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BuyToLet & the Implications for You
Issue 3
The MHA Construction & Real Estate team have worked
together to provide a national outlook on the
changes facing BuytoLet landlords.
This series of articles and information aims to help give
you a better understanding of the changes that landlords
now face.
Autumn Statement for Landlords
The 3% Stamp Duty Land Tax (SDLT) on second homes and BuyToLet properties has been criticised by many professionals andgiven the Conservative approach of changing the previousadministration policy, there was hope that George Osborne’s tax wasgoing to be withdrawn.
The Office for Budget Responsibility has noted the fall in receiptsfollowing Brexit and the 3% SDLT increase. They are estimating£9.5bn less receipts over the next five years. It is reported thatLondon has seen a 29% reduction in London house exchanges inthe quarter to 30 September.
The proposal to stop letting agents charging fees to tenants has asocial responsibility approach. However, the agents will charge thelandlord for their work so it presumably comes through in the rent. Itis amazing that no one has tried to break the tariff of 10% rentalincome for management services. Surely someone will challengethis model in time?
For the property sector there was little change, although for many there was hope there would be.
The reduction in interest relief that is due to come in on 6 April 2017is still coming. However, there appears to be no move to change theposition for company, so incorporation for some may still be asensible approach, but careful consideration needs to be given tocapital gains tax and SDLT.
It has to be said, the Government do appear to be focusing on thedelivery of new homes. There is a commitment to provide £1.4bn todeliver an additional 40,000 affordable new homes. This in additionto the £3bn home builders fund and £2bn Accelerated ConstructionScheme that have already been announced.
There is a £2.3bn Housing Infrastructure Fund “to provideinfrastructure targeted at unlocking new private housing building inthe area where housing need is greatest”.
If you are a house builder the climate still looks good.
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BuyToLet Survey Findings
As the saying goes, knowledge is power.
Knowledge of the changing tax rules for landlordsof residential BuytoLet properties certainly givesthem the power to take action to avoid, what couldbe, a nasty cash flow issue come 2020. It istherefore surprising that 40% of the landlordssurveyed are not fully aware of the tax changesheading their way. Given that there areapproximately 2 million landlords in the UK, it couldmean that 800,000 are sleepwalking into a tax andcash flow nightmare.
Based on this knowledge gap, it is not unexpectedthat only 30% of those questioned are consideringalternative investment plans. It could be the casethat landlords are looking at the possibility of usingthe Limited Company route to restructure theirportfolios or just that they have no or littleborrowing. However, given that 93% of landlordsonly hold one property, it would seem unlikely to bethe case, as most would have significant tax issueson transferring properties and would be leveragedwith bank borrowing.
Given the negative impact on landlords of thechanges in stamp duty and tax relief on mortgageinterest, it is unsurprising to find that 83% wouldlike the government to reverse the recent changes,especially when the question was linked to therecent Brexit vote. Perhaps it is more remarkablethat 17% “neither agree nor disagree!”
Given the current and likely continuing volatilityaround the Brexit decision, 58% of thosequestioned expect to put their investment decisionto acquire further BuytoLet properties on hold ,until the uncertainty is removed. That leaves 42%who are more bullish and are looking through theshort term disruption in view of a longer terminvestment strategy. When this is looked at in thecontext of 77% expecting the residential propertymarket to continue to grow for the UK as a wholeover the next 5 years, it is clear that Brexit andgovernment tax policy on BuytoLet properties islikely to have a negative impact on the amount ofproperties being purchased by landlords and inturn, those available for rental. So this begs thequestion, “how will the housing needs for thosewho do not want to or are unable to buy, be met?”This will be particularly felt by the millennials whoare used to and demand “rent not buy”. Thispotential issue is compounded further by thesurvey results showing that 88% expect theproperty rental market to remain strong for the UKas a whole over the next 5 years.
In conclusion, it is clear that governmentintervention into one section of the property marketmay have the unintended consequences ofreducing the availability and affordability of therental housing stock in the UK.
Alternative Investment Plans
Brexit and the Government
of landlordsare not fullyaware of theupcomingtax changes
40%
of those
questioned
expect to put
their
investment
decision to
acquire
further
BuytoLet
properties on
hold
58%
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Making Tax Digital
On the 18th March 2015, the then Chancellor of the ExchequerGeorge Osbourne delivered his budget to the House of Commons.In promising the biggest change to tax compliance since selfassessment was introduced, he promised the death of the annualtax return, with digital accounts and instant updating being the newfuture for tax compliance. George Osbourne is no longerChancellor, we have a new prime minister and Phillip Hammondhas taken over the reins at number 11 Downing Street, but nothinghas derailed HMRCs plans for Making Tax Digital. We have nowheard Phillip Hammond speak and he reinforced the plans.
