stamp duty

13 Nov 2020
Sticky Post By Posted in Buy To Let, Stamp Duty Permalink

Does the Government have any understanding of the Housing Market?

Sticky Post By On November 13, 2020

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.

15 Dec 2017
Sticky Post By Posted in Buy To Let, Investment, Stamp Duty Permalink

The Buy to Let market, what are the emerging trends?

Sticky Post By On December 15, 2017

The Government’s Tax and Relief changes over the last 3 years have started to result in significant shifts in the structure of the Buy to Let property market. The market is worth over £1 trillion and so understanding these changes and their future impact is important both for Landlords, Prospective Landlords and the growing Rental community.

If we are honest most of the changes were predicted from the day the  Chancellor started to introduce the new rules and three of the most significant resulting trends are clearly visible in the Buy to Let property market of today.

The first trend which was predicted was a shift away from individual Landlords who own one or two properties to Landlords who own ten properties or more. The  new challenges for Buy to Let property Landlords were aimed squarely at individual smaller portfolio Landlords with higher stamp duty, reducing mortgage relief, reducing expenses claimable against Tax,  all impacting on the returns they achieved.  Many of these Landlords were individuals who either from their savings, or by accessing their Pension Pots had felt Bricks and Mortar represented a safe investment from which they could obtain a reasonable return on their money. Alongside the possibility of Capital gains from a strong property market, and the ever-increasing demand for rented property it seemed a far better option than the level of risks and returns they could obtain elsewhere.

It still is a fairly solid investment of course, its just that the rate of return has fallen due to the Chancellors changes. As a result of the changes these Landlords have put the brakes on expanding their property portfolios and the flow of new individual entrants to the Buy to Let property market has slowed down. In turn this has contributed to a slow down in house price increases or in some areas to falls in house prices. In fact these Landlords accounted for 62% of the rental property market so any impact was always going to be significant. Uncertainty over House price rises or falls then puts off a few more prospective entrants to the market, so its probably no surprise that the rental market grew so slowly last year.

I guess this trend will continue until the market has fully settled down, House price inflation resumes and or rents start to rise significantly due to a shortage of rental property. Individuals looking for a return on any cash they possess or can access will now look at the returns from other investment routes depending on the level of risk and return they are comfortable with , Bitcoin anyone?

The Second trend is the increasing impact of Landlords with large existing property portfolios. For these Landlords the change to incorporate into a company brings a whole slate of positive benefits. As they are treated as a business they avoid a number of the financial challenges the Chancellor imposed on individual Landlords. Equally they can claim the financial benefits of operating a company. So for anyone with a large property portfolio, moving the properties into a company is a no brainer.

Of course much of the Buy to Let property market was already owned by companies with large portfolios, and they and newly incorporated companies are starting to dominate any growth in Buy To Let property.

Many of these companies are based in other countries and have always invested in the UK property market and they are continuing to expand their property portfolios. As well as being based abroad many of these companies are ultimately harboured offshore in tax havens. Some recent examples have shown that these companies have snapped up the majority of properties becoming available in new developments. As a result of this, proposals have been put forward to limit the level of new properties in any development which can be purchased by what are described as Foreign companies. I think to describe them as Foreign companies is probably misleading though as although based in Tax Havens they may well belong to offshore trusts for whom the beneficiaries are UK citizens.

So an unintended consequence of all the Government changes has been to put financial challenges in the way of the individual Buy to Let property investor with a small savings pot, but to put few challenges in the way of companies, both UK and Foreign along with more wealthy individuals who can afford to use offshore trusts. I am not at all sure this was intended and so I suspect this story will grow and we will see future tax changes. As the Government wishes to encourage the inflow of money into the country from abroad it will be interesting to see how they tackle this issue.

The third trend, which was also predicted over a year ago, has resulted from the coming together of several factors. These are the reaction of individual Landlords to the Chancellor’s changes, the rise of the AirBnB website and the weakness of Sterling. Once the changes had been made by the Chancellor many people including ourselves predicted a movement away from Long Term rentals into Short Term Holiday rentals.

This is because if the property achieves the qualifying criteria, it is treated not as a buy to let but as a trading business. This is the only way individual’s investors can obtain the same financial benefits as the larger company based Landlords. Coupled with the rise of AirBnB, and the exchange rate encouraging both foreign and stay at home holiday makers it is resulting in a boom in the Holiday rental market. This is where I would expect to see growth for individual Buy to Let property investors concentrated over the next few years. Of course a key criteria is that the property must be in an area which attracts visitors and this may lead to a change in the relative increase in localised property prices as the potential rental property in these areas is snapped up.

The qualifying criteria are not simple to achieve either, the property has to be available to rent out for a minimum of 210 days per annum, be actually let for at least 105 days and limits are imposed on the number of rentals lasting over 31 days. These criteria need to be achieved in at least one year in every three, and if the property is let out for over 140 days per year then it should be subject to Business rates. The rewards though are significantly higher for the Landlord when compared to a normal Buy to Let property and so the trend to Holiday rentals will continue.

Again the Government in future may wish to address this area, thus penalising the small property investor again, however the level of rental property available, along with the weakness of Sterling is helping to grow the UK Holiday industry so any action taken would have to be carefully considered.

So three trends predicted over a year ago, and three trends becoming visible in the market. Its interesting that the attempt to cool the Buy to Let property market and therefore make more property available for first time buyers the Government has seen some predictable and intended consequences occur, and as always we are seeing some unintended consequences as well. As a free market, to some extent, in trying to control it the Government may find itself drawn into ever more legislation, or may in fact step back. A realisation is dawning that the aim of releasing more property for first time buyers (and no doubt increasing tax receipts) is a worthwhile target but penalising the Buy to Let property market is probably not the best way to achieve it.

22 Nov 2017
Sticky Post By Posted in Buy To Let, Investment, Stamp Duty Permalink

Stamp Duty the most complex Tax? Is it killing the property market down

Sticky Post By On November 22, 2017

The changes to Stamp duty introduced initially by George Osborne and followed through by the current Chancellor seem to have achieved the aim of raising taxes but at the same time ated as a large negative for Buy to Let investors and First time buyers who have to buy in the South East and London.

The punitive rates for First Time buyers have become a negative that balances out any of the support to First Time buyers offered by Help to Buy schemes. It all means that if you are faced with London or South East first time buyer property prices then the Government has probably increased your costs considerably. This regional discrimination will no doubt affect the perception of the Government among the more youthful elements of the population.

It has become such a glaring issue that a daily newspaper ” The Daily Telegraph ” has started a campaign to influence the Chancellor in order to see reductions in Stamp Duty for First Time buyers and I guess we all would like to see this campaign succeed.

The newspaper has also highlighted how complicated the Stamp Duty regime has become, no doubt like others before him the Chancellor will say he aims to simplify the Tax system, then if this is true ( I suspect it is not ) then Stamp Duty would be a good place to start.

 

In fact the Telegraph has published an up to date calculator which is I have to say very useful, but also shows how complex this element of the Tax system has become.

 

http://www.telegraph.co.uk/finance/autumn-statement/11271926/Stamp-duty-calculator-how-changes-affect-you.html