property_taxes_iconBuy-to-let mortgage applications from limited companies more than double as landlords strive to beat tax hikes

The number of buy-to-let loan applications from limited companies has surged in recent months as landlords prepare for tax hikes starting in April, say specialist broker, Mortgages for Business, who found that 38% of its applications by December 2015 were from companies, up from 15% in October; the month before the changes were announced in the Autumn Statement.

The broker’s figures come as popular alternative lender Aldermore reduces its rates and removes its fees on its limited company mortgages in anticipation of increased demand.

The impetus to form limited companies comes after Chancellor George Osborne announced in his July 2015 Budget that for individuals buy-to-let mortgage interest relief would be phased out between 2017 and 2020, rather than allowing interest to be claimed as an expense, thus saving tax at their marginal rate of tax. 

A basic rate reduction on income tax liability on the loan interest, calculated at 20%, will be claimable instead.  Interestingly, the changes do not apply to limited companies, who own a significant amount of let property in the UK.

Double trouble

This significant and unpopular change was closely followed by new measures announced in the Autumn Statement, which will see the introduction of an extra 3% Stamp Duty Land Tax (SDLT) surcharge for buy-to-let and second home purchases from April 2016.

Under the new rules, a house bought for £275,000 as a second residence or as a buy-to-let investment would incur SDLT charges of £12,000 on the purchase of the property, which is £8,250 more than would currently be paid.

Fast action required

These changes have caused some landlords to fear reduced yields or losses, which has led many to find new ways of cutting the costs of buy-to-let by either purchasing properties before the SDLT changes come into effect, or setting up limited companies that will still be eligible for higher rates of mortgage interest tax relief.  Neither are a simple strategy with just weeks to go before the next tax year, so many are simply using the shortage of property in the UK as a good reason to increase rents, resulting in the tenant feeling the true cost of this taxation policy.

I have found that smaller investors, those with just one or two investment properties are choosing to sell simply out of frustration but this certainly represents the minority.  Large corporate investors remain unscathed and will probably benefit from a surge in rents as economic supply and demand creates further volatility.  The only true way to solve our housing issues is to deal with the disparity between supply and demand, I really don’t believe tinkering with taxes and upsetting landlords is going to change anything.

David Whittaker, Managing Director at Mortgages for Business, was reported as saying: “The increase in limited company buy-to-let activity is to be expected since the proposed restrictions to buy-to-let mortgage interest relief for individuals paying the higher tax rate were announced by the Government in the Summer Budget.”

“Operating portfolios through corporate structures is expected to be more tax efficient, particularly for higher tax rate-paying individuals, including individuals where the new tax regime will tip them into the higher tax bracket where previously they had remained below it.”

A word of warning

Be sure to take professional advice so that your personal circumstances are considered before making any rash decisions; transferring properties to a limited company is not as straight-forward as it may seem and avoiding the SDLT uplift is unlikely to possible at this late stage. 

Also, if you need access to the funds generated by your property portfolio, a corporate structure may not be a cheaper option.  Companies are a lot more expensive to manage and do not have the privilege of an annual Capital Gains Tax exemption.

 

The information provided in this blog illustrates my opinions and experiences, it does not constitute advice and I do not accept responsibility for any actions taken or refrained from as a result of reading this post.

If you found this post interesting/useful please share it with your social network and/or bookmark it.  Also, your comments are always valued and will help me to write new posts that are relevant to readers of this blog.

Relief on Buy-to-let mortgage interest will soon be restricted to just basic rate as the chancellor considered it “unfair” to allow landlords to obtain tax relief when domestic mortgagees can not. This is despite his regime treating B2L income as taxable trading. In my mind there is a clear distinction between traditional wealth investors and business owners, but these new rules “muddy the water” when looking at whether renting a property is truly a risk and rewards business.

So What?

There has been lots of press on this subject, but will it really make a difference to property investors? If you are a basic rate tax payer or have low gearing, very little will change, but watch out if your income is using most of your basic rate band as in future landlords will obtain basic rate tax relief on interest rather than providing it as a tax allowable expense. The difference could easily push your total income in to the higher rates with no other changes in circumstances. Proper tax planning is essential.

Cynical?

With consistently low interest rates, stable property prices in this area and some poor perception of pensions over the years, many have opted for property as a long term strategy and use mortgages to leverage the cash they can invest, so this change will result in a significant tax yield for the Treasury.

A company?

