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Incorporating to create a buy to let business

Since the changes regarding taxation came into effect on the 6th April 2017, you can’t fail to come across a news article or blog article on the subject. The main question being ‘Should I incorporate my buy to let business or not?’ and there are two different camps forming, with some saying categorically ‘NO’ and some unequivocally ‘YES’.

However; we feel it is important to point out that the final decision is down to your personal circumstances and it is something that we would highly recommend you getting advice on BEFORE you make any decisions. Everyone’s situations are different and you should seek advice to ensure that you will not regret the decision you make or leave yourself even further out of pocket.

Over the past few months we have come across companies that deal solely with Buy to Let limited companies and do we agree there is a need for this type of company? No… most probably not. They may well be a good source of advice, especially if this is solely what they specialise in, but what did they specialise in before there was a need for a buy to let limited company? Are they just jumping on the buy to let limited company band wagon to make some extra money? Your guess is as good as mine!

So if you are not going to use one of these ‘Specialist Companies”, who can you turn to? We would suggest doing some research yourself on the internet. Find out more about the concept and be prepared with questions for anyone you do seek advice from, which leads onto the next question… ‘Who do you turn to? We would recommend turning to your accountant for advice. They know all about your tax affairs and we would recommend you look to talk to them in the first instance.

Incorporating a buy to let business itself is not a difficult process, much the same as incorporating any limited company, so do not be mislead into thinking its going to be any more difficult!

We found this article online and wanted to share it with so that you had the opportunity to read more about the subject of Buy to Let limited companies https://www.accountancyage.com/2017/08/15/should-i-incorporate-my-buy-to-let-business/

Uncertainty Continues to Dominate UK’s Housing Market

Another month, another UK house market report and more, liberal use of that word, ‘uncertainty’. This time, it’s the June report from the Royal Institution of Chartered Surveyors (RICS) that’s highlighting a tricky period on the UK’s housing market.

“Even though the UK’s general election has been and gone, the result hasn’t created a stable political situation,” said Knightsbridge estate agent, Plaza Estates. “Couple that with Brexit – which will likely loom large for years – and you’ve got two huge unknowns that are dominating home-buyer’s thoughts, across the spectrum from investors to home-buyer occupiers.”

Price Growth Slows Again

The RICS survey shows the house price balance fell again in June to +7, the lowest level since July 2016 and from +17 in May. A positive balance shows that more surveyors are reporting higher house prices in their region, but it’s clear there are many fewer surveyors who hold that view, than previously.

For the June survey, 44% of respondents said the election and uncertain political backdrop was the most influential issue, followed by Brexit which was cited by 27% of respondents.

That uncertainty didn’t just materialise in the prices measure. There were falls and slowdowns across most RICS survey measures:

  • Newly agreed sales.
  • New instructions for property to sell.
  • Expectations for price growth.
  • The 12-month outlook for sales activity.

“The UK housing market suffered a double blow of uncertainty as the election was held and the result didn’t really put anyone at ease,” said Robert Holmes. “There could be a minor revival in the summer as historically, it’s a busy time of year for estate agents, but we’re not expecting a huge improvement.”

According to the most up-to-date market snap shot of asking prices from online estate agent portal Rightmove, house prices stabilised in the early weeks of July after falling in June. The monthly index showed a 0.1% rise in asking prices of property advertised for sale on its website during the first weeks of July, compared with the same period in June. On an annual basis, house price inflation rose to 2.8% from 1.8% a month earlier.

North South Divide

Another detail the RICS survey highlighted, was a divergence between the north and south of the country. While house prices in the north of England were positive, in the south of England, and London in particular, surveyors were much more downbeat.

The survey showed 45% more respondents reported house prices fell in central London than those who said they rose, during June. Residential property prices in the south east and east Anglia meanwhile, were reported as being little changed from May to June.

