Well the last few weeks has been rather hectic as Milton
Keynes landlords, some who use us to manage their properties and other
landlords who just read our Milton Keynes 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 19% of residential property in Milton Keynes being privately
rented (as there are 12,700 privately rented properties in the town), these
changes are potentially something that will not only affect most Milton Keynes
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, Milton
Keynes 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 Milton Keynes investors and let me explain why. If you
invested £80,000 in Milton Keynes property in September 1987, today it would be
worth £314,836. If you had invested the same £80,000 in to the London Stock
Market (the FTSE 100 to be exact), it would be only be worth £229,012 today,
whilst Inflation would have taken the original £80,000 and pushed it up to £166,254.
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 town. Official figures show the
population in Milton Keynes is rising by 4,176 persons per year (i.e., demand
rising), but only 1,522 properties are being built each year (i.e., supply is
low). This sets up the Milton Keynes (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 Milton Keynes 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
Danielle@inspiredagents.co.uk and we
will be able to get something organised very soon.
No comments:
Post a Comment