A lot has been said about Making Tax Digital and it is difficult todisagree with the overarching principles. The world is going digital,people are spending longer each day on digital platforms andmore people than ever before are completely at ease withtechnology. Surely the detractors to this wonderful plan are stuck inan era with those who opposed mobile phones, emails andinternet (although in some cases they may have been spot on!).
This will of course involve significant cost to you and April 2018 isnot very far away. Perhaps most worrying of all is that since thisinitiative was announced in 2015, to date we have no details ofhow it is all going to work, no details of what the reports need tolook like and no real information as to who is going to need to beready for April 2018. Given there is less time now untill April 2018than when this was all announced, it is worrying that HMRC havenot got anything even close to being finalised and we have nothingto tell our clients to alleviate their fears. It now looks likely after theAutumn Statement that we won’t hear any further updates until atthe earliest Jan 2017.
Having now completed the consultation project which consisted of240 pages of information and questions, we can honestly say wehave learnt very little of how this is going to affect our clientsand we certainly can impart minimal advice to help them preparefor what is going to be a turbulent run up to April 2018.
What is making tax digital?
To fully understand the objections to Making Tax Digital, it isimportant to understand the basics of Making Tax Digital:
What is the process?
How will this affect you?
We have always prided ourselves onbeing a proactive, solutions basedadvisory association. Making TaxDigital may be a challenge, but itcertainly will not change our solutionsbased ethos. The first bit of advicebeing given is firmly surrounding theway accounts are prepared. If you areusing Excel or leave a bag of receiptswith your accountant at the year end,now is the time to take action!
You can of course wait until 2018, butwe wouldn’t advise running up to thefirst quarter trying to get on to a digital
How can you prepare?
Anyone who thought that the BuytoLet market would be let off thehook was rudely awakened when one of the Making Tax Digitaldocuments was specifically written for BuytoLet businesses.Although the focus was on simplification, perhaps even a reversionto the cash basis, reading between the lines it seems implausiblethey will raise the turnover test to over £10,000 with their sightsfirmly trained on the BuytoLet market.
The BuytoLet investors have had a bad run of late, with the taxman cutting back on mortgage relief and additional stamp dutyland tax being two of the more painful changes. It doesn’t look likethis will make their lives any easier. The £10,000 turnover testtranslates roughly as: any rental income over £192 a week willmean quarterly returns will be in point. This will affect theaccidental landlords (such as those who have inherited a property)together with those who have very small portfolios.
The finer details of how this will all happen are not yet know andwe will update you in future issues.
BuytoLet
The
platform at the last minute and hoping everything will be plainsailing!
There are some excellent cloud based solutions out there whichwill not only make you compliant, but could also lead to realbenefits within your business. Capturing information in real time onyour tablet or smartphone, sending invoices with payment linksand many more functions really can help many businesses. Thebest packages are not the cheapest, but they are very muchaffordable. You can also grant permissions for your accountant orbookkeeper to log in to your account and review/help out wherenecessary.
£10,000
Implementation is to be rolled out between April 2018 and 2020.It involves 4 reports to HMRC ‘in a year’, with a final statementpost year end.There will be an option to PayAsYouGo. The turnover exemption threshold is currently set at £10,000.You will need to be on a compatible accountancy package tomake the reports (not including Excel).
Turnoverexemption
threshold is
currently set
at
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House Price Growth
Again, the main contribution to the increase in UK house pricescame from England, where house prices increased by 8.3% overthe year to September 2016, with the average price in England now£234,000. Wales saw house prices increase by 4.4% over the latest12 months to stand at £146,000. In Scotland, the average priceincreased by 3.4% over the year to stand at £143,000. The averageprice in Northern Ireland is currently £124,000.
In the Regions
Highest Growth
The East of England replaces London as the region which showedthe highest annual growth, with prices increasing by 12.1% in theyear to September 2016. Growth in London remains high at 10.9%,followed by the South East with a 9.9% annual growth. The lowestannual growth was in the North East, where prices increased by1.5% over the year.
On a regional basis, London continues to be the region with thehighest average house price at £488,000, followed by the SouthEast and the East of England, which stand at £313,000 and£277,000 respectively. The lowest average price continues to be inthe North East at £125,000.
Overall, the average UK house price has continued to rise in eachmonth for the first 9 months of 2016 and has risen from £204,919 atthe start of the year, to £218,000 by the end of September.Interestingly there was no overall change from the figure at the end ofAugust.
Of course there are regional variations, but there does not yet seemto have been any statistically significant impact on house pricesarising from the recently announced tax changes. We will see if thesehave any greater impact from around the end of this year as theimplementation date looms.