RICS surveyors reporting in the north west and west Midlands, reported further strong rises, with prices balances of +28 and +33, respectively. And, the strongest prices gain was in Northern Ireland, where 41% more surveyors said house prices there rose, than those who said they declined in June from May.

“The continued disparity between house price movement in the north and south of England is a real sign that prices in the south are considered too high and are overvalued,” said LDG. “It will be interesting to look back on this point at the end of the year, to see if it signalled any step change in the relentless upward trajectory of UK house prices, however slow that rise has been.”

This article was provided by Property Division who are based in London. Property Division are London’s Property News Hub. For more information check out their website

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Staged For Success: Estate Agent Launches Airbnb Interior Styling Service

Vendors and Landlords can now earn until their Property sells or is let

 Portico Host has launched an Airbnb Interior Styling service alongside its traditional Airbnb Management service.

The company says the service is ideal for those with vacant properties, “enabling vendors to earn money until their property sells and landlords to cash in until they find the perfect tenant.”

The service is part of their premium Airbnb management package, which costs 20% + VAT.

The agent employs top Interior Stylists to kit out client’s properties with furniture and soft furnishings to really maximise their appeal to potential Airbnb guests. The stylists will work to the client’s budget and taste, putting together a proposal before any work is started.

As part of the Airbnb Management package, Portico Host will also look after the entire Airbnb management process, from setting up the property listing, organising professional cleaning and hotel quality linens, arranging 24hr check-in, handling guest bookings and communication, and dealing with all property maintenance.

For those with furnished properties, Portico Host offer a standard Airbnb management package which costs 15% + VAT and includes all of the services explained above, except Interior Styling.

The agent has included a recent case study:

Before Styling

 

After Styling

They achieved the look for just £1,140, but can work to any budget. You can see the full costings below:

Fiona Patterson, Marketing Director, says:

“If you have a vacant property, you’re a landlord and find yourself with a gap between tenancies, or you’re away a lot and your home is often unoccupied, listing your property on Airbnb can be a great money maker – and now, our new Airbnb Management service, Portico Host, can help make the process simple and successful.

A well styled or staged property is key to increasing occupancy rates, guest ratings and the amount you can charge.

Better still, the service almost always pays for itself, as our statistics show that staged properties sell for 8% more than empty or un-staged properties.”

Discover how much your home could earn on Airbnb here: www.portico.com/valuation

 

About Portico

Portico is a residential estate agent with offices throughout London, specialising in flats and properties to rent and for sale. For landlords, we offer a range of unique packages which include monthly fees, a rental guarantee, complimentary maintenance between tenancies and assistance with tax return. For property sellers, we offer a dedicated property concierge and a complimentary interior styling service.

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The Developing Use of Digital Signage Within the Estate Agent Industry

Estate Agents pride themselves on their image and brand and without both being strong, estate agents will struggle to make their mark into what is such a competitive field.

Whilst most businesses have ventured online; estate agents remain one of the few sectors thriving from in-store and face-to-face interactions. Digital signage serves as a platform that can supplement these interactions, making estate agents jobs easier and enticing potential clientele from the kerb.

Here are the five best uses of digital signage for estate agents:

Property Feeds

Too often estate agents rely upon old school in-house marketing techniques such as posters and pictures of properties in their windows. Although this has been successful prior to the 21st century, estate agents must now adjust to make their window marketing eye-catching.

Displaying a live property feed is something that not only brings your estate agency into the digital age, but also requires little to no upkeep as content can be controlled days, weeks, and months in advance. This means that estate agent’s time can be alleviated from adjusting posters and focus on what is truly important for business- customers.

Video Walls

Why use one screen when you can use multiple screens? Creating a large video wall of screens advertising your services, or new properties, can be a niche way to make your estate agency stand out from others on the high street. Having a large video wall will have an unforgettable impact on passers-by and will encourage word of mouth marketing amongst potential customers.