Many advisers are suggesting that a company structure will now be more favourable. That may be true for some, but for the average investor this is not the way forward for many reasons, not least the lack of a Capital Gains Tax exemption for Companies and the new dividend tax imposed on shareholders, so please seek personal, professional advice and plan carefully before looking at this strategy.

The real victim?

It is thought that most landlords will simply increase rents to cover the additional tax burden. With demand for rental properties outstripping supply by up to five times in the East of England, it seems logical that rents will increase without much fuss, meaning it will be the tenant not the landlord the suffers from the Chancellor’s attempt at dealing with “unfairness”.

 

The information provided in this blog illustrates my opinions and experiences, it does not constitute advice and I do not accept responsibility for any actions taken or refrained from as a result of reading this post.

If you found this post interesting/useful please share it with your social network and/or bookmark it.  Also, your comments are always valued and will help me to write new posts that are relevant to readers of this blog.

As we start a new financial year, myself and my team here at George Hay, Huntingdon are celebrating achieving a record 35% increase in turnover over the last three years.

growth chartManaging Partner Barry Jefferd said

‘It is a testament to the commitment and determination of the whole team here in Huntingdon that we have managed to increase our turnover at such a rate, especially in this time of recession. We celebrated the 20th anniversary of the opening of our Huntingdon office in 2014 and we are delighted to have built and maintained such good relationships with local people and businesses during that time.

We are now looking forward to continuing to provide the town with our excellent accountancy services for the next twenty years and beyond!’

 

I celebratory leapam very proud to have been a significant part of this growth period and I am looking forward to the challenges of taking on more offices at St. George’s House to accommodate new team members, including an apprentice in the Autumn.

I would also like to thank the many clients, networking colleagues and professional contacts that have supported us during these incredible years.

 

The information provided in this blog illustrates my opinions and experiences, it does not constitute advice and I do not accept responsibility for any actions taken or refrained from as a result of reading this post.

If you found this post interesting/useful please share it with your social network and/or bookmark it.  Also, your comments are always valued and will help me to write new posts that are relevant to readers of this blog.

Further to my post about proposed changes to the income threshold for charities in England & Wales to have their accounts audited, I can confirm the Statutory Instruments laid before Parliament will come into force for financial years ending on or after 31 March 2015:

audit stampAsset thresholds were not changed.

 

Here at George Hay, my charities team carries out regular and extensive professional development.  Whether your charity needs an audit or an independent examiners report, you can be rest assured that we have the experience to deliver.

The information provided in this blog illustrates my opinions and experiences, it does not constitute advice and I do not accept responsibility for any actions taken or refrained from as a result of reading this post.

If you found this post interesting/useful please share it with your social network and/or bookmark it.  Also, your comments are always valued and will help me to write new posts that are relevant to readers of this blog.

On 19th February 2015, the Cabinet Office published its response to the consultation on charity audit and independent examination.

It explained that 56 respondents contributed to the consultation that was initiated by recommendations made by Lord Hodgson in his review of the Charities Act 2006 and was concluded on 27th January 2015.  The resulting Statutory Instrument which sets out the proposed changes will be laid in Parliament on 30th March 2015.

It is thought that the changes will be effective for accounting periods ending on or after 31st March 2015, somewhat earlier than envisaged.

The key outcomes were:

  • the charity audit income threshold will rise to £1 million (from £500k)
  • the group accounts preparation and audit income threshold will also rise to £1 million
  • asset thresholds will stay the same.

These proposals were supported by the vast majority, but some of the respondents did object, commenting on what they considered a lack of scrutiny in independent examinations and inadequate training/experience of examiners.

Here at George Hay, my charities team carries out regular and extensive professional development.  Whether your charity needs an audit or an independent examiners report, you can be rest assured that we have the experience to deliver.

The information provided in this blog illustrates my opinions and experiences, it does not constitute advice and I do not accept responsibility for any actions taken or refrained from as a result of reading this post.

If you found this post interesting/useful please share it with your social network and/or bookmark it.  Also, your comments are always valued and will help me to write new posts that are relevant to readers of this blog.

.gov.ukIf you have tried to use the Commission’s website recently you will have noticed that you were redirected to .gov.uk.

Refresh or downgrade?

Along with most government run institutions like HMRC and DVLA, the Commission’s website has been moved to this umbrella site and been given the familiar black and white treatment. Unfortunately it also seems that what was a reasonable source of information with relatively user-friendly functionality has been dumbed down.

