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

Landlords: Refreshing The Way You Rent – Letproof.com

The past year has not been filled with the best news for UK Landlords; there have been an abundance of hurdles thrown in the direction of the buy-to-let Landlord and costs only seem to be rising.

Let’s begin with the tax changes; Buy-to-let landlords were hit with the announcement last year that their tax relief was being ‘phased out’ to mean now paying tax on their ‘turnover, rather than the difference between rental income and mortgage interest’ and this was expected to slow the buy-to-let market. April 2016 then saw landlords suffer a 3% increase on stamp duty. And earlier this year the Autumn Statement landed some great news for tenants and potential renters; there will be no more estate agent fees charged to tenants. This was, however, bad news for Landlords as it meant a high likelihood of them now footing the bill for these fees. But landlords are finding certain ways to deal with these changes, registering as a LTD company to lower taxes is one solution being utilised.

There is a need for change in the way buy-to-let landlords are able approach letting their properties. Cutting out any unnecessary fees and costs is becoming vital to ensure profits. Letproof.com has been built on this premise; to improve the experience for landlords and tenants, because while all of this signifies hard times, the market is still there for buy-to-let landlords. The demand for rental properties is high, partially as a result of a slight decrease in those investing in buy-to-let. However it is also largely due to the fact that renting is proving to be increasingly popular. Populations are rising and the trends and attitudes toward renting have changed. Renting has become a popular lifestyle choice, and popularity is predicted to continue.Happy friends meeting at cafe with laptop

The market is also looking up for buy-to-let investors, the build-to-let scheme offers fresh encouragement to rent and a whole new area of investment opportunities. London Rental yields are predicted to rise in the New Year. Despite seeing a significant decrease over the past 2 years, 2017 will experience the benefit of fewer buy-to-let landlords entering the arena this year and a high demand for rental properties continuing.

A change is needed in attitude and practice. Letproof.com is offering an alternative to the traditional practice of letting properties via an agent. Letproof.com is a platform enabling landlords and tenants to connect directly, without the middlemen. A new concept that gives both parties more control over their letting experience, fewer costs and offers support and flexibility.   The platform is free for tenants and starts from only 10p a day for landlords. By signing up, tenants are free to search for their perfect home, and via the direct messaging feature, can contact landlords about their favourite properties.letproof-logo

In changing times in the rental market, Letproof.com may be one way to ensure lower costs and more control over your buy-to-let investments.

For more information on Letproof visit their website http://www.letproof.com

 

10 THINGS TO KEEP IN MIND BEFORE BUYING PROPERTY POST BREXIT

Don’t let the Brexit doom and gloom discourage you, Mark Lawrinson, Regional Director of Portico London estate agents has revealed the key factors you need to consider to make a sound property investment this year:

1)      Keep an eye out for big infrastructure projects
Even in a weak or unstable market, areas undergoing infrastructure investment are likely to still experience growth in terms of both rental yield and capital gains. Look at areas being transformed along both the Night Tube and Crossrail line to identify long-term investment prospects. For example – Forest Gate, Farringdon and Whitechapel are areas geared up for regeneration and a rise in property prices thanks to Crossrail.

2)      Look at the high street as an indicator of an area
The high street is a great indictor of the demographic of an area, and whether the area is in decline or has growth potential. Some of the factors you should consider include – have there been many changes recently? Are shops closing down with no sign of opening or are they closing with new names moving in? Is money being spent by the council to smarten it up?

3)      Are there good schools in the area?
Another great barometer to judge prospects of an area is the schools in the vicinity. You may not be thinking of starting a family yet and if you’re an investor schools probably aren’t on your list, but London’s population is growing fast and good schools are becoming harder and harder to come by. Therefore, having one in your area is a big bonus. People both rent and buy in these catchments to get their children into a good school, getting you a good return on your investment.

4)      A house should be a home
If buying a property to live in, remember it’s a home first and foremost – and an investment second. If you plan to live in the property long-term then you should be shielded from bumps in the market. As the market in London has shown time and time again, it’s super resilient, so what may happen in the next two years could be insignificant to you if you are still there for 10.