Internal Communications

Most estate agents differentiate their time between carrying out administrative work, visiting current clientele, and meeting with potential clientele. Because of this, a significant proportion of estate agent’s time is spent on the road and out of the office. This makes it difficult to communicate announcements amongst a team, potentially resulting in colleagues missing out on key information. Using digital signage can resolve this issue by displaying important internal communications. Whether it is a long-serving colleague that is retiring, or simply a partnership with a new landlord, digital signage serves as a great platform to keep colleagues in the loop.

Touch Screen Capability

Often on-lookers do not have the time to come in to an estate agency to sit down and have a chat. Using digital signage screens with touch screen capability can save both colleagues and potential clientele time. Users can quickly search through an extensive database of properties, tailoring their search to fit their every requirement.

Customer analytics

Online businesses are thriving on the use of web analytics to ascertain key information on their customers, being able to determine their movement, origin, and time spent on each web page. Prior to digital signage, this was hard to replicate for in-store businesses such as estate agents.

Using smart digital signage screens that have eye-tracking and facial-recognition capabilities can allow for key customer analytics to be obtained, such as their age. Using this information, estate agents can trigger the most appropriate content that is tailored to their users. For example, it is likely that a group of young people are looking for a flat or a suburban house, rather than a remote cottage in the countryside.  

Encouraging Landlords To Work With You

Digital signage is important in encouraging B2C sales; however, it is also important in encouraging B2B revenue from Landlords. When Landlords come to choose an estate agency, amongst other things, they will select an estate agency that looks professional and enticing. If your estate agency looks dull and technologically-subpar, it is unlikely that a Landlord will choose to do business with you. Using digital signage can be the technological change that can help attract potential landlords, therefore, resulting in more business being generated for your estate agency.  

This Guest Post was written by TrouDigital, providers of Digital Signage for Estate Agents.

Come and find Trou Digital on Facebook

 

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How to get a (much) better return on buy-to-let property

Not all property is created equal. Investing in the right kind of property can boost returns by over 100%.

“Is this guy for real?” you might be wondering. I can’t say I’d blame you because Landlords have taken a bit of a beating over the last year or so.

First, the lovely people over at Number 10 decided to hike up our stamp duty payments. Then, I s’pose over a G&T after work, they continued chatting and decided our mortgage interest tax relief should go too.

In January they introduced tighter lender criteria for buy-to-let landlords. And – because that obviously wasn’t enough – they’re about to introduce a load more red tape for landlords to tackle, all of which are scaring property investors off.

Yet here I am dropping in on Landlord Blogger, suggesting you can still get a very attractive return on property.

But please bear with me!

Not all property is created equal. If you know where to invest your money, there are some sizeable returns waiting to be had.

Different properties offer different returns

As you probably know, different properties can be let in different ways, and each offers different rental yields. The list of options is fairly lengthy, but most people investing in residential property go for one of the following

  • A single let (the traditional buy-to-let)
  • An apartment (technically still a single let, but with important differences)
  • A holiday let
  • An HMO (a single property let to three or more separate tenants, such as young professionals or students)

The difference in return for each makes for some surprising reading.

Returns from single lets

Single lets sound like a property let to a single person. Not so.

Single lets are actually a property let to just one family unit. That could well be to a single person (and, presumably, her three cats) but it could also be a couple or a family with children. The key point is that contractually there is one tenant.

Letting to just one family unit makes single lets relatively passive investments. If you’re willing to use an agent -and thus accept a slightly lower return- single lets require very little management whatsoever (although you still have legal obligations as landlord).

On the flip side, letting to one family unit almost always artificially caps your return.

Ultimately, rents are determined by supply and demand – and demand itself is determined by household income. When letting to a single family unit, household income is typically restricted to no more than two wage earners, which limits the rent they can afford, and your yield in turn.

Yields have been a consistent 5 – 6% over the past 8 years.

