Here’s an overview of all the tax rules and changes landlords need to be aware of in 2024:
Buy to Let income tax rates 2024
Capital gains tax changes
Changes to furnished holiday lets tax
Stamp duty discount still available
Latest on Making Tax Digital
https://www.simplybusiness.co.uk/knowledge/articles/buy-to-let-tax
If you look at the Actions of the Treasury over the last few years, you might conclude that it has no understanding of the residential property market.
A straight list of the actions taken to impact the market over the last few years is to say the least a little confusing.
The objective was to increase the amount of residential property stock available for Home ownership.
Initially money was pumped into residential building companies via various grants and savings offered to new home buyers, alongside a continuing reduction in the planning regulations to allow more development. Then when the reality dawned that it would take many years to build sufficient houses to satisfy housing demand a second front was opened in an attempt to release more housing stock into the market.
This involved a declaration of war on the many small landlords who had invested their newly released pension funds into the Buy to Let market. Punitive tax and allowance changes were introduced to discourage investment and to encourage small landlords to sell their properties with the hope of releasing a large amount of housing back into the residential ownership market.
The changes did impact on larger landlords. The fact they traded as a company though offered them shelter from some of the changes. As well a loophole offered small landlords the opportunity to flip into Holiday or Short term lets which could also be traded as a business.
The impact on the housing market was a reducion in overall demand which for a period of time sent prices into a static or even falling trend. Of course the side effect was a reduction in the level of rental property available and subsequent boosting of rental prices. What the changes did not do however was rapidly release large amounts of rental property into the residential ownership market. Instead overall it created more of a trickle of movement from the rental into the ownership sectors of the housing market.
So gradually as the impact of changes were absorbed year on year we then saw a recovery in the market in terms of property prices.
Then came the great pandemic.
Initially reluctant to act in any way, suddenly the Government exploded into action. Those people who operated their Buy to Let portfolio as a business suddenly found themselves offered various loans and tax freezes to help them through the crisis.
Those that operated their portfolio as a Holiday Let, often second home owners, really hit the jackpot with tax free grants flowing into their coffers. Post lockdown, the bonus of a captive staycation population also saw rentals soar, resulting in a number having had their most profitable year.
The housing market in fact showed no real adverse reaction to the pandemic bar the suspension of some construction. The only sector of the residential market in trouble seemed to be the Flats and Apartment sector. This sector was hit by an increased desire to move out of cities. As well a complete logjam already existed following the Health and Safety certification requirements post Grenfell.
So for reasons which are hard to discern he Chancellor thinks now is the time to offer a stamp duty incentive! Not a targeted one, aimed at the sectors in trouble or first time buyers as in the past, but a general one benefiting everyone in the market including Landlords.
So having used stamp duty as a method of discouraging Buy to Let investment, suddenly it is used in a way which encouraged Buy to Let investment.
The result of the Stamp Duty cut is that house prices rise again, a massive backlog in House sales builds. To help keep the pot boiling the Government also talks about more incentives in the future to help people into residential property ownership.
How much of the property purchased during this period will go into the Rental market. Whether the incentive has just brought forward demand leading to a future slump. These are just a few of the questions it is hard to answer at this stage.
What is not hard to see though is that over a remarkably short period of time the Chancellor, Government and Treasury has dipped into the residential property market in a number of self cancelling ways. In every case the driver which is a short term based issue, has been allowed to override long term intentions.
So watch this space in 2021 for the next raft of changes, reduction in capital gains relief?, incentives for first time buyers, who knows!
The only guarantee is that the Treasury will not be able to resist stepping in again. No doubt what it gives with one hand, it will more than take away with the other.
OK, the number of mortgage being authorised is at the lowest level for nine months, the financial results from estate agents look pretty scary, particularly those with a concentration on the London property market and of course there is a long queue of commentators lining up to tell us that property prices will fall , or will crash completely, over the next 10 years, etc. etc.
