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Buy to let stamp duty surcharge and other related news

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    Buy-to-let squeeze continues

    Taken form This is Money

    Buy-to-let squeeze continues: Landlords with multiple properties are warned of mortgage headache when new rules bite in 2017

    Landlords with four or more buy-to-let mortgages have been warned to prepare for a major headache when new rules next year force lenders into tougher lending assessments.

    From 30 September 2017, rules laid out by the Bank of England's Prudential Regulation Authority mean any landlord who owns four or more mortgaged buy-to-let properties will have to submit income and mortgage details on all of them every time they refinance one, or purchase a new property.

    It means that the volume of work for lenders will increase massively, and one expert has warned it could mean some lenders stop lending to such landlords altogether.

    Currently most lenders assess a buy-to-let mortgage application based on the rental income and property value of the property they are lending against.

    But under the new rules if a lender has to review a portfolio of 10 mortgaged buy-to-let properties in order to offer a mortgage on a single property it will have to obtain evidence of the rental income and mortgages on all 10 properties.

    Some buy-to-let lenders already place restrictions on the number of buy-to-let mortgages you can have with them - usually allowing a maximum of three or four, or total borrowing of £1million to £2million.

    But they don't necessarily take into account whether you have buy-to-let mortgages with another lender.

    Ray Boulger, of mortgage broker John Charcol, said: 'Many lenders will find the significantly enhanced underwriting process uneconomic.

    'Although these new rules don’t come into force until this time next year, most lenders are likely to introduce them before that date. That is likely to result in many lenders withdrawing from the market.'

    The PRA rules are intended to make sure that in future lenders look at landlords' full financial exposure when assessing them for a mortgage - in the hope that riskier lending is avoided.

    But more underwriting will push up costs for lenders - and consequently for landlords in this bracket. Mortgages for these so-called portfolio landlords are therefore likely to get more expensive over the coming 12 months and there are likely to be fewer options available.

    Boulger is also concerned that landlords' mortgage costs won't just go up at individual product levels because of the rules, but also that overall costs will rise because landlords won't be able to mix and match lenders across their portfolio.

    'Although there are a few lenders whose target market is portfolio landlords, and consequently their underwriting and pricing reflects that, in most cases we can find better mortgage value for clients by spreading their borrowing between different lenders,' said Boulger.

    'Not only is the lender with the best five-year fix likely to be different from the one with the best variable rate, or two-year fix, or 10-year fix, but also different underwriting criteria means that a borrower may qualify for a mortgage with a lender on one property but not another.

    'Matching the client, property and loan-to-value required with the right lender for each property can make a significant difference to overall borrowing costs,' he said.

    It comes just when landlords are already suffering from a barrage of rule changes affecting how they structure their investments.

    From April 2017 landlords who own buy-to-lets in their own name will see tax relief on mortgage interest tapered back from a maximum of 45 per cent and replaced with a flat 20 per cent tax credit by 2020.

    Together with the recent removal of the wear and tear allowance and the introduction of a 3 per cent stamp duty surcharge in April this year, these changes could make it more financially viable to own buy-to-let in a limited company.

    The new mortgage rules, part of set of measures laid out in September by the PRA which also toughen up rental income requirements, apply both to landlords who own properties in their own names and to landlords who own through a limited company.

    The PRA believes the rules are necessary to ensure the economy remains stable.

    It said: 'Arrears rates increase as portfolio size increases. The PRA considered the impact that the personal tax changes would have on landlords, and particularly those landlords using their personal income to supplement the rent.

    'For portfolio landlords, who are not set up as limited companies, this additional tax burden will be considerable and so a portfolio view becomes even more relevant for new borrowing.'

