major parties would do.

Thanks (4)
avatar
By Tim 59
24th Jun 2019 10:55

Investors in stocks and shares cannot claim interest relief should they gear their portfolio, so removing the interest relief on buy to let investment restores parity. A nice tax break while it lasted, be grateful and now move on.

Thanks (2)
avatar
to Tim 59
24th Jun 2019 11:15

That's not a valid comparison.

Investors in stocks and shares are not running a business.

A BTL landlord is.

Would you consider the deduction of interest paid on loan to buy a newsagents was a 'nice tax break' that should be removed?

Thanks (6)
avatar
24th Jun 2019 11:04

The problem with the "it serves BTL landlords right, I have no sympathy" is two fold.

Firstly, if these measures are being defended as a way of re-balancing the housing market, I doubt they will. They don't affect companies and they won't affect the very rich who can afford to buy without borrowing.

There will always be a need for rented accommodation. Students, those just starting out in work, those who just don't want to own a property. Who is to provide this? The state? I'm sure Jeremy Corbyn would say yes to this but The state wouldn't be my first choice for landlord.

Private rented accommodation only accounts for around 18% of the housing market so the driver on price is still mainly owner-occupiers. Has driving a percentage of the landlords out of the market had much effect on process? I haven't seen that yet. If all BTL landlords disappeared overnight, where would people who wanted to rent live?

As to the measure itself, any system that can produce a tax bill out of rent £12,000 - Mortgage interest £12,000 = £o profit (and theoretically a tax bill of up to £4,800) has to be flawed.

If penalising BTL landlords is the aim of the game, why not just confiscate the houses and be done with it.

Thanks (4)
avatar
24th Jun 2019 11:10

Property price inflation had been a growing social and economic disaster for the majority in the UK.

Capital attracts capital and a minority have got very rich off the back of the majority making more and more of the UKs land owned by less and less members of society.

House prices rises or in fact land price inflation adds no value to UK plc, creates no jobs and only moves wealth to the owners from other generally more poorer members of society who can afford to buy.

The benign tax regime around owning and renting property has gone on far too long.

Rent is causing a intergenerational change in wealth from the young to the old.

The young are trapped in rental trap funding the retirement of the old in the UK it is just plum wrong.

And this from a 50+ years old home owner.

Thanks (1)
avatar
By Dandan
to Iain Mcritchie
24th Jun 2019 14:39

Iain Mcritchie wrote:

The young are trapped in rental trap funding the retirement of the old in the UK it is just plum wrong.

Quite true but not the consequence of the multiple property ownership. There are other factors.

The UK used to pride itself on having established the right conditions for home ownership. Indeed it encouraged its citizens to own their home way back to post war era ; a stark difference with other european countries where renting is the norm , especially in cities.

Something however went wrong ; or was it simple laws of economics that drove foreign investors to invest and push prices up; or was it a failure to realise that the infrastructure can only cope with a certain population spread. Does anyone still remember the law of supply and demand ? If so why are we surprised that the prices are going up ?

Trying to curb the BTL market will have little impact on house prices. The rest of the world is in a similar or worse position with regards to high property prices. Look at Japan. I believe the offer mortgage terms in excess of 100 years and look at their property prices.

I forsee that the UK house prices will rise steeply and align with the rest of the affluent world. I find it quite extraordinary that many of my friends and aquaintances on moderate income purchased properties within walking distance of an underground station in London. It may have been 20 years ago but still something not achievable in Paris or New York on a moderate income in those days.

Thanks (0)
avatar
24th Jun 2019 11:16

As has been pointed out many times it's crazy to fund an investment with significant borrowings.

The stressed BTL investor could consider remortgaging on to fixed rate arrangements and for those with multiple properties consider a judicious disposal programme. Capital gains tax is not a real issue - the tax is only payable on GAINS.

Thanks (1)
avatar
By tedbuck
24th Jun 2019 11:16

In my experience the 'rich' are ok because their loans are paid off or capable of being paid off. The smaller people in the middle of the market trying to save for retirement are hit very hard and they are probably the best landlords. Not everyone wants to buy so a rental market is needed but HMG/HMRC are pushing the market into big companies who are often not sympathetic landlords.
As for the effect on the housing market the developers actually need BTL buyers to be able to sell them their houses and get the sites moving.
As for the sites the biggest problem seems to be the slowness of the planning system which seems to take a minimum of 5 years to promote and get planning permission.
It's the old story of Government interference doing more harm than good because they don't think ahead to the implications of what they do.

