MPs, second homes, capital gains tax and Property Watch by Lawrenson of LettingFocus.com

In my last post I said that one of the real reasons why a landlord register and landlord licensing is on the agenda is that the powers in Westminster think that lots of landlords are not paying their taxes and so a register would give HMRC more info on this.
Of course, the rogue landlords – the ones who fail to repair their properties and treat tenants like dirt - will not be inclined to register and most definitely won’t if it involves making them liable to pay tax, thus registering the whole exercise potentially pointless and making the register just another bit of bureaucracy for good landlords, but hey, that’s another story covered last week.
But how funny it was, then, to to see some legislators caught with their noses in the trough on second homes – as if their generous final salary scheme was not enough.
A lot of this is to do with the definition of what constitutes a principle private residence or PPR (whch are capital gains tax exempt) and the dubious practice of flipping from one house to another to claim PPR on both.
Lots of landlords have already sailed pretty close to the wind on this and I dare say a few MPs will have got the UK’s top selling Property Investment Book to read the very detailed tax chapter which explains in detail how capital gains taxes can be ameliorated by living in a let property for a time.
Now that some of them have rather taken the mickey (to put it mildly) by overusing exemptions like this we may expect to see the whole area of PPR and Private Letting Relief being looked at again.
This could end up badly for landlords.
GUM TREE NOT WHAT IT WAS
Nothing that’s free ever lasts too long and I see landlord friendly letting site GumTree seems to have now altered their system so it’s not so easy any more to refresh ads and still appear near the top of the next days listings.
Also, they seem to have got pretty tight about what constitutes a professional landlord – making pretty well everyone pay for ads as can be seen by the fact theat there are now very few private ads that are now posted at the site.
They even banned a guy I know who has just two let properties! Hardly makes him a pro does it? (He actually complained and they re-instated his ads.)
But on the old internet there is always someone else ready to come along and offer a freebie.
At the site LetUrself.co.uk they have set up a website for landlords who don’t need a high street letting agent and who are happy to do a fair bit of the legwork themselves. A bit like Gumtree in the old days then!
They offer all the same services of a traditional letting agency so you can get your let property on the big portals and if you register before the end of May, then for every property that you upload, you will receive 28 days free advertising on the website.
Sounds good.
PROPERTY WATCH ON BBC
Did you see Property Watch?
Not a bad show apart from the fact that someone had told the usually great presenters to gurn a la Gordon B on Youtube. Didn’t bother me but it annoyed The Boss in our house.
I actually contacted the show’s researcher and had a perfectly successful landlord lined up for them.
He has 60 houses in the north Manchester area. He’s a great down to earth chap who has done very well in buy to let and who has great relations with his tenants too.
Unfortunately, the show clearly wanted someone who made a muck up in buy to let and so despite speaking to my man 8 times they put someone on the show that had made a complete hash of being a landlord.
Typical anti landlord media in other words, but if scare stories like the one they featured keeps out a landlord who doesn’t want to find out how to do things properly by frightening them off, then that may be good for tenants who can also suffer if their landlord doesn’t know the ropes.
Oh, two years ago arch property bear, Merryn who featured on the programme every night and is usually an excellent analyst, said to invest in Japan. I did, and the two investment trusts I put money in are both 40% down.
