Well the last few weeks has been rather hectic as Hampstead
landlords, some who use us to manage their properties and other landlords who
just read our Hampstead Property Blog, have been sending me emails or picking
the phone up to me about the new rules on buy to let taxation announced in the
recent budget. George Osborne confirmed in the recent
summer budget that the tax relief given
to landlords on mortgage interest payments, on their buy to let (BTL) properties,
would be reduced over the coming years for higher rate income tax payers. The
Chancellor said the tax relief that private buy to let landlords (who pay the
higher rate of income tax) would change in 2017 from the current 45%/40% and
would steadily reduce over the following four years to the existing 20% by
2020.
With 36.1% of residential property in the Westminster
Parliamentary Constituency of Hampstead and Kilburn being privately rented (as
there are 21,066 privately rented properties in the area), these changes are
potentially something that will not only affect most Hampstead landlords, but
also the tenants and the wider property market as a whole. The choice of rental
properties could drop, especially at the top end of the market which could push
up rents.
However, Hampstead
landlords could protect themselves by reassigning one or more rental
properties into a company structure (e.g., a Limited Company, Partnership or
Sole Trader) and by doing so, the total tax paid is greatly reduced, because a
company only pays tax on the profit. Nonetheless, before everyone goes off
setting up companies for their BTL portfolios, it must also be noted, if a sole
trader firm is started, stamp duty needs to be paid, yet if the owner is in
business with a partner, they could enjoy some stamp duty relief. The biggest tax variation is Capital Gains Tax
(CGT) where the tax bill will be much higher when you come to sell your
portfolio. In essence, by going into business with your BTL properties, you
will potentially have a modest stamp duty to pay when you start, but you will
have a lot less monthly tax to pay, irrespective of the interest rate, but the
CGT bill will be much higher when you come to sell ... as you can see, it is
not a ‘get out of jail card’. Now it must be remembered, I am not a tax
advisor, so you must take advice from a qualified person (more of that later).
Those
planning to purchase a BTL property will have to factor these new rules into
their calculations, and this could affect the offers they are willing to make.
However, I am not that concerned, as the scaremonger reports fail to see the
fact that two out of three BTL properties that have been bought since 2007 have
been purchased without the support of BTL mortgage. With those two thirds of
landlords paying cash for the purchase of their rental properties, that means
two thirds of landlords will be totally unaffected by the changes.
So what of the future? The British love their Bricks and
Mortar, it’s an asset that they can touch and feel and has a 70 year track
record of capital growth that has out stripped inflation. Buy to let will still
be attractive to Hampstead investors and let me explain why. If you invested £125,000
in Hampstead property in September 1987, today it would be worth £620,528. If
you had invested the same £125,000 in to the London Stock Market (the FTSE 100
to be exact), it would be only be worth £357,831 today, whilst Inflation would
have taken the original £125,000 and pushed it up to£259,771.
It’s true some central London landlords relying solely on
the tax breaks rather than high yields may be forced out of the market, but
even those landlords could seek to recoup any losses by increasing rents. However,
those landlords may leave the market and this could constrict the availability
of rented houses even more than it is already, increasing rents and thus pushing
yields even higher for landlords and BTL investors still in the market... thus
attracting new landlords into the market because of those higher yields.
The reality is, there is too much demand and not enough
supply of homes for people to live in in the area. Official figures show the
population in Hampstead and Kilburn is rising by 1,519 persons per year (i.e.,
demand rising), but only 432 properties are being built each year (i.e., supply
is low). This sets up the Hampstead (and UK) property market to continue to
create strong and steady returns, irrespective of any tax loophole being
there (or not as the case maybe).
If the demand is there, I am happy
to organise an informal seminar with a local Hampstead accountant one evening, whereby
they can show you the options available and what might be best for you.
Therefore, if you are interested in attending, please drop me an email chris@ashmoreresidential.com and we will be able
to get something organised very soon.
If you are looking for an agent with experience that can help you find the right tenant for your property, then contact us to find out how we can get the best out of your investment property. Email me on chris@ashmoreresidential.com or give me a call on 020 7435 0420. Pop in for a chat – we are based on Ashmore Residential, Suite 7, 25-27 Heath Street, London, NW3 6TR. The kettle is always on.
Don't forget to visit the links below to view back dated deals and Hampstead Property News.
No comments:
Post a Comment