5)      Shop around for mortgage deals
To make a sound investment decision, you need a broker who has access to the entire market. Some brokers operate on a panel and hence may say they are getting you the best deal – but remember that is only the best deal from their panel. With lending criteria changing daily, it’s advisable to shop around. That rings true even for investors who have used the same lender or broker for years!

6)      Choose a good solicitor
This may sound obvious but cheap solicitors will inevitably cost you more. This is probably one of the single biggest purchases of your life so paying for the right advice is crucial. With a market that’s changing daily, avoiding delays with the right legal aid could be the difference between concluding the transaction or not.

7)      Choose the right estate agent
In a tough market it’s more important than ever to choose a local agent who knows their area inside out, and who will get you the best result both as a buyer or seller. An agent who just instructs and advertises your property and waits for the calls will struggle in tougher markets. A proactive agent who knows their buyers can match the right person to your home, and uses past experience to price your house right. With a ‘no-sale, no-fee’ policy, high street agents now have as much a vested interest in the transaction as both the seller and buyer. Find out how much your property is currently worth with Portico’s Instant Valuation tool.

8)      Create a two-year plan and a five-year plan
Most investors would take a two-year fix on mortgages but with the lending criteria getting tighter for investors, some of the better deals in terms of loan to value can be found at a five-year fix. No one knows what will happen to the property market in the next two years, so plan for what will happen if circumstances go out of your control. For example – if you plan to exit or re-mortgage at that stage you also need to plan for what it will mean if you can’t do either of those.

9)      Look for ways to add value to your property
From basic redecoration to new kitchens and even structural work such as loft extensions, adding value to your property will make your home a better investment. If you see your family growing or want a capital growth not market-dependant then you need to look at innovative ways to add value to your property.

10)  Be clear on your requirements
We all want a sprawling staircase in the house and a swimming pool in the backyard, but you need to be realistic with your actual needs. The big ‘C’ (compromise!) is a word most try and avoid but is something we all need to make. The sooner you are able to accept you will need to make a compromise and understand what those compromises are the easier your search will be.

landlord-blogger

Top 10 places to buy-to-let in London, according to Portico Estate Agents

Over the past 5 years, all 32 London boroughs (and particularly those in central London) have experienced substantial property price growth, fuelled by a combination of record levels of overseas investment and historically low interest rates.

Whilst it is true that the recent reduction in the availability of interest-only mortgages and increases in stamp duty for the most expensive properties may mean that this trend will not be sustained indefinitely, it is certainly the case that, at the moment at least, central London property prices are at an all time high.

However, whilst property prices have increased substantially, rental prices have broadly continued to track earnings growth. As a result, rental prices have not increased at the same rate as property prices and yields have steadily declined in central areas for at least the past five years that we have been tracking them.

– See more at: https://www.portico.com/yields

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The UK decides to vote “Leave” but what now for UK Property

The dust has settled over the weekend and we have had time to adjust to the decision to “Leave” the European Union. Whether you voted to “Remain” or whether you voted to “Leave”, we are now facing a long period of uncertainty that will have a major impact on many of the personal decisions we make moving forward.

It would seem from the articles that we have read over the weekend that although we have made a decision as a country, it is actually how things will affect us personally that are concerning most people, which is ironic being that many people voted “Leave” for non-personal reasons.

From the viewpoint of the Landlord in the UK, we are facing a huge period of uncertainty as far as the housing markets are concerned and because no country has ever left the European Union, it is difficult for anyone to actually predict what will happen to property prices or the buy-to-let markets.

However, we do know that in the hours following the announcement that we would be leaving the European Union, shares in Housebuilder’s (Persimmon, Barrett and Berkeley) dropped by more than 20%, so does this mean that the housing market will fall dramatically?

Only time will tell, but Miles Shipside, Rightmove’s director and housing market analyst, stated: “Markets typically dislike uncertainty” and being as that is what the UK now faces it, it seems highly probable that house prices could lower as we pass through the two year period of uncertainty.

As for the Buy-to-Let sector, if property prices fall then investors can enjoy the benefits of purchasing property at lower prices, but given the recent changes in Stamp Duty, it may not be as simple as it would have been prior to the stamp duty increase. So yet again we face uncertainty as to how things will play out and we will just have to play the waiting game!