Source: Mortgages for Business Complex Buy to Let Index

Don’t get me wrong, compared to even a generous saving account, a return of more than 5% might seem pretty attractive. But why stop there?

Returns from leasehold apartments

Leasehold apartments are a lot like the single lets described above, only with one key difference: you don’t actually buy the entire property. Instead, you buy the right to lease the apartment on a long-term basis from whoever owns the building the apartment sits within.

This creates the potential for maintenance issues to be outside your control.

Also, the length of the leasehold ticks down as time goes on. Renewing it is a legal right, but it costs money. Whilst the value of the property itself may appreciate, the value of your leasehold, if let to run down substantially will depreciate until you pay to renew it.

If that all sounds pretty terrible, leasehold apartments come with benefits.

For a start, they can be a little cheaper to acquire (making them more accessible to investors). Generally speaking, they’re smaller and newer so don’t always need a great deal of maintenance.

So long as the location is right (think major cities with strong economies) tenant demand can be high – which makes void periods infrequent and capital growth strong on what is, again, a relatively passive investment.

That all makes leasehold apartments a viable option if you’re just setting out but there’s a definite trade off.

If you’re lucky, yields from a leasehold apartment can outstrip those of standard single lets, but when it comes to maximising rental yields, your capital can work harder elsewhere.

Where specifically?

Returns from holiday lets

Although they’re rarely regarded as mainstream investment vehicles, holiday lets actually crank things up a notch.

Bag yourself the right holiday let and you can expect gross rental yields to jump up more than a percentage point or two.

According to Second Estates, The average income for a week in peak season is now £1,200. But remember that’s gross, and this sector is seasonal- don’t expect that week in week out. Overall however the average income from a typical holiday property is just over £22,000.

Why is this?

Management of holiday lets is fairly intensive. If you’re changing sheets and greeting new guests every few days (or, more likely, paying someone to do so on your behalf), the market is going to reward your additional effort/outlay.

Plus, the weak pound following the Brexit vote and recent election brings a double whammy bonus to the holiday property investor: More Brits on staycations (up 24% according to Sojern) and more foreign tourists attracted by the strength of their currency (up 19 % according to Visit Britain). The demand side of the equation is increasing faster than supply.

Airbnb has of course popularised the short term letting phenomenon and also brought it out of the typical tourist spots and into the ‘regular’ towns and cities. There are even now management companies dedicated to running your Airbnb profile and taking care of check-ins and check-outs for you.

Now, one of the major benefits of a furnished holiday let is that the mortgage interest relief (the removal of which has spoiled the party for so many) still stands. This is a significant tax benefit not to be overlooked…although you would probably be wise not to rely on that forevermore given the recent changes.

But there’s more risk with holiday lets. Such short term letting periods coupled with the potential for seasonal lulls can result in unpredictable and potentially substantial void periods.

If you’re purchasing with cash, you can run your property how you like. But, if you’re relying on a mortgage there are a relatively limited number of mortgage products that cater to the holiday property.

Most buy to let mortgages expressly prohibit short term lets, so you can’t simply purchase as a regular buy to let then pop it on Airbnb. Many apartment blocks also prohibit short term lets in the lease covenants (whether explicitly or implicitly).

Acquiring a holiday property is therefore something that needs careful consideration.

So where does that leave us?

Houses in multiple occupation (HMOs)

A house in multiple occupation is a single property that’s let to 3 or more tenants from different families – think houses shared by young professionals or students.

There is a renaissance happening in the HMO market at present. Well designed, high quality and high spec properties for discerning tenants are beginning to distance themselves from the average house share or ‘student digs’ of yesteryear.

For the most part, these tenants value the social connectivity and flexibility that come with sharing, or co-living as it is becoming known. Unwilling to settle, they rent out of choice, yet the quality HMOs they’re after are in short supply.

With short supply and high demand the market is set for higher rents, but only if household budgets allow. Fortunately for all parties, HMO household budgets are abnormally high.

