Well, contrary to popular belief and tradition, they are no longer the landed gentry or the rich overloading over the poor; they are more likely to be ordinary working or professional, middle class investors who are looking to a secure future for themselves and their families, to pay school fees or secure a pension income.
Investing in property has become an alternative to a conventional pension for many, and even the Bank of England’s chief economist, Andy Haldane, recently said that funding retirement is better through property that a conventional pension.
According to a recent article in ThisisMoney.co.uk, around 20% of families in the UK now rent their home, and this number is still rising steadily. They quote recent estimates based on data from HM Revenue and Customs which suggest there are at least 1.75million landlords in the UK (The RLA says 2m) who collectively earned a net £14.2billion in rental income last year.
Landlords come from all walks of life, work and the professions; many housing “generation rent” as a side-line to their main occupation, perhaps using agents to manage, while some do landlording and manage their own portfolios of properties full-time.
The article quotes Nick Johnstone who says he’s getting a 9 per cent annual return from property, not by investing in bricks and mortar himself, but through an online investment platform LendInvest, rather than investing in bricks and mortar directly.
Through this medium Johnstone is able to lend to property developers over period of up to 12 months, but ultimately his capital is at risk of total loss as peer-to-peer investments are not covered by the Financial Services Compensation Scheme.
Another investor cited in the ThisisMoney.co.uk article is former royal marine Richard Bowyer, 44, who went from one property to seven. After buying his first property in London in 2001 having saved a deposit from his salary and he spent a summer renovating it.
He realised he had made more money on the one property in six weeks than had made in a year being a marine, so Mr Bowyer who was a royal marine for 18 years is now a landlord with seven properties in London and on the south coast.
“The sector has suffered several blows in the past year,” said Mr Bowyer, “including a hike in the stamp duty payable by landlords since April this year. Next year tax relief on mortgage interest payments will be phased out as well as the removal of the wear and tear allowance.”
“I’ve had to set up a company specifically for the purpose of buying and holding property in order to qualify for better rates of taxation.”
“My existing seven properties are all in my name and not in a company and if I’m realistic, by the time we get to 2020 I’ll be making a loss on those. I am hoping to find a way to transfer them into the company that won’t wipe out the benefit by incurring even more tax.”
Bowyer’s advice for anyone thinking of becoming a landlord is: “Get yourself educated and take action.”
However, landlords have been facing problems over the past 12 months and it’s not all plain sailing. Tax changes introduced last year by the then Chancellor, George Osborne, have created a bit of a storm. Now, everyone in the industry is waiting to see what the new Chancellor announces in his Autumn Statement regarding any changes to the landlords’ tax regime – will he scrap any of George Osborne’s taxes?
The main tax changes affecting landlords are:
Tax relief on mortgage payments – currently landlords can claim tax relief on their mortgage interest at the rate they pay income tax as a business expense. From 2017 this rate will reduce annually over a four year period to give a maximum mortgage interest tax credit of 20 per cent against their overall tax liability. This has the effect of pushing some landlords into higher income tax banks.
Wear and tear allowance – up until April this year landlords were able to deduct an overall 10 per cent of their rental income as an expense against profits. In future landlords can only deduct what they actually spent on replacements in the tax year
Stamp duty surcharge – purchases of buy-to-let properties or second homes after 1 April this year means a payment of a 3 per cent “landlord” surcharge over the standard rate of stamp duty.
The government and the Bank of England have also put out directives making it tougher for landlord investors to get mortgage approvals. This will mean landlords need bigger deposits to make investing returns worthwhile.
Read the full story here
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