Buy to let news to Thursday, July 4th, 2019

CGT warning for landlords; Could Johnson cut stamp duty?;
HM Revenue and Customs

CGT warning to landlords

Landlords and property investors have been warned that they need to be aware of a significant change to the timescale in which they have to pay Capital Gains Tax on profits made from the sale of a property.

New rules take effect from April 6th, 2020, meaning tax due on any gain from such sales, must be paid to HMRC within 30 days of completion.

At present, the tax bill does not have to be settled until January 31st of the year after the sale was completed.

Hilesh Chavda, a legal tax specialist in Royds Withy King’s Private Wealth team, commented:

“At the moment, the CGT deadline is January 31st following the end of the year in which the sale was made which, in some cases, could be as long as 22 months. Where CGT is due, the change could mean that sellers have to get funds in place to cover the CGT liability before the sale is completed as 30 days is not very long at all. This could be a particular issue where there are large historic gains.”

Chavda adds:

“Landlords, investors and second home owners thinking of selling one or more properties in the next couple of years are well advised to get professional advice at an early stage to make sure they understand and can meet their liabilities.“

The change to due date does not apply to sales of people’s main home, where no CGT is payable.

Landlords could see a stamp duty tax cut if Johnson becomes PM

Landlords could be in for some good news, according to reports that Boris Johnson could scrap stamp duty for many, as part of an emergency budget.

The Conservative leader candidate has publicly voiced his concerns about stamp duty in the past and is reported to be considering scrapping the additional levy on all properties valued under £500,000.

This scenario could happen in an emergency budget, possibly as early as September, should Johnson be appointed as Prime Minister, with the UK leaving the European Union with a deal.

According to Yahoo Finance UK, buy to let landlords could receive up to a £30,000 tax cut with such a move, which would be felt most keenly in London, where in some areas buy to let investment has slowed markedly in recent times. This is because house prices are so much higher, meaning that the 3% stamp duty levy equates to much more money.

The Times also reported that Johnson could reduce stamp duty on more valuable homes from 12% to 7%.

73% of London landlords retaining faith in buy to let

A new survey has highlighted the faith that London’s landlords have in buy to let, as a long-term investment proposition.

73% of landlords felt that property remains the best and least volatile long-term investment option, in a report published by lettings and estate agent Benham and Reeves.

However, Brexit uncertainty has resulted in 68% of landlords feeling less confident about the property market, while 80% said they were unfamiliar with the most recent changes to the buy to let industry.

Government proposals to scrap Section 21 have had an impact, with 66% of landlords now reticent to invest further.

There were split opinions over the effects of changes to mortgage interest tax relief, with 49% still maintaining the belief that buy to let is a good investment.

The present economic climate has seen interest rates remain at near historical low levels, with buy to let lender competition fierce.

Of the landlords questioned, 60% were confident that rates will continue to stay low over the coming 5 years, but 66% were less confident of the type of returns they would get for their investment, while 22% were still very confident. That figure increased to 37% for those believing they would see an adequate return over the next 10 years.

A comprehensive 83% of investors asserted their confidence in buy to let, by stating they were unlikely or very unlikely to sell their rental properties in the next year and 58% indicating they were content to hold on to them for the next 5 years.

In the short term, most landlords (79%) were not considering investing further in the coming year, although looking to the longer term, 50% said they would consider portfolio expansion in the next 5 years.

Marc von Grundherr, director of Benham and Reeves, whilst acknowledging the challenges created by Government changes, commented:

“The government has really gone to war with buy-to-let investors of late and a consistent string of detrimental changes to the sector through stamp duty increases, tax relief changes and a ban on tenant fees has had the desired impact of denting industry sentiment and dampening appetite for future investment due to a reduction in profitability.

“However, for the institutional buy to let investor, this is but a mere blip on a much longer timeline and the overwhelming overtones are that while Brexit poses a challenging obstacle for the immediate future, the market remains the investment option of choice with many confident on a return further down the line.

“This is a testament to the durability of buy to let in the UK. Despite a Government backed clamp down, it remains a lucrative business and one that continues to gain the backing of those that are on the frontline.”

Deposit passporting under Government consideration

The Government is to explore the feasibility of allowing tenants to transfer deposits between landlords, in order to make it easier for them to move home.