So the message is make your own mind up.
And if you think these shows could do with some new faces and maybe have the author of the UK’s top selling property book on, do let them know won’t you.
BIG BUY TO LET MORTGAGE LENDER GIVES OUT MONEY
I have a few mortgages with a certain big buy to let mortgage lender.
I pay an interest only mortgage so could not figure out why the final balance on my mortgage statement was higher than the opening balance 365 days earlier.
The geniuses at their call centre tried in vain – “Its daily balances….it’s when the interest is applied that is different from the pay date… blah blah” but could not give me a sensible answer and in the end gave up and sent me a credit for the difference.
I suggest you check your mortgage account statement and if you find the same thing has happened to you, you give them a ring and get your money back.
I’ve phoned the PR department of this lender for their view on this but they clearly can’t be bothered to get back to me so expect to see this in the press soon and the lender named.
On a related point, see also my article on claiming back unfair mortgage exit fees
BUY TO LET MORTGAGES STILL COSTLY
For new mortgages, I see that mortgage lenders have cut mortgage interest rates, “application fees” and deposit requirements for standard residential mortgages.
But over on buy to let mortgages, the rates, fees and deposit requirements are staying stubbornly high.
It’s still impossible to get a buy to let mortgage unless you have 25% of the equity to put in and can also stomach application fees of 3% on your mortgage loan on top.
So, the would-be new landlord is still frozen out.
With a lack of players in the market the lenders who are still involved are getting away with this nonsense.
Surely, the downside risks for the mortgage lenders cannot justify these daft rates, high deposit requirement and exclusions.
Hopefully, a more dynamic lender will be along soon and shake it up.
Come on in, Santander – who seem a lot more savvy than most of our bankers!
If you need help navigating landlord mortgages, try the broker, Mortgagesforbusiness.co.uk. Click on Great Rates on Buy to Let Mortgages and quote LettingFocus for their special offer of £250 brokerage on buy to let mortgages which they have set up especially for us.
ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
I’m David Lawrenson of LettingFocus.com - the property investing experts. Read Property Articles.
I’m the author of “Successful Property Letting” which for the last 3 years has been the UK’s top selling property book - buy Property Investment Book.
The new edition is for accidental and experienced landlords and is fully up to date with all the recent changes to tenancy deposit schemes, HMOs, licensing and capital gains taxes.
I’m an expert property writer and property speaker - and I run the well known landlords blog that you are reading now.
I contribute to newspapers and a host of property websites, write a number of columns in the press and I provide general advice on property letting and consulting to anyone looking to buy property for themselves or to let out. I can help private individuals with any aspect of buying property or buy to let.
What’s unique about lettingfocus.com is that we offer independent unbiased advice on renting out and investing in property because unlike most people in the buy to let and property “advice” business we are not linked to a property company, developer, agent or bridging loan financier and do not receive commissions from these sources.
On the contrary, we are often asked to evaluate other property investments.
Find out about some great deals we have arranged at our Landlords Links page.
Copyright: David Lawrenson 2009. This blog is updated roughly once a week.
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Landlords are not selling because of reduced Capital Gains Tax CGT says Lawrenson of LettingFocus.com