For more information on how the Property Markets will be affected click here 

Should Property Investors be exempt from Stamp Duty?

There has been so much in the news lately about the Stamp Duty changes, it is little wonder that there are so many opinions floating around on the subject. At the moment you are never too far away from a “Stamp Duty” article on the internet and today is no exception.

We awoke this morning to an article featured on Landlord Today which was talking about property investors asking for an exemption from the latest stamp duty charges.

According to the article “Professional investors should be exempt from the recently introduced 3% stamp duty surcharge according to the Better Renting for Britain campaign”

And…

“Some of the country’s biggest investors in the private rental sector have written an open letter to the housing minister Brandon Lewis requesting exemption from the extra stamp duty imposed on buy-to-let properties from 1 April 2016”

We have been mulling this over all day and have shared the article on various social media platforms that we manage and after seeing what people have to say, we felt that this article was worth sharing with our opinions.

Now we are merely “Accidental Landlords” and have found ourselves as Landlords through no choice of our own, however we have embraced the idea and actually quite enjoy it.. until recently when all the stamp duty changes came into effect.

We understand why it was brought in…. The Government wanted to put a halt to the buy to let investors who were “gobbling” up the market and preventing first time buyers getting on the ladder plus it will obviously make the Government a lot of money!!! HOWEVER in doing so it has prevented landlords like us from moving our family home (unless we pay the 3% Stamp Duty surcharge) because effectively our family home has become a second home, due to the first home being a buy to let (accidentally of course!)

So when we hear today in the news that Professional Investors wish to be exempt, you have to forgive us for having a strong distaste on the subject. It is because of professional investors “gobbling” up houses on the cheap that we are facing paying the extra stamp duty and yet they now wish to be exempt….

We don’t think that first time buyers stand no chance of getting on the property ladder. Landlords provide a service to people who do not wish to buy, but for those that do ultimately wish to own property, they should be given a chance. If Professional Investors are allowed an exemption, then all we are doing is admitting that the future generation will never be able to buy their own properties. Don’t give them the exemption and give young people a chance to buy if they wish too!

If we give exemption to Professional Investors then all we are doing is admitting that young people will never buy a house and that they will be condemned to a life of renting, which you may think is mad coming from a Landlord because after all we make money from renting out our property but in reality renting should be a stepping stone towards buying your own home and not just a big business for professional investors who are only looking at lining their own pockets and not to keen on the future generations being able to buy houses.

Click here to read the article on Landlord Today

 

UK Landlords will invest less due to tax changes

Since the Government announced last year that tax relief on rental income would be decreased and that stamp duty on buy to let purchases would be increased there has been a significant fall in new acquisitions by new and existing Landlords in the UK over recent months.

In response to the changes to tax , Landlords in the UK are opting to upgrade their existing properties and making the portfolio they have even better, rather than looking to buy more property to expand their portfolio.

A report from Paragon Mortgages  shows that only 9% of respondents intended to purchase a new buy to let property in the next three months, which is a figure that is down 14% from the previous quarter.

Now that they changes to stamp duty have been enforced it would appear that more Landlords within the UK are aware of the changes. According to the report, 76% of the respondents were aware of the changes and what the implications are for them personally.

Landlords are now also spending less of their rental income on mortgage repayments, which means that the average net rental yield is remaining at 4.7% for the third consecutive quarter.

John Heron who is the Director of Mortgages at Paragon said;”The Private Rented Sector is facing the prospect of a great deal of change as a result of the significant shift we have seen in fiscal and regulatory policy. Some Landlords are responding to this uncertainty by planning fewer new purchases and investing in their existing portfolios”

By purchasing less property and investing in your existing portfolio, we feel that this can only be an improvement for tenants. The Government changed the rules to allow more individuals to purchase property, rather than having all the housing stock eaten up by Landlords, so with Landlords buying less property and instead opting for improving their existing properties, we can see this as a positive  step.

Individuals that wish to purchase their first property can do so, as there will be more housing stock available and for those that wish to remain as tenants, they will have their rental property improved by Landlords looking to invest in making their portfolio nicer.