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PROTECT YOUR RENTAL INCOME WITH A PROPERTY MANAGEMENT COMPANY

What is it?
Clause 24 of Finance Act 2015 will stop private landlords from using 100% of their mortgage interest to offset against their tax bill. It will begin to take effect from April 2017 through a staged process with the full effect coming into place by 2020.

How will it affect you?
As an example; if you have a Rent Roll of £125,000 and Mortgage Costs of £50,000 your effective rate of tax will be 52%. That is a tax increase of 173%. In more general terms this means:

  • A possible tax bill even if a private property business makes a loss
  • A tax on revenue NOT profit
  • A possible tax bill equal to 100% of profit
  • An unplanned move from the Basic Rate to Higher Rate Tax Band
  • A sustainable business becoming an unsustainable business.

What should you do?
The “informed” view is that you should transfer to a Limited Company because you will can to continue to offset mortgage interest and suffer only 20% Corporation Tax. There are significant problems with a Limited Company:

  • The transfer will be treated as a disposal for Capital Gains Tax. You will pay 18% or 28% of the gain you have made. The gain will be calculated at Market Value. On a gain on a property of £100,000 at 28% you will pay £28,000.
  • You will pay Stamp Duty Land Tax on the transfer. On an average value of £600,625 for a property based in London this will result in a cost cost of £38,050 per property.
  • You will pay Annual Tax of Enveloped Dwellings (ATED). Recent rules demand that property companies pay £3,500 per annum ATED on a property valued at £500,000 and over.
  • You will not qualify for Business Property Relief for Inheritance Tax. Gifts of assets held in a property company will be subject to Inheritance Tax of 40%. A property with equity of £100,000 will cost £40,000 in IHT to pass on.

Can this really be your only option?
No, you can restructure your property portfolio using a Property Management Company Trust.

The Trust is a structure used by our property investors and owners who wish to protect the income potential of a portfolio of assets.

Using a strategy proven and implemented successfully for over 20 years the assets can be moved – under statutory protection – into a protected trust environment. It has the following features:

  • Assets transferred using statutory reliefs.
  • Involves no “tax avoidance”.
  • Profits generated from protected assets are tax exempt.
  • Does not require a DOTAS reference.

Key features:

  • Initial transfer is free of Capital Gain Tax under statutory reliefs (Section 162 of the Taxation of Chargeable Gains Act 1992).
  • No Stamp Duty Land Tax is applicable as there is no transfer of title.
  • Lenders retain 1st Charge on the property.
  • The portfolio is managed by your property management company (a UK fiduciary company) with full investment powers.
  • Net profits from rent roll pass to the UK fiduciary.

Protect Your Rental Income

Understanding malicious and accidental damage

Any damage to your property is a big problem as a landlord and can lead to insurance claims. There are two main caused of damage, malicious or accidental. It is, therefore, important to know the differences between the two in order to get the right cover from your insurer. Not having adequate cover can leave you with a nasty bill.

 

What is malicious damage?

Malicious damage is damage caused by either your tenant or their guests intentionally to the rented property. This covers anyone who is lawfully allowed to be on your property.

Malicious damage could include smashed windows, doors or furniture, arson in the property, and graffiti on property walls or furniture.

For malicious damage to be covered by an insurer you must be able to prove that the damage was caused with intent and that it’s been reported to the police. This means you’ll need to provide a crime reference number and police station details.

 

What is accidental damage?

Accidents can happen. Accidental damage is unintentional and usually occurs suddenly, and can include physical damage and/or loss of function.

Accidental damage could include a ball being kicked through the window, a nail hammered through a water pipe, or falling through the ceiling when in the attic.

There are certain exclusions not usually covered by accidental damage, these include:

  • Fair wear and tear
  • Pet damage
  • Defective design or workmanship
  • Contents damage
  • Damage caused by building works

 

Can you claim from a deposit for damages in the property?

It is not only insurance cover that you need to be aware of when malicious or accidental damage occurs in a property.