The doomsayers and those who would love to see the demise of buy to let said that the new tax year would see lots of landlords selling their investments.
Well sorry folks, as I predicted we now have new evidence that this does not appear to be happening.
In fact, the Royal Institution of Chartered Surveyors (RICS) has just found that just two per cent of landlords are playing to sell property when current tenancy agreements expire. This is down from the 4.6 per cent of landlords planning to sell in the three months to the end of January, and the 6.5 per cent in the three months prior to this.
There had been fears the restructuring of capital gains tax could see most landlords face a rush to the exit. However, this is clearly not the case.
"Fears landlords would take advantage of the more favourable capital gains tax regime to bail out of the buy-to-let market appear misplaced," commented Simon Rubinsohn, Rics chief economist.
He went on to add, "Significantly, with the reduction in loan-to-value (LTV) ratios by lenders leaving first-time buyers struggling to access the housing market, rents are now rising sharply and the expectation is that this trend will continue. The incentive to cash in on the lower tax rate is being outweighed by attractive yields."
I cannot say I am surprised.

WHAT JOINT AND SEVERAL LIABILITY MEANS
Here is my tip of the week.
If you let to people who are unrelated and on a single tenancy agreement, it is best if you must make clear to them what joint and several liability means. To make it crystal clear, I send this email to all my tenants.
“Please note in case of any doubt, and as explained on your tenancy agreement that you are both jointly and severally liable for the whole rent. This means the tenancy is made with both of you as one party and with me as the other party.
It therefore means that you must usually BOTH give notice of your wish to terminate the tenancy at the same time and give me the due notice in writing.
Of course, when one of you leaves, the other could stay on but only if they notify me in writing of that fact and be prepared to pay the full rent on their own.
Also, jointly and severally liable, means that each of you is liable for the whole rent and in full for all moneys owing as a result of this tenancy agreement”
That usually does the trick but it is amazing how often tenants, especially student tenants fail to understand or check the meanings of terms like these when they sign an agreement.
ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
I’m David Lawrenson from property consultants lettingfocus.com.
I’m the author of “Successful Property Letting - How to Make Money in Buy to Let” the UK’s top selling property title buy the book
It is fully up to date with all the recent changes to tenancy deposit schemes, HMOs, licensing, capital gains taxes and it has new sections on buying below market value. I’m an expert property public speaker and a well known property investment blogger and I contribute to newspapers and a host of property websites, write a property investment blog, a number of columns in the press and I run a landlords help service.
I also work as a consultant helping banks, building societies, housing associations and web portals with their buy to let and property products and services and am a regular speaker at property shows.
You can read more of my blog & find details of my networking, advice, property investors networking programme at my website.What’s unique about lettingfocus.com is that we offer independent property mentoring because unlike most people in the buy to let and property “advice” business we are not linked to a property company, a developer, an agent or bridging loan financier and do not receive commissions from any of these sources.If a property investment is lousy – We’ll tell you straight and we will tell you all about buy to let and property investment - the good and the bad and we won’t make silly promises that you’ll become a millionaire overnight.
Copyright: David Lawrenson 2008. This blog is updated once a week. Permission must be sought before using the material in the blog.

Tax on buy to let by David Lawrenson of Letting Focus

Amidst the excitement, worry, legal issues and general administration which go hand in hand with buying and owning property, it is easy, perhaps almost convenient, to ‘forget’ about tax .
But with the right advice, you could save yourself a lot of trouble.
Here are some simple steps to help you.

Tax Advice
OK, step one is before you actually buy anything, consider how you are to own it. Will it be in your sole name, in joint names with a partner or possibly via a limited company? You should consider the options as the choice will affect the amount of tax due both on the rental income profits and on any gain made when the property is sold.
Step two is record keeping.
Keep a record (preferably a sales receipt, but if lost make a note of it somewhere – be it a grubby paper notepad or a blackberry) of ALL expenses you incur which relate to the cost of purchasing, owning and renting your property. . After all, if you have not kept a note of the expense then neither yourself nor an advisor can say if tax relief is due. Also include costs incurred prior to the date that any letting commenced and those which include some element of private expenditure

Selling a Property - Tax Implications
Step three is selling.
Any gain made on the sale of the property can be reduced in many ways, including: 1) Indexation Allowance – Intended to remove any element of gain arising as a result of inflation, but now available only to companies 2) Taper Relief – Available for properties owned since April 1998. The amount due depends on the number of years owned and whether the property can be classed as a business asset. Please note that as from April 2008, this relief will be abolished. 3)Private Residence Relief – Any period of time when the property was your main home is exempt from tax, together with the last 3 years of ownership and 4) Residential Lettings Relief – If you have previously rented out your main residence, you are entitled to claim up to £40,000 as an exemption.
Property tax needs careful planning at all stages - even when you buy it.
In particular, if you are buying a property for your son and daughter to live in while at university, you should think carefully about who owns the property - as getting this right could save you a lot of money in tax. It might be worth putting it in your offsprings name.
To read more about Student Lets, check out this article: http://www.lettingfocus.com/pages/myarticles_student_lettings.html

ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
We are LettingFocus.com - the landlords’ expert and I’m David Lawrenson, the author of “Successful Property Letting” - the UK’s top selling property and buy to let book for the last 3 years.
I have been a landlord and property investor myself for over 25 years.
At LettingFocus we offer independent unbiased
seminars for buy to let investors and landlords as well as one to one advice covering all aspects of being a landlord and investing in property.
Unlike many in the still largely unreguated buy to let and property “advice” business I am not linked to a property company, developer, estate agency or bridging loan provider.
As such I am able to give unbiased independent advice on where to buy (which areas), what type of property to buy, when to buy and how to buy property at a low price. I can also explain how to reduce the risk of getting a bad tenant.