If you listened to these drumbeats you would start looking for any form of investment that does not involve property. As for Buy to Let, well after the impact of the tax changes and if prices are going to fall then it’s a sure fire way to lose money. Surely this is the logical conclusion.
In my view no, it is the wrong conclusion. The same media outlets will tell a different story if you turn over the page, this story comments that house prices have surprisingly continued to rise. Even in the London area. So how do we find ourselves reading about such contradictory and confusing stories, all based on solid facts.
It started with a Chancellor who decided to increase his tax take on the premise his actions were about making property more affordable and available for everyone. The premise I applaud, as making housing more available and affordable has to be good for house buyers and in the long term the housing market. The actions he took tended to hit specific sections of the Buy to Let market, the smaller investor with one or two properties and the higher priced London market.
The results were as expected, a slowdown in the London market overall with the impact going from top to bottom of the price range. A flood of Buy to Let purchases to beat the dates on Tax changes followed by a slump in activity. House prices in London stagnating and falling slightly with the major impact being at the top end. A switch of activity to the out of London property markets.
This was intended to lead to a surge in available housing for first time buyers and therefore a surge in first time purchases which would strengthen as house prices fell.
Well we have seen an increase in first time purchases which is good news. We have not seen though the scale of increase that might have been hoped for. The reason, simply put, is that there are too few houses on the market. Estate agents are suffering not only due to a slowdown in activity, they are also suffering due to a shortage of stock. A lack of supply has meant that house prices even in the face of reduced demand have and will continue to rise. Until wage inflation starts to close the wages to property price gap for first time buyers then demand may stay at a reduced level, which of course means that demand for rental property will continue to strengthen particularly as population growth continues at its current rate. On the supply side no actions taken by the Chancellor are going to result in the size of increase in housing supply that would be needed to stagnate prices. So estate agents may continue to struggle but house prices will continue to rise. Which will lead in London to empty property as landlords in some cases mothball property waiting for the London top end market to re ignite, which it will.
For the Buy to Let market well the focus will be outside of London for some time to come and as statistics become comparable with last years changes no doubt we will see moderate growth resume. In fact I know of one case where an prospective Buy to Let purchaser has found themselves being gazumped. So the market is still alive and it will be growing.
All of which for the reasons above means that in my opinion we will not see a property price crash, rather we will see continued demand for rental property, continued house price increases and eventually a strengthening of demand in the Buy to Let market.
I of course have a vested interest in this market, so this is good news, however whats your thoughts on the confusing signals from the Property market.
The latest figures from the Office for National Statistics reveal a surprisingly strong property market. It seems Average House prices have risen by just over 5% in the last year. The London property market appears to have been the most sluggish, with a rise of 2.5%, the North West showed the largest increase with a 7.3% rise. Of course, these are averages and so hidden under the surface there must be a wide spread of variations and ups and downs. No doubt within the North West some of the more fashionable locations will have registered strong House price growth and of course some locations will have registered low or negative prices changes.
These variations are to be expected, however what does seem strange are the statistics themselves. The fact that House price growth is still so strong, due to high demand and restricted supply, seems at odds with other snippets of information about the residential property market. Nearly 40% of House prices have been reduced, and in the recent quarter 28% of Residential transactions fell through ( Perhaps Exchange Insurance is a worthwhile investment). The First Time buyer market is still struggling perhaps because in London the average deposit required to enter the market is now a whopping £100k. At times we have seen numerous articles telling us that the era of constant House price increases has past and we should expect slow price growth, no price growth or some even say steep House price falls.
These seemingly contradictory facts spread across the whole residential property market, in the rental market a lot of commentators have talked about Buy to Let Landlords releasing houses on to the market as they cut back their portfolio.
It seems that the rental market, which feels as if it has had more Government intervention in the last 2 years than the previous 20 years has started to reach a balance and adjust to the new reality. Landlords particularly those who own more than one property seem to have accepted the new level of returns on investment that the market offers. What’s happening is a simple balancing of supply and demand and the balance is reached by the increase or decrease of rents. The regional variation in house prices also probably reflects Landlords moving their investments outside of London as opposed to Landlords stopping investing.