Thanks (2)
avatar
By geraldw
24th Jun 2019 11:25

I'm glad that this topic has come up, as I may have missed earlier answers to my query. When I first received details of the restricted interest relief, the HMRC wording is that finance relief was to be set against the rental income. However, on submitting a client's tax return, the relief was set against "taxable rental income " i.e after losses brought forward had been knocked off = no finance relief at all. Is this correct ? Seems harsh on small landlords who generally make losses in the early yeard.

Thanks (2)
avatar
By libraBE
24th Jun 2019 11:43

May I just ask, is anyone aware of any special exemptions for members of armed forces, etc., who only rent out because they have been posted out of area?

Thanks (2)
avatar
By libraBE
24th Jun 2019 12:01

May I just ask, are there any special exemptions, in cases when the landlord is a member of the armed forces, who only rents out his home after having had an out-of-area posting?

Thanks (0)
24th Jun 2019 12:12

Last year I went to a meeting put on by the local council for all landlords in the area.
They have a couple of people trained in landlord-type stuff. They decided to appoint and have these annual meetings as they were aware that approx 89% of all landlords in the UK have only one property to let and are thus more likely to not keep up to date with legal requirements etc.
These properties are either owned by what we know as 'accidental' landlords e.g where 2 owners move in together and one does not want to sell in case the relationship doesnt work out so one lets. The vast majority are owned by those of us who worked for companies that didnt provide pensions and the properties are their pensions.
None of my landlord clients have sold for tax reasons.
When I first started looking for a property to purchase I worked as self employed going into different accountants offices and working as cover work and I loved every minute of it.
I had to leave my lovely way of working and go PAYE just to get a mortgage. I was miserable for the 3 years (at the time) required by lenders.
Mortgages are now becoming increasingly easier to get. I have had clients who have made losses etc and still been able to get mortgages. Santander will lend on gross income. I understand 100% are available at a price.
When I lived in Luxembourg and Germany people couldnt understand our obsession with buying freehold. Rental is the norm.

Thanks (2)
avatar
24th Jun 2019 12:36

As usual Government greed is going to cause problems for all (increasing already sky high rents for hard pressed tenants, and reducing rental stock by forcing small landlords out)… As a result we have worked out a solution for landlords selling up, which generates 90+% (can go over 120%) tax relief for investing in another business… you don't always have to put up with excessive taxation, but unfortunately we have not yet found a way to save tenants from the fall out.

Thanks (1)
avatar
By Dandan
24th Jun 2019 13:58

Private landlords are being hit on all sides. On the one hand they are facing big tax bills ; on the other hand they are being demonised by local authorities. Then there are the new laws coming to force them to provide long term tenancies as opposed to annually renewable tenancies.

There are also so many cases where landlords have been blamed for what their unscrupulous tenants have done ; such as secretly subletting and creating over-crowded houses. But it is the landlord that gets shamed in the media.

Looking at the economics of it all, it is clear to me that the measures taken by the government will achieve nothing . As it is no longer worth letting to individuals, landlords will either sell up or go into the development business (i.e. buy , re-decorate and sell on at good profit which also means high prices). Given that London is relatively cheap compares to the rest of europe and asia, they will not have difficulty in finding buyers.

If they sell up, that does not imply that the property market will will become a buyers market and prices will drop because of saturation. Not at all, it will just mean better choice for those who already have the means to get on the property ladder.

For those who do not have the means, the only option is to buy those over-priced flats with money lent by the builders themselves or some form of shared ownership. It will not take long for them to realise that they are trapped with massive negative equity.

Then, there are the councils that rely on private landlords. What will they do when they realise that the pool of houses available for rent in the private sector has diminished significantly and there is a massive shortage. Is this when we start seeing tents popping up around the borough.

Thanks (1)
avatar
24th Jun 2019 15:28

If you think things are bad now, read 'Land for the Many' produced for Labour recently!

The stopping of a business's biggest expense from being deducted before calculating profit should be illegal.

It's the bigger landlords that suffer most. People with 10-20 properties, income say £300k a year, mortgage payments £140k, other expenses £60k. Real profit 100k. Taxable profit in 20/21 £240k, 45% tax bracket, loss of personal allowance, etc TAX PAYABLE £65,000!!! Leaving the landlord £35,000 to live on and keep in good repair all those properties instead of £73k or so. If interest rates go up...huge tax on no real profit!

But what about the capital gain I hear you cry? It's taxed at 28%, higher than other types of investment.

Who will suffer most? Tenants, as landlords are forced to pay more and more charges from councils as well as this Section 24 tax plus if Labour get in rent caps, property tax based on value, etc.