KEY PAGES AT OUR SITE LETTINGFOCUS.COM:
Our Events only take place twice a year.
For our NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors click here:
Next Property Investing Seminar and Networking Event
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For general info on our SEMINARS AND CONSULTING click here: Property Seminars, Networking Evenings and Consulting
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This blog is updated roughly once a week usually on a Monday or Tuesday.
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Copyright: David Lawrenson 2007. Permission must be sought before using the material in the blog.

Capital gains tax changes who wins and who loses by Letting Focus

At a recent speaking engagement to a professional group of property investors I was asked who wins and who loses from Capital Gains tax Changes?
Well, let’s see.
Currently CGT for most investors is levied at 100% of any net gain they make after deducting buying and selling costs after deducting their £9,200 allowance if they sell within 3 years.
The charged rate is then 40% if they are higher rate taxpayers and 20% if basic rate taxpayers. However, something called Non Business Asset Taper Relief then came into play which means that after the first three years of owning a buy to let you get to effectively knock off 5% of any net gain.

Taper Relief
This then “tapers down” by further lumps of 5% each year, up to the 10th year of ownership so that by year 10, a maximum 40% taper is applied.
So, when you get to the maximum taper relief available of 40%, this means you would only be taxed at 60% of the capital gain.
If you are a higher rate taxpayer and pay 40% capital gains tax rate, the “effective” rate of tax you would pay on the gain after 10 years would be 60% X 40% = 24%.
If you are lower rate taxpayer you pay 60% x 20% = 12%
(To complicate matters, you should note also, that if you owned the property before 1998, for any period up to march 1998, you benefit from another sliding scale called “indexation allowance” which reduces the taxable gain by the rate of inflation up to 1998 but let’s not go there!)
That's the hard bit. Now to the easy bit!

New Regime for CGT
With Darling’s changes, (which take effect for asset sales after 5th April 2008) both these sliding scale CGT rates are to be abolished and replaced with a single CGT rate of 18% no matter how long you owned the property.
So, if you are an investor and pay tax at the higher rate of 40%, you are a clear winner as 18% is always less than the best rate you could have got under the old regime (i.e. where the property was held for 10 years or more) of 24%.
The biggest gainers of all are higher rate taxpayers who have held property for less than 3 years whose “effective” CGT rate will drop from 40% to 18%.
Even if you are a basic rate taxpayer, any significant gains you make could push you into the top rate of tax, thus meaning that the new regime may be better for you too.
If, however, you are a lower rate taxpayer and your gains would not push you into the 40% tax bracket, then you would be worse off under the new system only if you have held the property for more than 4 years. If you are one of these and you are thinking of selling, then do so now as you will pay more after April.

Second Home Owners
Second home owners – most of whom are higher rate taxpayers - are also big winners of course - and this change could make prices of properties in coastal and rural areas, particularly go up further.
Since most UK buy to let investors and second home owners are higher rate taxpayers, there will be a lot of people waiting until April before they complete on second property sales.
Of course, in general this change will make buy to let and second home owning more attractive still - and attract entrants into the market, thus possibly buoying up the housing market at a time when it looks shaky.
Judging by the amount of enquiries I now get from banks and building societies interested in my consulting services to help them improve their buy to let mortgage products, I think the buy to let arena is surely set to grow -and this fillip to tax will only help matters.

Furnished Holiday Lets
Finally, a footnote, the tax changes are not so good, however, for owners of furnished holiday lets. They will be worse off and I will look at this in the next blog.
Finally, tax is complicated, so if you are considering what to do, take advice from a financial adviser familiar with residential property taxes.

