Well the last few weeks have been rather hectic for Warrington
landlords, some of whom we manage their properties and other landlords who read our Warrington 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 16.88% of residential property in Warrington being
privately rented, these changes are potentially something that will not only
affect most Warrington 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, Warrington 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 can be 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 could 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 independent advice from a qualified person.
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 Warrington investors and let me explain why. If you invested
£80,000 in Warrington 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 Warrington 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.
If YOU want to be the first to know about what would make a great Buy To Let investment that is currently available either on the open market or via our own sources (landlord to landlord sales etc), call or email us now and get your name put on our Premier Investor list on 01925 235 338, pop through the door of our offices at 6 Bankside, Crosfield Street in Warrington or send me an email on manoj@hamletwarrington.co.uk
If YOU want to be the first to know about what would make a great Buy To Let investment that is currently available either on the open market or via our own sources (landlord to landlord sales etc), call or email us now and get your name put on our Premier Investor list on 01925 235 338, pop through the door of our offices at 6 Bankside, Crosfield Street in Warrington or send me an email on manoj@hamletwarrington.co.uk
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