That’s not necessarily because tenants are abnormally wealthy. Instead, it’s because HMOs house a wage earner in each bedroom. That might mean five or six wage earners, for example, as opposed to the one or two associated with single lets.

Per tenant they pay significantly less than they would living alone, but still that lesser amount, multiplied by the 5 or 6 tenants in a HMO, can double a property’s rental income compared to it’s use as a single let.

It’s a match that makes HMOs particularly attractive to both tenants and landlords alike:

Tenants get flexibility, companionship and lower rents. Landlords benefit from yields that outstrip those of a single let by almost 2:1.

Source: Mortgages for Business Complex Buy to Let Index

All that said, HMOs cost more to maintain, require more management and really do require you to vet tenants properly. A passive investment HMOs are not.

But for those with a taste for an active investment, – or for those willing to find and use a reputable agent – sizeable returns usually mean HMOs warrant serious consideration.

How to get a (much) better return on buy-to-let property

So let’s compare the two ends of the spectrum. Over the past 8 years a single let has returned on average 5.7%. Over the same period an HMO has returned on average 9.6%. The right holiday let will do similar.

In my eyes, you’re looking at almost doubling your return while reducing void periods with an HMO and for more information on how HMO’s reduce void periods you need to read this).

Despite unfavourable government regulation, there are still clear and sizeable returns to be made from property.

The trick, of course, is knowing where to invest.

 

This article was supplied to us courtesy of Tom Charrier who is the Director of Living Space Property who can be contacted for more information by emailing tom@livingspaceproperty.uk

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What ALL Landlords must learn from the Grenfell Tower Fire

The Grenfell Tower fire was a tragedy that has rocked the property world and caused distress throughout the UK and beyond. The scenes witnessed by victims, firefighters and witnesses will doubtless be remembered for decades to come, and Landlords everywhere should be more concerned about safety than ever before.

Guaranteed Rent Specialists, Assetgrove says “It’s absolutely essential that all landlords understand their responsibilities when it comes to the safety of their properties and those living in them. Landlords must be aware of the safety precautions that you have to undertake, from gas checks to fire safety risk assessments.”

With the death toll still rising and the very real possibility that those held responsible will be tried for corporate manslaughter, it’s clear that the tragedy was a huge failure that cannot be repeated. But with the latest figures revealing that in excess of 185 high rises buildings have now failed fire cladding safety checks, we still have a major problem.

The announcement was made by Communities Secretary Safid Javid, who confirmed that all of the buildings that have been checked have failed combustibility checks. Properties in Islington, Lambeth, Brent, Camden, Wandsworth and Hounslow have all failed to meet the required standards; news that has understandably caused concern for the thousands of residents affected.

It’s not just a London issue either- high rises in Portsmouth, Stockton-on-Tees, Sunderland, Norwich, Doncaster, Manchester, Plymouth and Portsmouth have all fallen short on their safety requirements.

Kensington and Chelsea Council took the decision to evacuate residents from tower blocks close to Grenfell Tower, as did several of the others affected, but the decision has had a mixed response. Many residents who suffer with mental health problems and other issues such as agoraphobia are distressed by having to move home, although the decision was supported by the Mayor of London, Sadiq Khan who agreed it would be better to err on the side of caution.

The cost of the Grenfell tragedy is far reaching, both in terms of money and human life, and the effects will be felt for many years to come. Although it’s local authorities and HMO landlords who will feel most of the brunt of the economic impact, this is a disaster that’s made everyone sit up and listen.

If you’re a landlord, now is the time to take stock.

Fulham estate agent, Lawsons & Daughters reiterates. “Whether you rent a large HMO to ten people or a small studio flat to one tenant, it is your responsibility to ensure that all safety requirements are met.”