ABOUT LETTINGFOCUS.COM
We are LettingFocus.com - the landlords’ expert and I’m David Lawrenson, the author of “Successful Property Letting” - the UK’s top selling property and buy to let book for the last 3 years.
I have been a landlord and property investor myself for over 25 years.
At LettingFocus we offer independent unbiased
seminars for buy to let investors and landlords as well as one to one advice covering all aspects of being a landlord and investing in property.
Unlike many in the still largely unregulated and shark infested buy to let and property “advice” business I am not linked to a property company, developer, estate agency or bridging loan provider.
As such I am able to give honest, unbiased independent advice on where to buy (which areas), what type of property to buy, when to buy and how to buy property at a low price. I can also explain how to reduce the risk of getting a bad tenant.

CHECK OUT THESE PAGES AT OUR SITE LETTINGFOCUS.COM:
Our Events only take place twice a year.
For our NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors click here:
Next Property Investing Seminar and Networking Event
We have GREAT OFFERS for landlords too, Click here: Services and Products for Landlords to see our Landlords Resources (Useful Links) page. (Selling services to landlords and property investors and have a national coverage? You could be a partner, please get in touch!)
For general info on our SEMINARS AND CONSULTING click here: Property Seminars, Networking Evenings and Consulting
ONE TO ONE CONSULTING click here: Property Consulting
CLIENT TESTIMONIALS from past customers click here: Testimonials
BUY THE BOOK click here: Buy the Book at Amazon
THE HOME PAGE OF THIS BLOG click here: Blog
THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page
To JOIN our Free QUARTERLY NEWSLETTER simply send an email to david@LettingFocus.com - Please note we WILL NOT send spam or sell our mailing list to advertisers!

IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR OUR WEBSITE?

Have you seen this useful article on lease extensions and buying freeholds.... http://www.lettingfocus.com/pages/myarticles_leaseextensions.html

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Copyright: David Lawrenson 2007. This blog is updated at least once a week

Landlords Given a Huge Tax Windfall says Letting Focus

It’s hard to believe this but thousands of property investors were among the winners from yesterday's pre-Budget report, after the Government unveiled plans to slash the rate of capital gains tax from 40 to 18 per cent.
Currently, higher rate taxpayers are taxed at 40 per cent on any gains above £9,200 in any one tax year – although using taper relief, this rate can be reduced to as little as 24 per cent on assets held for 10 years or more (or 12% for lower rate taxpayers) .
CGT hits residential buy-to-let landlords who sell their properties, as well as wealthier individuals who realise capital gains when selling any type of share investment.
But from 6 April next year, all capital gains above the personal allowance of £9,200 will be charged at a flat rate of 18 per cent – while taper relief (and the old indexation relief for pre 1998 purchases) will be scrapped.
And this applies retrospectively, so if you are a higher rate taxpayer (and for those lower rate taxpayers who bought less than 4 years ago), the best thing to do if you are thinking of selling now is – don’t. You are best selling next year after April 6 when you will pay less a lot less CGT.
Many individuals will no longer need to hold on to their assets for many years to minimise their tax.
I can hear a gnashing of teeth from some of my good friends who think landlords should be taxed harder (including the Institute of Directors and the Guardian newspaper) who say that landlords should be taxed more not less – including having their ability to set off interest on loans for buy to let property as a cost - removed.

ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
We are LettingFocus.com - the landlords’ expert and I’m David Lawrenson, the author of “Successful Property Letting” - the UK’s top selling property and buy to let book for the last 3 years.
I have been a landlord and property investor myself for over 25 years.
At LettingFocus we offer independent unbiased
seminars for buy to let investors and landlords as well as one to one advice covering all aspects of being a landlord and investing in property.
Unlike many in the still largely unregulated buy to let and property “advice” business I am not linked to a property company, developer, estate agency or bridging loan provider.
As such I am able to give unbiased independent advice on where to buy (which areas), what type of property to buy, when to buy and how to buy property at a low price. I can also explain how to reduce the risk of getting a bad tenant.