Guidance valuable

In a time when the commission has, due to budgetary pressure and criticism by the National Audit Office over performance, been instructed to act more as a regulatory body than a support organisation, the ability to find good quality guidance online is paramount to Trustees who take on an already onerous role without remuneration.

320px-SMirC-thumbsdown.svgWasted resource

Much of the expertise held by the team at the Commission is being wasted by redirecting resources to regulatory activities. This is a real shame and the ethos to “serve and add value” to the sector is definitely being compromised.

 

The information provided in this blog illustrates my opinions and experiences, it does not constitute advice and I do not accept responsibility for any actions taken or refrained from as a result of reading this post.

If you found this post interesting/useful please share it with your social network and/or bookmark it.  Also, your comments are always valued and will help me to write new posts that are relevant to readers of this blog.

At last, this outdated and bizarre “slab” tax structure has been overhauled by the Chancellor in yesterday’s Autumn Statement.

Before….

family home for salePreviously,when you purchased a residential property you would have been subjected to Stamp Duty Land Tax (SDLT) at 1% on the entire purchase price if it was between £125,000 and £250,000, at 3% on properties priced at £250,001 to £500,000 and 4% if the price was over £500,000.  More hefty rates apply once you are dealing in properties over £1m.

After….

Today (4th December 2014), we have a banded tax structure more akin to income tax.

Up to £125,000 the SDLT the rate is still 0% but then buyers will pay at 2% on the portion up to £250,000.  The value above £250,000 and below £925,000 will attract 5%, then 10% up to £1.5m and 12% over that.

So….

Simply put, when buying your first home or even a modest family home, this change wont have much impact financially, but exceed the current £250,000 threshold and the savings can be substantial.  Buy yourself a mansion and you’ll be wondering why you didn’t do it yesterday!

Purchase Price £120,000 £249,999 £250,001 £300,000
Old SDLT £0 £2,500 £7,500 £9,000
New SDLT £0 £2,500 £2,500 £5,000

George Osborne claims that 98% of buyers will pay less under the new structure.

A bigger impact in the future?

For me, this change is not just about updating the tax system and helping the average home owner, this is a fundamental shift that I think will have a major impact on the property market.

Until now, there has been a false ceiling price because a buyer offering to pay £250,001 would pay £5,000 more SDLT than someone offering £249,999.

Thumbs UpWithout this ridiculous slab tax system, more freedom to offer a true market price will prevail. The true forces of supply and demand can start to work their magic and those who wish to develop their family home currently worth around £240k can do so knowing that they don’t have to cap their potential payback at £250k.

Hallelujah for common sense; not something I can say very often when talking about tax!

Paul Broadhead, head of mortgage policy at the Building Societies Association agrees that it will “smooth out the crazy tax jumps buyers have suffered around the top of each band”

 

The information provided in this blog illustrates my opinions and experiences, it does not constitute advice and I do not accept responsibility for any actions taken or refrained from as a result of reading this post.

If you found this post interesting/useful please share it with your social network and/or bookmark it.  Also, your comments are always valued and will help me to write new posts that are relevant to readers of this blog.

I am a great believer in focusing on things in life I can control, or at least influence.  I have never understood friends and colleagues whose mood on a Monday morning reflects the results of their beloved football club that weekend.  They are investing emotional energy in to something that they have no influence at all over.

I am sure there is more to sport that I simply don’t understand and I accept it has entertainment value and that personal time to unwind is crucial; but imagine what you could achieve if your time, money and emotions were invested in YOU?  Your behaviour is something you can control.

Why?

decision cubeLife is a continuous flow of decisions, and very few of us have the privilege of time on our hands.

I have often heard it said that “we all have the same 24 hours in each day” so why is it some of us manage that time better than others?  Why are some of us so much more successful than others?  I don’t know, I am not a consultant in that field, but I do know that by giving things I cannot control very little priority I can focus on choices that deliver happiness, success and personal satisfaction.

Private

In my personal life this can be simple things such as lying on my youngest son’s bed helping him to colour in a cartoon character or reading a story.  It can be teaching my eldest son tricks to help him develop his confidence with Maths, or sitting on the side-line of a cold and wet Rugby pitch each Sunday morning.  I know that this investment in bonding with them and developing their characters will provide the family with happiness for many years to come.