    Comment


      The Mortgage Works Rental Income Analysis

      Each quarter BDRC Continental carry out their Landlord Panel survey, where they ask landlords to select their annual gross rental income. The Rental Income Analysis report looks at these results along with regional trends and landlord's future intentions.


      http://www.themortgageworks.co.uk/in...2QE7HG,J0IFI,1

      Comment


        Four buy-to-let tax traps to beware

        Taken from Professional Adviser:

        The government has been making life increasingly complicated for private landlords and, warns Andy Woollon, advisers now need to be wary of a number of potential tax traps when working with clients with second homes

        The rapid growth of buy-to-let has seen the number of private landlords reach almost two million, owning one in five homes in the UK. Against this backdrop, however, the government has been making life more expensive for landlords, taxing them at every step from mortgage to purchase and ongoing letting through to sale.

        As a result, advisers need to be wary of potential tax traps when managing the affairs of clients with second homes.

        Reduction in tax relief

        Changes in the taxation of buy-to-let properties could leave clients facing much higher tax bills. Under the reforms introduced in April this year, tax relief on residential property finance costs is being restricted from a landlord's highest marginal tax rate, down to the basic rate of tax over the next four years.

        This could increase a landlord's property profits - that is to say, their taxable income - significantly, meaning that, apart from paying increased income tax, many will be pushed into higher rate tax and various tax traps.

        Take for example a landlord earning £45,000 a year, plus receiving £12,000 in rental income and paying out £2,000 in maintenance costs plus £6,000 mortgage interest. As the following chart shows, the calculation of their property profits/taxable income and income tax could change significantly.

        Link to chart:

        https://www.professionaladviser.com/...raps-to-beware

        In this instance, not only will a client's annual income tax liability have increased by £1,200 by 2020/21 (the difference between higher and basic rate tax relief) but, because of the change in the calculation, their taxable income will have soared by 250% to £10,000.

        While some landlords may consider moving their portfolio into a limited company to sidestep this and some of the other tax changes, this can be a minefield fraught with alternative taxes and costs.

        Child benefit tax trap

        As their taxable income increases from the buy-to-let tax changes, clients could also fall into the child benefit tax trap. Using the above example again, if the client was married with three kids claiming child benefit of £2,501 a year, the ‘high income child benefit tax charge' would now apply as their total taxable income would be £55,000, meaning they would lose £1,250 child benefit (1% for each £100 in excess of £50,000), making a total tax increase of £2,450 a year from 2020/21.

        And do not forget the personal allowance and tapered pensions annual allowance tax traps could apply at higher income levels. To avoid this, the tax-planning opportunities include transferring the property and rental income to a spouse/civil partner or making a personal pension contribution.

        IHT increases

        With so many other tax changes afoot, landlords could have overlooked the IHT liability they will be building up, which is unlikely to be covered by the new residence nil-rate band (unless the property was previously a main residence).

        Property prices have continued to rise, with the average UK house price in June 2017 being £218,390 - some 41% higher than their low point in April 2009 and substantially higher in central London and other UK capital cities - stoking IHT liabilities for landlords.

        This gives advisers an opportunity to discuss the possible use of a guaranteed whole-of-life policy written in trust to cover the IHT liability. Or, alternatively, convertible term assurance, which can provide the cover they need now, at a price they can afford, but with the flexibility to convert to a guaranteed whole-of-life policy in future, with no further medical evidence.

        Potentially exempt transfers

        To avoid IHT, some landlords may have made outright gifts of - or be considering gifting - second properties to adult children. While taking care not to give rise to a gift with reservation of benefit or trigger pre-owned assets tax, however, they may have overlooked the fact this is a potentially exempt transfer (PET) for IHT purposes.

        Should they die within seven years, the failed PET will use up the donor's nil-rate band first, with any excess gift value taxed on the donee. The traditional use of a gift inter-vivos policy (or a series of level term assurances) can cover the donee's potential liability, but it is the loss of the nil-rate band to the donor's estate (increasing IHT by up to £130,000) that is often overlooked. This can be simply covered by a seven-year term assurance written in trust.

