The main event this month has been the Autumn Statement which Philip Hammond the new Chancellor delivered yesterday. There was little new to please landlords, but at least there’s nothing there to make matters much worse, except for some extra pain with higher letting agent’s fees, as tenants will no longer be charged.
Chancellor Philip Hammond presented his first Autumn Statement to Parliament at 12.30pm yesterday, setting out the Conservative government’s plans for his future taxes and spending.
Though some in the private rented sector (PRS) were hopeful of a “row-back” on some of the tax measures introduced by the previous Chancellor, Gorge Osborne, including the stamp duty premium on 2nd homes and in particular, mortgage interest relief, landlords were disappointed – there was no mention of any of this.
Letting agents and those landlords that use agents (approximately 50% do) will also be disappointed about the much trailed “banning of letting agents fees”, bringing England into line with Scotland and Wales, which is confirmed. It’s a measure that’s almost certain to increase rents for tenants, but it’s not clear if any of this will be absorbed, in the process of passing on by agents, landlords or both?
It has to be said that some agents, through charging their tenants exorbitant fees, may have brought this on themselves. It could also be argued that landlords are in a much stronger position that tenants when negotiating fees with agents.
Other changes will benefit landlords indirectly, as measures introduced to help struggling low income families, the so called “JAMS” (the just about managing), will undoubtedly provide rent payment stability. Also, those with companies will be encouraged by the commitment to reach 17% for Corporation Tax, though there had been talk of 15% to match Donald Trump’s commitment for the UK – currently 35% in the US.
However, many will have missed the Chancellor’s reference to changes in the way individuals vis-a-vis corporates are to be taxed at some future date; a reference if I’m not mistaken to an on-going review about changing the incorporation rules for smaller organisations – under 9 employees? Those contemplating incorporation should beware of this regulatory risk.
The devil is always in the detail, and what seems simple in any budget statement at face value always takes on a different hue when you read the small print, though this time changes seem relatively few.
These are the main changes:
Affordable Housing – an extra £1.4bn is committed to fund more affordable homes, along with a regional pilot of Right-to-Buy for housing association tenants and a £2.3bn housing infrastructure fund to deliver infrastructure for new housing in areas of high demand.
Letting Agents’ Fees – those charged by rental agents to tenants, which the chancellor said have “spiralled” to hundreds of pounds, will be banned.
Corporation Tax – the cuts over the next few years will remain as planned by George Osborne, the rate falling to 17 per cent by 2020.
The Salary Sacrifice – where benefits are swopped for salary at a lower tax rate, these are to be removed from next April, but some items such as pension contributions will be exempt.
Tax-free Personal Allowances – to continue to be increased, with the lower tax threshold of £11,500 increasing to £12,500, and the higher rate threshold to £50,000 by the end of this parliament.
Fuel Duty – to remain frozen for the seventh consecutive year running.
The National Living Wage – to increase from £7.20 to £7.50, as was expected.
Universal Credit – to taper down from 65 to 63 per cent, which Mr Hammond says will help 3m lower income households.
Insurance – while there were no major surprises for landlords, there was one item which increases landlords’ costs: insurance premiums are to go up by 2%.
Our lead article this month – “What a year it’s been for the Private Landlord” is perhaps unavoidably long, given the sheer amount of legislation and tax changes experienced by the private rented sector over the last 12 to 18 months – it’s unprecedented. And it’s perhaps all the more surprising to many under a Conservative government. Not that every change is bad or not in the private landlord’s interests; it’s just that they introduce a whole layer of additional time-consuming paperwork, and the tax changes reduce profitability to the point of discouraging new investment.
These, along with the mortgage changes, make life much more difficult for the private landlord as is discussed in the article in this issue, “A million families to be hit by buy-to-let tax changes”, an article commenting on his report “Landlord Investment, Finance, and Tax Report 2016” by Tom Simcock, for the Residential Landlords Association.
That’s not to say that it’s all doom and gloom: private landlords can still make good returns (especially relative to other types of investments), it’s just that life is never going to be as easy as it was in the hay-day of buy-to-let expansion for either landlords or agents.
Our book review this month “How to Save Property Tax”, by Carl Bayley BSc ACA is one or a series of Taxcafe.co.uk tax guides, and perhaps more pertinent than ever this year, with all the tax changes we have seen. If you want to get up-to-date on these issues I suggest read this latest 2016 guide.
Tom Entwistle, editor, LandlordZONE®