So, here’s a recap of the top ten things all Landlords need to be on top of:

  1. Gas Safety Checks must be undertake every year by a certified professional.
  2. A Fire Safety Order must be obtained for all flats, bedsits and hostels.
  3. Energy Performance Certificates must be obtained and given to all tenants before moving in.
  4. Deposits must be protected by an official Tenancy Deposit Scheme.
  5. Administration fees and advance rent must be clearly outlined prior to the commencement of any rental agreement.
  6. You may be required to obtain an HMO licence from your local authority if you are renting to several people.
  7. All homes of multiple occupancy must have electrical safety checks undertaken by a registered professional every five years.
  8. All homes should have at least one smoke alarm fitted and fire alarm systems must be provided in HMOs.
  9. Carbon Monoxide alarms must be fitted in all homes.
  10. All landlords must complete risk assessments for legionnaire’s disease.

Knightsbridge estate agent, Plaza Estates summarises, “The terrible tragedy at Grenfell should remind everyone how important safety is. If you’re still not clear on your responsibilities, visit www.gov.uk/private-renting or ask your local property agent.

Tips to Make Short-Term Lets Work for You

The life of a successful landlord is full of decisions and hard work. Among the many decisions to make, is the type of tenant you want to attract – short- or long-term ones. There’s a lot to be said for both kinds of agreements. But they also both require quite different approaches if you want to make them work financially and for your tenants.

In this post, we’re taking a look at how to make short-term city lets work for Landlords and keep attracting the best tenants.

“Short-term lets can be hard work, but once you have a system in place that works, you could find the reward is well-worth the effort,” said Battersea estate agent, Eden Harper. “The convenience factor of short-term lets mean they come with a higher rent.”

Getting the Location and Services Right

The market for short-term lets is more diverse than you might think. They include business, holiday and in-between home renters. We’re going to focus on city lets in this post, which includes all of the above but not the coastal, countryside or homes for large groups.

For short-term city lets, there are some details that are non-negotiable. They include:

  • Location – it must be central and convenient for transport, popular office districts and/or site-seeing.
  • Easy-to-maintain – this includes the inside and outside. If the property has a garden, it should include a patio and a small easy-to care for lawn.
  • Cleaner – this could be offered as an option or simply be included as part of the services included in the rent.
  • All bills included – short-term tenants don’t want the inconvenience of registering for services and amenities. Help them avoid that with a single, all-inclusive rental charge.
  • Furnished – this goes without saying. Modern and neutral will work best, with items that are easy-to-replace.
  • Clean, simple décor – if you feel you want to dazzle your short-term tenants with some amazing décor then of course you can. But, when it comes to touching up the imperfections left by every tenant, it’s easier to match plain colours than replace a specific wallpaper design.

“Short-term lets are all about creating a property that’s easy and straight-forward to live-in and manage, for the tenant,” said Central London estate agent, LDG. “Whether the tenant is here for work, play or while they wait for something specific to happen, they don’t want to deal with tonnes of paperwork or hiring furniture.”

Never ending Maintenance

We’ve already mentioned this detail, but that’s because it’s pretty important and shouldn’t be overlooked in the world of short-term let investment and management. If you have a high-turnover of tenants, no matter how considerate they are, you will need to replace and repair details of your rental property in between each and every tenant you get.

This means you need to put a reliable system and network in place that you can trust to keep your property in excellent condition. If you can do that, then tenants will return and recommend you to others, giving your investment a better chance of remaining profitable.

When it comes to the cleaner, try to employ one who will do a regular clean and a thorough one before every new tenant. While most cleaners offer this, not all are equal so try a few out and shop around. It’s something you need to get right and that your tenants will appreciate.

With your décor, fixtures and fittings, try and have well-made, good-looking items that can be easily replaced with something similar, if the exact match is no longer available. Better still, where possible, buy some extras on your initial shopping trip so you have a stock of decent bath and bedroom linens, lamp shades, soft furnishings and kitchen accessories.

Yes, it might be a bigger outlay at the start, but it will mean you can get the property up-to-standard quickly and without any problems, in the future.