        Comment


          My plans to live abroad in 10 years, have been accelerated by this idiocy. The Fiscal policy being undertaken by this Government is insane in its targetting of the Middle Class. Moral bankruptcy follows their inability to recognise that the 21st Century requires a 21st Century taxation system...
          I was an IPSE Consultative Council Member, until the BoD abolished it. I am not an IPSE Member, since they have no longer have any relevance to me, as an IT Contractor. Read my lips...I recommend QDOS for ALL your Insurance requirements (Contact me for a referral code).

          Comment


            Thousands of BTL do not declare their income from it. Maybe even hundreds of thousands. Talk about tax evasion!
            http://www.cih.org/news-article/disp...housing_market

            Comment


              Originally posted by PurpleGorilla View Post
              Thousands of BTL do not declare their income from it. Maybe even hundreds of thousands. Talk about tax evasion!
              Bollox. Where's your evidence?
              Hard Brexit now!
              #prayfornodeal

              Comment


                Buy to let stamp duty surcharge and other related news

                Originally posted by sasguru View Post
                Bollox. Where's your evidence?
                https://www.cchdaily.co.uk/newham-co...tl-tax-evaders

                https://www.theguardian.com/business...-rental-income

                Up to 13,000 landlords in just one London borough have been identified as failing to declare their rental income, prompting estimates that unpaid tax in the capital is costing the public purse nearly £200m.

                Upscale that nationally, I bet we are talking half a million tax evaders...
                Last edited by PurpleGorilla; 18 August 2017, 13:35.
                http://www.cih.org/news-article/disp...housing_market

                Comment


                  Originally posted by PurpleGorilla View Post
                  https://www.cchdaily.co.uk/newham-co...tl-tax-evaders

                  https://www.theguardian.com/business...-rental-income

                  Up to 13,000 landlords in just one London borough have been identified as failing to declare their rental income, prompting estimates that unpaid tax in the capital is costing the public purse nearly £200m.

                  Upscale that nationally, I bet we are talking half a million tax evaders...
                  Well I'd just like to say I declared eveything and am happy to have sold up and paid my CGT.
                  I will now invest my money in another country, one where there is no inheritance tax:

                  Offshore tax havens: Portugal - Telegraph

                  The UK is fooked.
                  Hard Brexit now!
                  #prayfornodeal

                  Comment


                    More on this in the FT:

                    https://www.ft.com/content/9efa9f2a-...e-15b2513cb3ff
                    http://www.cih.org/news-article/disp...housing_market

                    Comment


                      Landlord tax hikes push rents up in July: Your Move

                      Taken from Mortgage Strategy

                      The average rent in England and Wales was £874 in July, according to the latest Your Move buy-to-let index.

                      Of the regions studied, eight saw rents rise month-on-month in July, with the South West seeing the biggest jump of 0.49 per cent to an average of £667.

                      Rents in the East of England, the North East and Wales all fell.

                      The lowest rents in England and Wales were found in the North East, averaging £542 pcm.

                      The highest were in London where it costs an average of £1,283 to rent a property, an increase of 1.2 per cent in the last 12 months.

                      The average property in Travelcard Zone 2 in London cost tenants £1,831 a month compared to a typical price of £1,161 in Zone 4.

                      Your Move director Richard Waind says: “We are now starting to see the real impact of the government’s Stamp Duty revision, plus the additional tax changes which have hit landlords hard.

                      “The outcome has been a decline in the number of rental properties on the market and this has had the effect of pushing up prices for tenants.

                      “Tenants in London face a different issue as rapidly rising travel costs are increasing the overall cost of living in the suburbs, despite rents generally being cheaper than central areas.”

                      However, he says the PRS “could still be seen as an attractive opportunity for investors,” with the North East and North West in particular seeing strong growth.

                      “Although buy to let investors are preparing for the new PRA changes coming into effect in September, it’s clear that there are still people who believe that, property remains a viable investment option,” says Waind.

                      Comment

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