Work

In business, this focus on what I can control can be seen in my communication with my team and my attention to managing my network of clients, professional contacts and networking colleagues.  I also invest in a coach who ensures that I am accountable to my own goals and helps me to improve sales techniques, time management challenges and dealing with difficult people.

KPIsOf course traditional KPI’s (key performance indicators) such as margins, productivity, sales budgets, customer payment trends and improving customer satisfaction should be at the heart of any business owners agenda, but these are only of use if (perhaps with the help of their accountant or business coach) they can find ways to positively influence the results they achieve, otherwise they are simply a way of benchmarking your success (and failures).  You see, without focus on the areas you can personally control, monitoring KPI’s can actually be demotivating or even destructive.  You may inadvertently find yourself using external forces such as the economic climate as an excuse for not meeting your targets.

prioritiesSo…..

What could you focus on that would influence your success or that of your family in the short term and long term?

 

The information provided in this blog illustrates my opinions and experiences, it does not constitute advice and I do not accept responsibility for any actions taken or refrained from as a result of reading this post.

If you found this post interesting/useful please share it with your social network and/or bookmark it.  Also, your comments are always valued and will help me to write new posts that are relevant to readers of this blog.

Despite a severe lack of resources, the HMRC task force responsible for seeking out landlords that do not declare income from property, is gaining momentum in Cambridgeshire.

Significant exposure

In the last few weeks, I have seen a couple of incidences where HMRC have given landlords a chance to declare all via their online disclosure process, in the hope that they can recover some of what they estimate to be £500m of unpaid tax.  The Council of Mortgage Lenders suggest that there are more than 1.5 million buy-to-let mortgages in the UK, so the potential is significant.

The let property campaign cleverly uses other sources of data to select and then contact investors where a self-assessment record is not present, for example Council Tax records, Stamp Duty Land Tax returns, lending data and regular bankings.

tax-returnReal life

In the examples I have personally seen in the past few weeks, the taxpayers have been naïve to the fact that they should have been declaring citing reasons such as HMRC’s website being misleading, professionals that help acquire properties not giving advice and negative cash flow suggesting that there was not any income to declare.  Unfortunately ignorance is not a great defence and when it comes to taxation it certainly isn’t bliss.

I have written about the dangers of relying on the HMRC website before.

The latter reason of negative cash flow (expenses exceeding income) is a common one, but cash outflow does not always equal a tax allowable deduction. For example if you have a repayment mortgage (as opposed to an interest only loan) then you will be paying back capital.  Only the cost of finance, i.e. the interest element is allowable for tax.

Also, making a loss is not a reason for not recording your property transactions on a Tax Return, as losses could come in handy in  later years when you do turn a profit.

Need help?

If you are worried about properly disclosing your property investment to HMRC, please give me a call on 01480 426500 for a free, no obligation consultation.

 

The information provided in this blog illustrates my opinions and experiences, it does not constitute advice and I do not accept responsibility for any actions taken or refrained from as a result of reading this post.

If you found this post interesting/useful please share it with your social network and/or bookmark it.  Also, your comments are always valued and will help me to write new posts that are relevant to readers of this blog.

 

home blessingRecently I have been discussing with local lettings expert Terry Lucking, how the rental market may change as a result of an increasing supply of rental houses and a growing number of older first time buyers many of which have been renters with less impetus to buy a property than their parents.

Supply and demand or just a change in attitude?

Research from LV= shows over half (52%) of adults in the UK aged under 36 live in a home they don’t own.

What’s more, new research from protection specialist LV= shows that this trend is likely to continue as the younger generation’s attitude to renting is changing.

42% of renters aged between 20 and 35 are completely happy to rent for ten years or more and claim that it’s not important to them whether they ever end up owning their own place.

New generation thinking

LV=’s research figures indicate that a significant shift in attitudes to renting is taking place. Whereas nearly all of the previous generation of Brits polled (those now aged between 55 and 75) saw owning their own property as the ‘ultimate goal’ (93%), only a third (33%) of people under 35 now feel the same way.

In line with this, half of all renters (43%) no longer see bricks and mortar as a sign of success, and almost three quarters (70%) say the notion that it’s in some way shameful to never own a property is completely out of date.

 

The information provided in this blog illustrates my opinions and experiences, it does not constitute advice and I do not accept responsibility for any actions taken or refrained from as a result of reading this post.

If you found this post interesting/useful please share it with your social network and/or bookmark it.  Also, your comments are always valued and will help me to write new posts that are relevant to readers of this blog.