First time buyers don't benefit from the current restrictions: SDLT is a huge barrier (should be on sale, not purchase), and forcing landlords to raise rents or sell up means potential first time buyers find it even harder to save for the deposit or find a property to rent whilst they do so.

Thanks (3)
By cfield
to Ian McTernan CTA
24th Jun 2019 17:22

I had a quick look at that report the other day and it reads like something the Bolsheviks might have written in 1917 to sugar-coat their collectivisation plans. Basically, they want all land to go into common ownership. They don't even like people having their own back gardens!

The idea is to create "public luxury" rather than private luxury, which is wrong apparently as not everybody can afford it and there would be insufficient land even if they could. One of their ideas is to set up community trusts which would buy the land when people sell their houses, thus making the house itself affordable to the buyers.

I'd love to know who is going to pay for the land. Also, who is going to maintain it. I suspect this common land with no hedges or fences would soon become the domain of gangs and drug addicts, with used needles, burnt out cars and graffiti everywhere. So much for public luxury.

The proposed Rainy Days fund for members of these trusts made me laugh too. Sounds like a back door way of re-distributing other peoples contributions, like the National Insurance fund on steroids.

Frightening to think all this might actually come about. Yes, there is a problem with land being bought/held as an investment and ordinary people being priced out of the market, but I think the solution is to increase supply (by speeding up the planning process and opening up more land for development) and reduce demand for freehold property (by first providing more rental properties as an alternative and then by making mortgages more difficult to get).

There should also be taxes on land not used efficiently, dependent on where its is and what it could be used for. We've all seen wastelands left undeveloped for years as the value of the land goes up. This should be stopped.

Lastly, we really ought to think about limiting access for non-UK citizens. Other countries don't allow foreigners to buy up their land willy-nilly, so why should we?

I know all this is easier said than done, but there must be better ways of solving our problems than following the ultra-socialist ideas proposed in Land for the Many.

Thanks (4)
By DJKL
to cfield
24th Jun 2019 21:28

From my perspective the constraint on increased building volume has been funding, the private sector needs debt funding to build which needs confidence from the banks to back what can be quite long term commitments- whilst the market looks better than 4-5 years ago it is still not that easy to land a lender for a £x million facilty for say 20 flats.

What has of course happened is front sold transactions like student accommodation being built with an operator lined up for the end has become the pattern- anyone ask themselves why current student accommodation always seems these days to be designed around grouped rooms to a sitting room/kitchen- a flat by any other name, perhaps.

You heard it here first- the next property bubble will be student accommodation.

Thanks (0)
avatar
to cfield
25th Jun 2019 10:26

Very good points.
Any thoughts about second homes? Is there any way of avoiding the ghost town effect in places like Polruan without actually confiscating private property?

Thanks (0)
24th Jun 2019 17:00

Our useless, corrupt government is determined to tax us to the hilt with newer and more sophisticated schemes every year whilst they enjoy enormous salaries and waste the taxes that we pay.
They are too evil to care that the average adult who passes the age of 60 years finds it almost impossible to get employed. With bank interest rates being so low, mature people are forced to take out a Buy To Let mortgage and invest what little they have saved over the years in a rental property.
But our ruthless, tyrannical government wants to stop even that, by introducing this nonsense law restricting mortgage interest tax relief to basic rate. It is tough enough for a new landlord to cope with nightmare tenants, the mountains of legislation (which keeps increasing every year in the tenants favour), getting ripped off by the workmen they hire to fix faults in the rental property, paying estate agent fees and finally being left with a bit of profit, only to have that taxed to the hilt too. The government obviously expects expect mature adults to live on air until their pensions kick in? Landlords with one or two properties, face an incredible battle to survive and make a bit of money on their investment.
Meanwhile the idiot Chancellor who passed this law before he got sacked from office (George Osborne) is working for Black Rock on a salary of £650,000 per annum for working one day a week, probably using an umbrella company so he hardly pays any tax.
https://www.theguardian.com/politics/2017/mar/08/george-osborne-to-be-pa...
What a joke and sadly the joke is on us for electing these clowns into office so that they can continue inflicting newer and more sophisticated taxes upon us every year. Eventually it will be the tenants who suffer as landlords are forced to increase rents in order to survive.

Thanks (2)
avatar
24th Jun 2019 17:10

The owner of Property118, a well-known landlord discussion forum, owns a number of properties in the Norwich area. He was hit so hard by these tax changes, he's incorporated and emigrated to Malta, where his tax bill is now much smaller. Another loss to the UK Exchequer, just as its rancid stamp duty changes have led to a reduction in tax revenue from SDLT, as the whole market has slowed down and few landlords are now buying, except for cash.