If your property is not returned in the same condition as that at the beginning of the tenancy, and there is evidence of malicious or accidental damage, then you may be entitled to make deductions from the tenant’s deposit. These deductions should always be fair and reasonable and you must allow for fair wear and tear in the property which does not qualify for a deduction of the deposit.

In mydeposits experience, cleaning, damage and redecoration are the most common causes of dispute between a tenant and landlord.

 

Who is liable for the damage?

Even though malicious and accidental damage to your building has been caused by tenants it will fall to you, the landlord, to pay for any repairs. It is, therefore, vital you have comprehensive insurance cover.

Associate director at Total Landlord Insurance, Steve Barnes, explains the importance of having malicious and accidental damage cover included within your policy.

“Whilst your deposit could cover some of the damage in the event of malicious damage by the tenant or their guests, the likelihood is that the damage will be several times the deposit you have taken.

Understanding malicious and accidental damage

How long does it really take to buy a house?

Recent research has revealed that property viewers take, on average, 27 minutes to decide whether to buy a property.

However, Linda Jeffcoat, from property search and acquisition experts,Stacks, had this to say: “While it may be accurate, this is a misleading figure. The time that has been invested in order to make that decision is considerable.

For buyers to find themselves in a strong decision-making position, our estimate is that they will have spent at least 80 hours, building up their knowledge and expertise.

A typical breakdown is:

10 hours – Conducting extensive online research

3 hours – Speaking to estate agents

15 hours – Driving around the country with kids and dogs, spending time in good and bad pubs, viewing the neighbours and the neighbourhood, generally familiarising yourself with the lie of the land

40 hours – Viewing 20 houses (the minimum we would recommend to place a buyer in a strong decision-making position)

16 hours – Sleepless nights (an inevitable part of house-hunting)

Total: 84 hours

Linda continues: “Some buyers will spend a great deal longer. The Internet is unquestionably responsible for a great deal of wasted time. One of the greatest dangers of portal-perving is that buyers tend to spend too long on the computer, and not enough time on the road.  Property simply isn’t a ‘virtual’ commodity. The impression you get from pictures and descriptions may vary dramatically from the real thing. So by all means start your search on the internet, but get on the phone, talk to the agents, and go and see as much property as you possibly can.

Buyers relying on the internet should also realise that the portals are way behind the market. Before you get an e-mail alert, you’re behind the field. Buying agents will have seen the property, as will the proactive buyers who haven’t relied on the portals for their intelligence. And some properties won’t ever find their way onto the portals at all, their buyers preferring to keep a low profile and only show their properties to selected buyers.

There are many advantages to the portals. Some will tell you how long the property’s been on the market, some will tell you whether the price has been reduced, and there’s plenty of historical information and comparisons that you can delve into that will help you build up a picture of the local market. You can also establish which estate agents operate in a particular area.

But remember, portal research is only the tip of the iceberg when it comes to property search. It doesn’t replace traditional methods, and if you’re serious about buying, you will need to have good relationships with all the agents in the area. Or by using a search agent you can be sure you won’t miss anything, and you’ll also get to hear about property before it comes onto the market, or property that is never advertised in the press or on the portals.

So if you’re serious about buying, get off the computer, onto the phone and into the car. Finding and buying is rarely a speedy process, but real time research will pay dividends

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How to unlock the buy-to-let maze

A new six-part online programme goes live this Sunday, to help current and future landlords purchase and run a successful buy to let property.

The ‘Buy to Let Show’ has been devised by leading property expert Kate Faulkner, who runs www.propertychecklists.co.uk, one of the UK’s education and information residential property website, and delivered in partnership with Direct Line for Business. The series includes six 25-minute programmes and features case studies and vital information from industry experts, with the first programme being aired on Sunday, 7th May, at 11am.