A bit of digging into the recently published data reveals that flats andmaisonettes have risen in price in line with the average rise of 7.7%,but detached and semidetached properties have risen at a fasterrate, with terraced properties keeping the average down.
As stated above, the house price changes were not as strong as theywere for the same period last year, but demand and lendingapprovals have shown some increase following falls earlier in theyear. On the supply side, the new sales listings continue to fall.According to the RICS and the ONS Output in the ConstructionIndustry, they reported a 1.3% monthly fall in new housebuildingoutput in August, although overall output remains 8% higher than atthe same time last year.
North East
North W
est
Yorkshire &
The Humber
East Midldnds
West Midldnds
East of England
London
South East
South W
est
September 2016
Source ONS
House Price Index
0%
2%
4%
6%
8%
10%
12%
14%
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MHA Firms ServicesMHA is a UK wide association of progressive and respectedaccountancy and business advisory firms. Each MHA member firmoffers a broad range of services including accountancy, tax andcorporate finance as well as sector specialisms.
We are the UK members of the international network, Baker TillyInternational. Through our membership of Baker Tilly International weare able to provide premier accounting, assurance, tax and specialistbusiness advice worldwide, drawing on internationally recognisedindustry and service line experts in 141 countries.
Accounting and Financial Reporting: including adviceand support with the conversion to new UK GAAPand advising on changes affecting the property sector.External Audit: audits tailored to mitigate risks affectingthe property sector. Internal Audit, Control Reviews and Finance FunctionEffectiveness Reviews.Fund raising for property transactions.Advice on complicated property transactions and suitablestructures, including joint ventures and special purposevehicles.VAT advice on property transactions, including electionto tax. Advice on high value residential property, includingAnnual Tax on Enveloped Dwellings. Stamp Duty Land Tax and, in Scotland, Land andBuildings Transaction Tax.Structures to minimise taxation on development andinvestment profits. Enhanced capital allowances claims.
Collectively we have
50 offices across theUK
If you require any further information or advice regarding these topics, then please feel free to contact your local MHA member firmcontact.
MHA Member
Firm Offices
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Broomfield & Alexanderwww.broomfield.co.ukCardiff (Head office)Ty DerwLime Tree CourtCardiff Gate International Business ParkCardiffCF23 8ABTel: 02920 549939
Additional offices: Newport & Swansea
Larking Gowenwww.larkinggowen.co.ukNorwich (Head office)King Street House15 Upper King StreetNorwichNR3 1RBTel: 01603 624181
Additional offices: Bungay, Colchester, Cromer,Dereham, Diss, Fakenham, Holt & Ipswich
Monahanswww.monahans.co.ukSwindon (Head office)3842 Newport StreetSwindonWiltsSN1 3DRTel: 01793 818300
Additional offices: Bath, Chippenham,Frome, Glastonbury & Trowbridge
Carpenter Boxwww.carpenterbox.comWorthing (Head office)Amelia HouseCrescent RoadWorthing, BN11 1QRTel: 01903 234 094
Additional offices: Gatwick
MHA MacIntyre Hudsonwww.macintyrehudson.co.ukLondon CityNew Bridge Street House3034 New Bridge StreetLondon EC4V 6BJTel: 020 7429 4100
Additional Offices: Bedford, Birmingham,Canterbury, Chelmsford, Folkestone,High Wycombe, Leicester, Maidstone,Milton Keynes, Northampton, North London,Peterborough & Reading
Tait Walkerwww.taitwalker.co.ukNewcastle (Head office)Bulman HouseRegent CentreGosforthNewcastle Upon TyneNE3 3LSTel: 0191 285 0321
Additional offices: Northumberland & Tees Valley
Henderson Loggiewww.hlca.co.ukDundee (Head office)The Vision Building20 GreenmarketDundeeDD1 4QBTel: 01382 200 055
Additional offices: Aberdeen,Edinburgh & Glasgow
Moore and Smalleywww.mooreandsmalley.co.ukPreston (Head Office)Richard House9 Winckley SquarePrestonLancashirePR1 3HPTel: 01772 821021
Additional offices: Blackpool,Kendal, Kirkby Lonsdale, Lancaster,Liverpool, Manchester, Nottingham& Southport
MHA is the trading name of MHCA Limited, a company limited by guarantee, registered in England with registered number: 07261811. Registeredoffice: Moorgate House, 201 Silbury Boulevard, Milton Keynes, United Kingdom, MK9 1LZ. Professional services are provided by individual member firms.No member firm has liability for the acts or omissions of any other member firm arising from or in connection with its membership of MHA. Furtherinformation and links to the member firms can be found via our website www.mhauk.co.uk. Arrandco Investments Limited is the registered owner of theUK trade mark for Baker Tilly and its associated logo.
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