When I sell my buy-to-let property (a houseshare) to a family or retirees, four or five young people will be forced to look elsewhere for housing, and the availability of shared housing in my area will diminish still further. I can remember the 1980s, before the 1988 Housing Act, when only 10% of people went to university, yet it was extremely hard to find cheaper shared accommodation and the quality was very low. Most private landlords had left the sector due to decades of Rent Acts, fixed rents, and a terror of being lumbered with a sitting tenant. Letting agents would only offer "company lets" to students and young working people, backed up by three month deposits and compulsory guarantors, which weren't that easy to find.

Modern buy-to-let property is of vastly higher standard and availability, and of comparable affordability outside London; the Government's changes are just about bearable, provided highly geared landlords sell up some properties and reduce their debt levels, but I dread to think what will happen when Corbyn gets it: Old Labour positively hates landlords.

Thanks (3)
24th Jun 2019 17:39

God ettermiddag

That's Pulpit rock.... Its great up there, google it, its near Stavanger... go see it...

ta en matpakke

Thanks (1)
to Tom 7000
25th Jun 2019 16:13

Takk for tipset! alltid gøy med nordmenn på AccountingWEB.

Thanks (0)
avatar
25th Jun 2019 10:22

The consequence of the tax changes described in the article is exactly as I expected. I thought that nothing would happen until landlords saw the figures in their self-assessments. Therefore from 2015 to quite recently the majority of private landlords were either ignorant of what is coming or were crossing their fingers and hoping for the best. When, as usual, this didn't happen a trickle of disposals began and that is continuing now at a somewhat faster pace. Today I received my weekly notification from RightMove of houses available to let in our area. This is the fourth consecutive week when there are no new lettings offered in our town. Not a single one. There is a grand total of 5 properties to let spread across an area with a population of 75,000. Of those 5 only one is new on the market this week. Asking rents have risen.
And then there's the abolition of s21 of the Housing Act 1988. I know that accountants are not property lawyers or IFAs but I really do think they should be drawing their landlord clients' attention not only to the tax changes but also to the abolition of s21. This will trap landlords because they will be unable to sell with vacant possession and who knows what the market will be like for properties with sitting tenants. That market isn't strong now but if rent controls are the next thing to happen it could be very weak indeed. You cannot rule out the possibility that private landlords will be utterly trapped in unprofitable investments from which they cannot escape without a significant loss of capital, and if they have only a small amount of equity they could face crippling losses.
I saw at first hand what the private residential letting market was like from the 1960s to 1988 - it was awful and there was no new investment. The 1988 Act was motivated by a political decision to increase the supply and it had that effect. We are now going into reverse.
The risk profile of residential property investment has changed completely and, as I expected, many landlords are proving very slow to appreciate the consequences. I hope their professional advisers are up to the task of warning them what has already happened, what is happening now, and the risk of what might happen in the future.
In all this I make no value judgements. This post is not political. I merely advise that landlords should study history a little and make decisions based on a proper assessment of what the future holds.

Thanks (2)
By DJKL
to C.Y.Nical
25th Jun 2019 11:22

The amateurs are slow the professionals /those with larger portfolios and decent advisers have been somewhat quicker off the mark, I know a fair few decent size investors in Edinburgh (20 flat sort of mark and upward) who baled out of residential over the last 3-4 years.

We up here already have the new regime re tenant rights and enacted legislation re rent controls (albeit latter is merely set within the legal framework as a capacity, rent control setting itself has to date not been implemented-yet)

For Edinburgh the private rental sector has also lost supply to AirBnB operatives, I suspect the next sector to get some serious regulation (as it actually should before a quasi unregulated B & B goes up in flames and there are found to be inadequate fire protection systems in place)

Thanks (0)
avatar
to DJKL
25th Jun 2019 22:43

DJKL: the reports I read from the Residential Landlords' Association say that, so far, the removal of Section 21, the ban on fees, and the graduated loss of the ability to deduct mortgage costs from profits (which I assume also applies in Scotland) has so far had little effect on the Scottish rental market.

There's apparently no sign of dramatic changes in eviction rates, reduced rental supply, increased rents or landlords abandoning letting agents. I doubt too there are any figures about whether landlords are submitting reduced profit figures and paying less income tax. All these changes must however be impacting their bottom lines and reducing their incomes and their capacity to maintain and improve and buy new properties: it's just I've seen no evidence yet. Perhaps the changes are too recent as well to identify any trends.

Is this fair comment?

