Budget and Buy to Let Changes
The main changes of interest to property investors and landlords in the 2015 budget were: (1) Restriction on “buy to let landlords” ability set off interest against loans to the lower viagra price comparison rate of tax, (2) Removing the “wear and tear allowance” in favour of renewals allowance on furnished accommodation (3) Big increase in the Rent a Room allowance from £4,250 to £7,500 (this will be of interest to any live-in landlords), (4) Making higher earners in housing association accommodation (earning over £40,000 in London, £30,000 elsewhere) pay market rents, which may lead to more of them moving over to the “buy to let” part of the private rented sector, (5) Further restrictions in housing benefit entitlements, including no automatic right to this until at least 21 years of age and further cuts in the maximum amounts paid – which will lead to yet more landlords deserting this end of the market.
Budget and Buy to Let Changes
The biggie for the private rented sector is, of course, the restriction of the tax break on deduction of interest on buy to let loans to the standard rate – which will be bought in gradually over the next few years.
Well, I did not see that coming in the budget, so maybe I’m no Nostradamus, after all! (See previous blog, where I forecasted Osborne would scrap Private Letting Relief)
Naturally, I don’t suppose the big pension funds who want a piece of the private rented sector action will be affected by this, so roll on the Tesco-isation of buy to let. There must be much clapping and cheering among the “kindly” pension funds, big overseas investors and the other big boys, as their small “pesky and nasty” landlord competitors just got clobbered whilst they are thrown the keys to the hen house.
As the small private landlords have grown the sector, including lots of new build, (at least they did until around 2002 when the stupid lenders panicked on all their poor lending they had done on what was clearly a level oversupplied new builds flats), this does not seem fair.
The government ought to read the Rugg Review from 2008. This thorough review, now collecting dust on the Housing Ministers shelf, looked at the past performance of the big players in private rent and it was not exactly complimentary about them, finding their product and service was worse than that of small scale private landlords.
It is possible that this budget tax change from Osborne will not do all that much anyway. Wealthier higher rate tax landlords may scale back on new purchases and spend more of their cash on improving the properties they already have to get to a lower rate of tax, if they can. And wealthy ones may not have mortgages anyway.
Rents Will Rise
Rents may rise a bit. (The cost to a higher rate taxpayer who is on a typical 4% mortgage interest rate has been calculated as £67 per month per £100,000 mortgage).
For some, a company limited structure will be worth considering, though as the tax code is apt to change more in the future, such a move (which would also depend on a range of other personal circumstances) would require careful consideration.
If they can, a simple move would appear to be to look to shift the ownership over to a spouse who may enjoy a lower rate of tax.
However, a line has been crossed here, and landlords are now easy targets for the government, even a Tory one, wanting to raise some cash.
Expect more of this kind of thing going forward. (And I’m sure my prediction of the elimination of the little understood Private Letting Relief will come to pass).
But if it puts off a lot of new would-be landlords from entering the world of buying to let, then that means less competition for me – and I will drink to that.
There are still lots of opportunities. The trick is to buy the right property, in the right location at the right (low) price and ensure it is managed well, with no voids.
At LettingFocus we advise landlords on how to do this.
Footnote: The bringing back of the renewals allowance and the ditching of the wear and tear allowance seems very odd. If there was anything that was a bit of an open target for those inclined to play fast and loose with their tax affairs, the renewals allowance was surely it. At least the wear and tear allowance as a straight 10% deduction could not be dodged – and seemed a fair rate to levy. Most odd!
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