Since the last Chancellor, George Osborne, introduced a phased in withdrawal of mortgage interest relief as a buy-to-let business expense, many landlords have turned their attention to incorporation – forming a limited company to reduce their tax liability.
Companies are exempt the new tax rules so it would seem an obvious move to transfer existing or new investment properties into a company tax wrapper to avoid paying more tax. However, as our leader article this month shows, there are many issues to consider, and incorporation will not benefit everyone. There are several things you can do to achieve the same benefits.
Though it’s too early to tell how the Brexit result will affect property and the economy as a whole, early signs have been encouraging. Commercial property seems to have been hit hardest, and to some extent construction, but the threatened disaster of a Leave vote has so far not materialised. Given the shortage of housing and rental accommodation, both house prices and residential lettings seem, so far, to be largely unaffected.
Data recently released from the Office for National Statistics (ONS) show that private rents have continued to rise, by an average of 2.4% across the UK for the 12 months to July 2016. This figure is unchanged compared with the year to June 2015. These figures are considerably above the inflation rate and wages growth for the period in question, with a Consumer Prices Index (CPI) rise of just 0.6% in the year to July 2016.
As always these figures show large regional variations across the UK, with rents increasing by 2.6% in England (3.5% in the South East of England), 0.2% in Scotland and unchanged in Wales in the 12 months to July 2016.
Largely as a consequence of this, continuing healthy demand for buy-to-let mortgages has boosted profits for some of the challenger banks and those specialising in buy-to-let mortgages. For example, Kent based OneSavings, specialising in buy-to-let mortgages and loans to small businesses, mainly in the South East, saw its underlying pre-tax profits jump 36% to £64.6million for the six months to the end of June. Over the year the bank’s loan book increased by 10 per cent reaching £5.4billion.
As private landlords have now taken up the mantle of providing a big proportion of the UK’s social housing, accommodating record numbers of low-income tenants, housing benefit payments to private landlords have double in 10 years to £9.3bn.
Figures like this invariably cause an outcry from the homelessness campaigning groups, because they see this as wasted money, lining the pockets of those “nasty money grabbing” private landlords. What they seem to ignore is that it’s the private landlord, using his or her own resources, which has stepped in and provided desperately needed accommodation.
Granted there are some rogue landlords at the bottom end of the lettings market, and overcrowded properties below safe housing standards are rife, but it’s up to local authorities to weed these rascals out, without putting the cost onto responsible landlords who are providing a valuable community service.
There are calls to reverse the trend and increase construction of more low cost social housing, but cash-strapped councils have so far failed to respond. I would be interested to see a proper cost-benefit analysis on supporting private landlords to house low-income tenants, as opposed to building and running council housing. I would like to bet that the former is cheaper.
As we head towards the autumn, I’m looking forward to what the new Chancellor has to say in his Autumn Statement about the private rented sector, and if he has any tax changes for the better in the offing.
Tom Entwistle, Editor – firstname.lastname@example.org