Thanks (0)
By DJKL
to matchmade
26th Jun 2019 18:02

Possibly

Section 21 was not on point up here and fees to tenants went quite a few years ago, we certainly never charged tenants anything and I have been involved with a firm of agents since the late 1990s, though I suspect others did charge a bit more recently, letting fees with us were the landlords cost.

In that regard the firm I am involved with now only manage two individual residential properties(they were never enormous on residential, more commercial, and they did our 61 plus say another 30 or so residential at peak) though they do the block management for the owners of the two blocks of flats we sold.

What we have is the new Private Residential Tennancy which pretty much endures as long as the tenant wants, though the landlord can evict on various grounds. Rent increases, if tenant thinks unfair, can be referred to a rent officer etc

https://www.mygov.scot/types-of-tenancy/

Where the Private Housing (Tenancies) (Scotland) Act 2016 Housing Scotland Act bites is re tenancy indeterminate length, grounds for eviction and of course Rent Pressure Areas (rent control- not yet used).

Not sure with rental supply but there seems to be far more short let properties now which were once longer term rentals- a good Edinburgh Festival can garner a fair return at say £100 or more a night for a one bedroom flat, a popular route is do students September to June then nightly holiday let over the summer- some people let their home out for the summer and decant abroad (my neighbour gets long holidays-lecturer, this is what they do with their property over the summer)

Thanks (0)
avatar
to matchmade
02nd Jul 2019 09:51

It's fair comment. As I said in my post above it is taking a long time for existing landlords to make the decision to sell up. But in England there is already a reduced supply of new rental properties - the stock is now static - in our area it is declining slowly. It will be interesting to see statistics on that for both Scotland and England in the next couple of years.

Thanks (0)
avatar
25th Jun 2019 11:11

This is not really the politics of envy but I remember when Joe average got tax relief on his / her mortgage interest. That was taken away making it more difficult to afford to buy (except for those able to use the tax laws to their advantage). Government seemed content to continue relief for investors (although everyone who buys is an investor in reality). It obviously suited their political ends at that time. Fast forward and with low returns on other forms of investment and reducing pension returns, far more BTL landlords come on the scene and claim tax relief. The government inevitably realise that there is a cost and (looked at the other way) an opportunity to raise more taxes. A soft touch you might say. So, tax relief is withdrawn for the small landlords but retained for those with a corporate structure (more typically the wealthier). And so it goes. Presumably more landlords will decide to incorporate (as happened with ordinary workers) to retain the tax advantage and eventually the government will bring in "IR35 for property" to again hit the small guys.
The answer. Stop using tax as a political football. We may then get a simpler tax system that works for the majority. Whoops, I don't think we're still in Kansas.

Thanks (0)
By DJKL
to whitevanman
25th Jun 2019 11:39

I agree it is likely residential property in companies will also experience some tax changes, you might well see a morphing of the REIT regime into how smaller companies holding property are to be taxed, with a forced distribution (implied distribution) of profits .

Do not know what you perceive the issue is with low rates of returns on other forms of investment, my returns have been fine on equities over the last 10-11 years (everything switched into SIPP when the protected rights rules changed circa 2008) and even today when I am somewhat more boring re investment choices I tend to get a 7-8% return most years, which given the investments are very liquid is a great rate of return compared with returns on illiquid and concentrated risk property.

Thanks (0)
avatar
to DJKL
25th Jun 2019 12:00

It doesn't really affect my comments which were more a comment on the political nature of tax changes and how that then impacts simplicity (and fairness?).
That said, many people are worried that the value of investments can go down as well as up and so equities are not the preferred option. Many view property as more secure and certainly those with a little spare money each month, would consider buying a BTL property as a good way of providing a "pension". Perhaps not so going forward.

Thanks (0)
By DJKL
to whitevanman
27th Jun 2019 14:28

Given property tends to be geared whilst returns may be enhanced in a rising market I actually view it as more risky than say equities that are generally (though not always) ungeared investments- there are no nasty banks requiring repaid at the least opportune time.

Thanks (0)
avatar
25th Jun 2019 16:45

"So renting a clean and well decorated house to a single mother with 2 small children and keeping the rent fixed and low for 5 years ( until a small increase below market rate had to be made due to the costs of complying with all the red tape around) is doing no social good - think again. I know the landlord - it isn’t the only property they rent to people who are on benefit and they struggle to keep the rent affordable. They aren’t on their own and they shouldn’t be penalised. They are creating their own retirement fund so they won’t burden the state later on. You are plying the politics of envy."

I did just that and was left with a 6months rent arrears bill, a substantial bill for eviction and further bills for clearing out piles of garbage. Never again. Only professional employed tenants from now on.

Thanks (0)

Pages