In the residential property market, the same forces are at play, increasing demand meeting very restricted supply. The balancing factor of house prices will again show variation in ups and downs according to the demand and supply in each region and location. The overall shortage of housing seems to point to further house price rises in the future, and probably underlines the fact that house prices are not going to crash any time soon. The one unknown is the lowest end of the house purchase chain, the First Time buyer. This is because once someone has a property to sell then to some extent the fluctuations in price are self-balancing in that if you sell low, you can buy low, sell high then you will probably have to buy high.
At the start of the chain the First time buyer has no such consolation, if the price is high then they have to find the deposit and mortgage needed regardless of pricing. In a market as unbalanced as the current one this is difficult. The Government has recognised this and the Help to Buy scheme has given a push start to the First time buyer market. This only helps new property buyers (and therefore Housing Developers) leaving large swathes of potential buyers who get no such support.
We can hope for more interventions from the Government to help First time buyers as Housing seems to be becoming one of the very hot Political touchpoints of the moment. The problem with this of course is that there is only so much that Government can do. Deciding to launch a host of new towns (many of which seem to have MOD land available for sale) is fine. It will no doubt impact the demand for housing in those areas, it will not however help the majority as the impact is too local. Unless these locations offer good commuter links to areas of employment then they will not help supply meet demand. So unless the Government is willing to consider a real leap of imagination in providing support to all potential First time buyers regardless of whether they are purchasing new or old then this part of the market will remain fragile.
If the Government embarked on a large scale and funded drive to build more social housing then this may over time lead to Landlords reducing their housing stock. As it would result in a rebalance of rents to reflect the change in supply and demand of rental property. In turn this could impact of House prices as more Housing stock became available for sale.
Personally I could not see a Government being willing to embark on the scale of action and funding which would be required to alter the market dynamics, and so the see saw will continue and we will keep reading seemingly contradictory facts and articles. These contradictory statistics and articles have to be seen against against the backdrop of a Housing market in which there are simply too few properties to meet the demand for housing. Which means that in this topsy turvy world regions and locations may show reductions while overall the trend for House prices remains upward.
To say the election result was unexpected is an understatement!
But now the dust has begun to settle and the Conservative’s organise a supply and confidence arrangement with the DUP to continue in government, it’s worth considering how this might affect the rental sector.
Both the main parties had manifesto pledges that impact the private rental sector, but it now looks like the Conservative’s ban on letting agent fees announced in the 2016 Autumn Budget Statement will go ahead as planned. The likely outcome of this will be for letting agents to pass all or most of the lost revenue on to landlords in the form of increased lettings fees, who in turn will attempt to pass these costs onto tenants. This could add £100 to £200 per year to rents.
Agent fees were banned in Scotland in 1984, with tenants only liable for the deposit and rent, but this has led to agents doing less in the way of pre-agreement checks, often omitting a credit check, leaving landlords more vulnerable.
With no resounding mandate from the electorate, Mrs May is unlikely to replace Philip Hammond as Chancellor. Thus we can’t know whether any replacement would have been friendlier to private landlords or not, though in these uncertain times, how long Theresa May will last in the job and when or if another election is called are questions for astrologists!
With a Labour led coalition unlikely to come about (the outright numbers don’t add up), some relief will be felt by landlords that their manifesto pledges to control rents and how landlords operate will not happen. Under Labour, councils would have got new powers to license landlords and apply tough sanctions on those who tried to bend the rules. Their manifesto also included pledges to limit rent rises to inflation and make three year tenancies the norm as well as re-instating housing benefit to 18 to 21 year olds.
The abolition of mortgage interest tax relief does look set to continue, with the phasing out period ending in 2020. This, along with the previously implemented increases in stamp duty on second homes, has acted as a disincentive to landlords either entering the market or increasing their portfolios. Indeed, many landlords and investors will be are looking to reduce their portfolio of rented property in order that they can reduce their level of borrowing. Note though that this does not impact landlords / investors that own their properties through a company. One upside to this for landlords that are not highly leveraged is that any decrease (or minimal increase) in the properties available for rent will put upward pressure on rents as demand continues to grow. Get a conveyancing quote for your But to Let property.