AT OUR SITE LETTINGFOCUS.COM:
Our Events only take place twice a year.
For our NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors click here:
Next Property Investing Seminar and Networking Event
We have GREAT OFFERS for landlords too, Click here: Services and Products for Landlords to see our Landlords Resources (Useful Links) page. (Selling services to landlords and property investors and have a national coverage? You could be a partner, please get in touch!)
For general info on our SEMINARS AND CONSULTING click here: Property Seminars, Networking Evenings and Consulting
ONE TO ONE CONSULTING click here: Property Consulting
CLIENT TESTIMONIALS from past customers click here: Testimonials
BUY THE BOOK click here: Buy the Book at Amazon
THE HOME PAGE OF THIS BLOG click here: Blog
THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page
To JOIN our Free QUARTERLY NEWSLETTER simply send an email to david@LettingFocus.com - Please note we WILL NOT send spam or sell our mailing list to advertisers!

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Copyright: David Lawrenson 2007.

Flat Conversion Allowance - How to Make Money from The Space Above a Shop - and Get the Taxman to help out too.

Here is some useful property tax advice.
Did you know that under the Flat Conversion Allowance scheme you can get income tax relief on the cost of converting or renovating the empty space above a shop, café, office or surgery and turning it back into use as residential flats?
However, as always with such a nice tax break, there are some rules.
In order to qualify for the allowance, the money spent has to be on things of a “capital nature” so whilst you can claim for the cost of dividing the property to create separate flats or installing a new kitchen or bathroom, you won’t be able to claim the cost of providing furnishings.
There are also rules about the type of building that qualifies.
The property that is being converted must be in a shopping street, have no more than 4 storeys and the building must have been built before 1980 with the original intention that the upper floors be used as residential accommodation.
The space above the shop or office must have been either empty or used only for storage, for at least the last year.
When the conversion is complete you must let the flats out to tenants and the ground floor must continue to be used for business purposes both during and after the conversion.
Finally, each new flat has to be self-contained and access to the street from the flats has to be separate from the ground-floor premises.

More Rules
The rules say that expenditure does not qualify for he allowance if any flats created are "high value" flats, which the Revenue defines as flats which, “when the conversion or renovation work starts would be expected to achieve rents above set limits.” This is approximately £350 per week in London and £150 outside London.
You have to own the property and let it out for seven years after conversion because the allowance can be withdrawn if you sell the flats or the flats stop being used for letting during this period.
Making a claim is easy though.
You simply claim for the flat conversion allowance in the tax return for the year in which the conversion or renovation money is spent - and there are no special requirements beyond the usual self assessment.
The allowance is 100 per cent in the year in which the expenditure happens or if you prefer, you can claim a lower amount, with the balance of the cost spread over later years.
It’s possible to set the allowance against other income from property and if you don’t have enough property income in that year, the excess capital allowance can be carried forward and set off against future property profits.
Alternatively, excess capital allowances may be set against the person's other income for the year, or the following year.

ABOUT US

At LettingFocus.com is the home of landlord information.
Hello, I’m David Lawrenson.
I have been a landlord and property investor myself for over 25 years and am author of “Successful Property Letting” – which has been the UK’s top selling property and buy to let book for the last 3 years.

We help landlords and property investors make money in property by coaching them in ways that work, which are ethical and which involve minimal risk to the investor.
We pride ourselves on giving independent unbiased buy to let advice on a one to one mentoring and coaching basis as well as through occasional group seminars.
Unfortunately, in the UK today, property advice in the UK is still largely unregulated and what counts as “good advice” is too often more about making the promoter money than giving useful information to the investor.
With no links to property firms, developers or bridging loan providers we can advise on where and what type of property to buy for investment and when to buy it.
We also show you how to manage tenants properly.
We also do consultancy for banks, local authorities and social housing providers – helping them with their landlord facing or buy to let product strategies. We also write for property websites and are regularly quoted by the media.

AT OUR WEBSITE LETTINGFOCUS.COM:

THE HOME PAGE OF THIS BLOG click here: Blog
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NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors:
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For general info on our SEMINARS AND CONSULTING click here: Property Seminars, Networking Evenings and Consulting
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Copyright of Blog: David Lawrenson 2007. This blog is updated roughly once a week usually on a Monday or Tuesday.

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