The concept, called passporting, is open to further discussion, following an announcement by Housing Secretary James Brokenshire, at the Chartered Institute of Housing conference.
He said:

“More than 4m people live in the private rented sector, yet when moving home, some tenants can find it a struggle to provide a second deposit to their new landlord – risking falling into debt or becoming trapped in their current home.

“Ministers are inviting proposals to make it easier for renters to transfer deposits directly between landlords when moving from one property to the next.

“Freeing up deposits and allowing a renter’s hard-earned cash to follow them from property to property – as they move to take that perfect job, to move nearer to family, or find a place that suits their changing needs – will create a fairer housing market that works for all.”

Under the proposals, a tenant’s damage deposit would transfer to their new landlord, whilst still permitting the previous landlord to make deductions for damages.

The idea has been endorsed by the Residential Landlords Association and has also been previously raised by London Mayor Sadiq Khan.

But whilst the theory is that tenants will be under less pressure to find money to move, there have been concerns from some quarters, that previous landlords could find it difficult to recover damage costs through disputes.

The National Landlords Association sounded a note of caution, with Chris Norris, director of policy and practice, stating:

“We must make sure that adequate thought is given to the needs of both tenants and landlords.

“Everyone agrees that moving between tenancies should be made easier and cheaper, but we also need to recognise why landlords take deposits. A deposit protects against damage or default, so landlords must be confident their costs are covered before releasing the tenants’ money.”

David Cox, chief executive at ARLA Propertymark, added:

“We’ve been sitting on Ministry of Housing, Communities and Local Government Tenancy Deposit Protection Working Group for the past 12 months, looking at the problem and finding answers.

“For deposit passporting to work we need to ensure that both the outgoing landlord’s deposit can be used if needed, while the incoming landlord has certainty they will get the full deposit they have agreed by the tenant.

“Affordability for tenants of any bridging loan or insurance policy will be key if deposit passporting is going to be a workable and affordable solution for the future of deposits.”

The announcement from Brokenshire came as the Government published a consultation on tenancy deposit reform. View the Government consultation on tenancy deposit reform here.

Different colour houses with notes on them

First-time landlord products soar

A new report has revealed there are a record number of buy to let products available for first-time landlords.

Information from financial data provider, shows that the number of buy to let products suitable for first-time landlords, has increased from 645 in 2014, to a record high of 1,405.

The current figure stands at 137 more products than 12 months ago.

Andrew Turner, chief executive at specialist buy to let broker Commercial Trust Limited, commented:

“This data reflects two things: the competitive nature of the lender market and its commitment to buy to let; but also that many would-be investors should not be deterred by recent tax and legislative changes within the PRS.

“This news comes at a time when there are a huge number of choices on the market – and first-time landlords can get started with as little as 20% deposit on a property.

“However, it is important not to be dazzled simply by the interest rate and to talk to a specialist to assess the whole cost of a mortgage and find the best deal for your circumstances.”

Statue of Lady Justice at the Old Bailey

39% of landlords call for fast-track housing tribunal

A new survey has revealed that 39% of landlords would like to see the introduction of a fast-track housing tribunal, should the Section 21 eviction process be scrapped by the Government.

The data, produced as part of Paragon’s PRS Trends Report for Q2 2019, surveyed more than 200 landlords.

The Government indicated it wanted to abolish the Section 21 process back in April – and that it would launch a consultation. It proposed that landlords use the Section 8 repossession process, valid when a tenant breaks contract, damages the property or fails to pay rent.

This led to a backlash from landlords and representative bodies, with suggestions that landlords needed Government reassurances that they would be able to repossess their properties if needed.

Just under 24% of the landlords in the survey were keen to see a shorter court process and 15% said they wanted a guaranteed way to cover costs.

7% would like to be able to submit evidence online.

The time it takes for many landlords to regain possession through the courts, runs into many months. 84% of the landlords asked, want to see a process that takes no more than 8 weeks.

John Heron, director of mortgages at Paragon, said:

“Some of the main concerns for landlords around a move to the Section 8 eviction process relate to the efficacy of the existing court process.

“What we see here is widespread support for a fast track housing tribunal that can deliver a fair and timely solution for both landlords and tenants.”

This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.