Figures for May have shown a continued downturn in the number of property transactions taking place across the country. New instructions are down and the pool of available property is shrinking. Many homeowners, concerned with moving costs that have increased significantly with the changes to stamp duty, have decided to stay put and extend / improve. This reduces the number of people / families moving up the property ladder and the availability of first time properties available for new buyers to move into.
In conclusion, the election result will continue to put financial pressure on highly leveraged landlords and those looking to increase their portfolio whilst those with lower borrowings may well benefit from shortages of rental property and the consequential upward pressure on rents. The one proviso is that with a minority government and weakened leader, we might be facing another election in the autumn or next spring leading to a complete change of government!
During a busy three year period the Government seems to have tried with varying degrees of success to cool the Housing market by making it more difficult to be a successful Buy to Let investor. The simple idea ( from not so simple people I guess ) seems to have been that if fewer people became Landlords then less property would be sold and a reduction in demand for property would lead to lower property prices.( Fat chance)
So if you are a new Buy to Let investor, or a small existing investor who intends to raise hefty mortgages to build a property portfolio, then there is no doubt they have made it less attractive by reducing the returns you can make from a mortgaged property. In fact from making it more difficult to qualify for a buy to let mortgage, to increasing the amount of tax you pay, it has been a pretty full on attack on this part of the market and these individuals.
As always though, one persons misery becomes another persons opportunity.
The low borrowing rates and the post Brexit fall in the value of Sterling has meant for some investors a golden opportunity has arisen.
If you are a large company with a significant portfolio or a foreign investor benefiting from the exchange rate you probably believe this is a heaven sent opportunity.
As a result we have the Times newspaper highlighting the fact that an increasing proportion of British property is being bought by foreign investors, and that this movement in the property market is no longer just focused in the London area, it now is impacting in the larger cities across the country. They quote one Manchester development where 93% of the units have been purchased by overseas investors, when they say overseas investors of course they include offshore funds and companies and so the numbers may not be a true reflection of the situation. Large U.K. based investors may well own all or part of these offshore companies and so may have effectively benefited from the Governments actions. As often is the case its just the small investors that pay the price of the changes.
Due to the size of the opportunity on offer to these larger types of investors it should be no surprise therefore that the messages on House prices do not reflect a mission accomplished for the Government. After an initial cooling most forecasts now seem to point to a strong recovery in the market for mortgages and House prices. The Daily Express highlighted a report from the Centre for Economics and Business that predicts a 25% increase in house prices over the next 4 years.
Not good reading for the Government, unless of course, if you take a slightly more cynical view, their intention was just to raise more taxes and cooling the market was the excuse used to do this.
It just might be though that another group of potential Buy to Let investors might be facing a significant opportunity. This time a group of small investors may be looking at a golden window for investment that I am sure was not intentionally left open.
This is because the other area of feverish Government activity over the last few years has been pension deregulation. The annuity rates on offer have been stunningly low and given the economic uncertainties of the next few years look unlikely to change. So the new freedoms have meant that many pensioners have taken control of their own pension cash. The problem is though, where can you invest it to get a decent return.
The answer may well be that they should take a look at property and a serious look at the Buy to Let opportunity. These investors have cash, something that will erode as inflation steps up and they need an inflation proof investment that gives a moderate returns in the short term and potentially a sizeable return in the long term. Cash means the mortgage difficulties and the tax changes to interest relief are no longer part of the equation and if the 25% increase in property prices mentioned above comes to fruition it is very difficult to see where an investment would give a better return. All of the normal constraints still apply of course, the need to research the market, surveying the property etc. however for once the Government actions may have benefited one small group of small investors.
You can be sure though that having spotted the window of opportunity it will not be long before the government takes action to close it. So if you have the cash and need an investment then it may pay to act soon.