“Short-term lets do require planning and thought, but if you get it right, the tenants will be queuing up to rent it and tell all their friends about it too,” said Andrew Reeves. “Being a landlord is about providing housing for those who need it, but it has to work financially too. It takes hard work to do that, but the rewards do justify the means.”

This article was provided to us by Property Division who are a specialist PR company for Estate Agents.

Do you own a rental property in Wales?

Unlicensed Landlords with properties in Wales could now be ‘Breaking the Law’ and they are being urged to register ‘to avoid legal action’, regardless of where they are based in the UK. rent-smart-wales

Many private landlords could face fines and possibly even prosecution for failing to sign up to the new registration and licensing system in Wales. In addition, landlords may not be able to secure possession of their property using a section 21 notice, if they are operating outside the law themselves.

Almost six months have passed since the Welsh government’s Rent Smart Wales scheme became law, as part of the Housing Act (Wales) 2014 however it is estimated that thousands of private landlords with homes in Wales have still not signed up to the scheme, which could mean that they are letting out properties illegally.

Read more here

 

Energy Efficiency in Your Rental Property

Over the next year Landlords are urged to check the Energy Efficiency of their rental properties with a view to improving older properties with standards below an E. This is because from the 1st April 2018 it will be illegal to let a property or renew an existing lease on any property with a rating of below an E.

Energy Performance Certificates or EPC’s as they are known, are well known certificates that are required by anyone looking to sell or rent out their property, but the new changes to legislation will mean that older properties with poor ratings will need to be improved if you are going to continue to let them. It has taken many years for people to fully understand what EPC’s are and when a property needs one and now there are more changes afoot!

From the 1st April 2020 the regulations will also apply to existing tenancies so either way, it would be a good idea for Landlords across the UK to start examining the energy performance of their properties.

Check out this article from Residential Landlord, who have shared some good ideas on how to improve the rating of your property (and it is not as expensive as you may think!)

https://residentiallandlord.com/landlords-energy-efficiency-rental-property/

 

Is holding your buy-to-let property in a “Hybrid Structure” the way to go?

As of the 6th April 2017, Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their profits. Instead, they will receive a basic rate reduction from their income tax liability for their finance costs.

What does this mean for my profit?

It’s difficult to say how much more tax would be due as the reduction in mortgage interest and wear and tear allowances come to bear, but it will certainly be a hit for higher-rate tax payers. If you don’t have a mortgage or if you’re a lower rate payer, good news: you will not be affected at all.

So what are my options if I’m a higher rate taxpayer?

We recently attended an interesting talk by Tony Gimple from Less Tax For Landlords, who said, in practical terms, landlords now have four options – including holding your property in a “Hybrid Structure”. We’ve listed the options he gave for you below – and also included some FAQs at the end of the article.

  1. Sell up

The first option is to sell up and either invest your money elsewhere, save it or spend it. Yes you will have to take the Capital Gains Tax hit and mortgage penalties (if there are any), but if you are thinking of retiring anyway this could be an option.

This isn’t something that the majority of landlords will want to do right now however, as though the market is suffering a post-Brexit slump, property is still a very good bet. As we recently blogged, when compared to other asset classes, property is definitely the best vehicle for achieving wealth.

  1. Make a positive decision to do nothing

Option two is to do nothing. This will be a default decision for the majority – which is absolutely fine so long as you have explored the different options available to you and are aware of how you’ll be affected by the new tax changes.

This option will most likely mean however that your tax bill is increased and your disposable income is decreased, but it will not severely affect those with only one or two properties.

  1. Incorporate

The much touted “only way to get over Section 24”: sell your personally held investment property or properties to a limited company which you own.

Tony made it crystal clear that he doesn’t think that full incorporation, or incorporating temporarily through a Limited Liability Partnership is the best move, and we’ll explain why in the next couple of sections.

Likewise, he said that trusts are also not an effective solution, and their use for property is far more limited that it used to be. They are over-complex, especially when it comes to mortgage flexibility and inheritance tax mitigation, and generally not the best option for landlords.

What’s Section 162 Incorporation Relief?

Section 162 incorporation is available to help negate the requirement to pay Capital Gains Tax or Stamp Duty when transferring existing personally held investment properties into a limited company. You can only claim S162 if you’re ‘working in the business’, or as Tony put it, dealing with tenants and toilets yourself!

The pitfalls…

However, Tony went on to say that there are more downfalls than pros to incorporating.

Companies are great if you’re selling the whole company, as the buyer doesn’t pay stamp duty on the individual assets, only on the shares at 0.5%. If you’re disposing of individual properties, you’ve still got to pay the equivalent of Capital Gains Tax, but in this case it will be Corporation Tax which is slightly lower. A negative is that you may require the lender’s consent to use your loan account, and if they lose their lending appetite, you’ll need a new company and a new lender for every new property!

The big problem with limited companies however is getting your money out. In fact, Tony said it’s virtually impossible to take the money out of a company without paying tax at every turn, which often results in double taxation – Corporation Tax, Dividend Tax, Income Tax, National Insurance – and if it’s an investment company, 100% subject to Inheritance Tax.

  1. The Hybrid

The final option Tony gave was “The Hybrid”, which he described as ‘truly running your portfolio as a property business whilst at the same time reducing tax leakage to the legal minimum.’

This option means holding your current or future investment properties through a Personal Ownership / Limited Liability Partnership (LLP) and Limited Company mix – a recognised corporate structure.

Tony said that owning investment property this way generally offers the most balanced solution as it allows you to legally separate ownership from enjoyment from control via multiple legal personalities, so as to minimise tax insofar as the law allows and keep as much profit and legally possible. You also will not suffer the loss of mortgage interest relief or wear and tear allowances, plus tax from your property income at 20% maximum.

There were a few questions from the floor:

If I go down the hybrid route do I have to tell Land Registry?

“No – because there’s no change of title. You don’t even need to tell the lenders as there’s no fundamental breach of mortgage conditions – the lending remains in your name. We’re not using beneficial interest company trusts, it’s perfectly acceptable.”

When it comes to LLP, how do you differentiate between distribution profit and return of capital?

“It’s what you decide to call it. With LLPs or a partnerships generally, you’re allowed to once a year say we’ll distribute profit, or this year we’ll return capital. It’s up to you. The law allows you to call it either, just one will pay tax on it and one you won’t. Sometimes you will want to pay tax on it. Why? Because in two years’ time when I want to build that house and borrow a million and a half quid in my name, I’ve got to show a lender a SA302 to say that I can afford it and that it’s my money not my businesses.”

Would you have to pay Capital Gains Tax or Stamp Duty?

“In broad terms, CGT and SDLT would only arise if there were a change of title, i.e. the owner (Bill Bloggs) transfers the ownership to another legal personality (Bill Bloggs Property Holdings Limited).  As in the case of hybrid arrangements there is no change in title (Bill Bloggs still owns them), CGT and SDLT events do not occur.”

So what should you do?

Unfortunately, there’s not one right answer. If you’ve got one or a couple of properties and you’re a higher rate taxpayer, you’re going to feel a little sting from the new tax changes. But is it probably not worth getting into something complex. Instead, a better idea may be to cut your interest costs by re-mortgaging and getting an up to date rental valuation on your property. Your lender will therefore have to recalculate your LTV, and a lower LTV generally ensures a better interest rate and a larger selection of lenders.

If however you are a seasoned landlord or you want to make a positive decision to run a highly tax-efficient, professional property business, then Tony suggested you may need to start looking at how you’re going to structure it.

We strongly advise you seek independent professional tax advice before getting involved in any schemes or structures.

This Article is courtesy of Portico London Estate Agents