There are now more than two million landlords in the UK, plus many people considering property as an investment so, for maximum coverage, the show will be broadcast online via Direct Line for Business and be promoted via other sites such as Landlordzone, Property Reporter, Property Tribes, Nethouseprices and, of course, Propertychecklists.co.uk.

With tax changes potentially hitting landlords hard, an ever-increasing list of rules and regulations and the introduction of tougher fines for those who fail to follow them, the Buy to Let Show couldn’t come at a better time.

Christina Dimitrov, Business Manager at Direct Line for Business, said: “Landlords have a tough time trying to keep up with latest trends in bu to let investment and also ensuring they are compliant with the law. We have supported the new Buy to Let Show to help landlords understand how to maximise their buy to let investment returns and deliver legally and safely let properties to their tenants.”

The six episodes of The Buy to Let Show cover the key areas of purchasing, letting and, importantly, exiting a property investment. The episode titles are:

• Is Buy to Let a Wise Investment?

• Financing and Insuring a Buy to Let

• Choosing a Buy to Let

• Letting a Rental Property Legally and Safely

• Dealing with Tenancy Problems During a Buy to Let

• How to Plan an Exit from Buy to Let.

Each show is split into three sections, with an introduction from show presenter Kate Faulkner on the main topic, landlord case studies and expert interviews followed by a panel discussion.

Kate said: “In my experience, buy to let is not often explained to people properly and, as a result, although some are successful, others are failing and not making any money at all – or, worse, have even lost their own home.

There are now more than 160 laws which landlords need to abide by; many are health and safety regulations which most existing landlords don’t understand. It’s clear that help is needed so the Buy to Let Show will be an invaluable resource for existing landlords and anyone thinking that investing in property is how they want to make their money or save for a pension in the future.”

Kate has spent years learning how people carry out property projects and knows the key mistakes they make. She currently helps people via www.propertychecklists.co.uk through property price and rental reports, easy-to-read checklists and eBooks. Now, the Buy to Let Show provides the ultimate education and information opportunity, thanks to the support from Direct Line for Business.

You can watch the show from Sunday, 7th May, at 11am, on directlineforbusiness.co.uk, Landlordzone, PropertyTribes, Nethouseprices, Property Reporter and, http://www.propertychecklists.co.uk/articles/the-buy-to-let-show.

 

 

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Landlords warned over bad mortgage brokers

Buy-to-let landlords may not be getting the best mortgage deal, or they could find themselves locked into mortgages with high standard variable rates, as a result of mortgage deals set up by bad brokers.

According to The Mortgage Broker Ltd,  some landlords are missing out on good mortgage deals because they are working with unprofessional brokers, who are lazy and only use lenders that they are familiar with, rather than searching for the best deal for the landlord.

In the worst case scenario, bad brokers can be outright fraudulent – lying about income, or other aspects relating to the applicant.

Darren Pescod, MD of The Mortgage Broker Ltd comments: “We have seen evidence of mortgage brokers securing mortgages for investment properties, which are then inhabited by family members.  Or they have arranged a mortgage for an investment property, that is either a multi-let, Airbnb or student accommodation, without informing the lender.

This is highly unprofessional. If a lender finds out, it could withdraw the mortgage and in a worst case scenario, the client could be slapped with mortgage fraud, which will severely affect their ability to borrow funds, or obtain mortgages in the future.

Some landlords don’t understand the severity of a little white lie to the lender, or understand the implications of not divulging their full intentions with the property, or their personal situation. Lenders are more geared up now to do post application checks and are on the lookout for scheme abuse and mortgage fraud.

If landlords are working with bad brokers they don’t need to feel trapped.  They can often make changes to their mortgage arrangements with the help of a reputable, experienced and professional broker.

There are some great buy-to-let mortgage deals around at the moment, such as lenders still willing to offer a mortgage at 125% of the pay rate, rather than the recent increase in rental calculations, made my most lenders.”

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Landlord tax changes: Are you about to be pushed up a tax bracket?

The most significant change to the way that landlords with borrowings are being taxed is introduced today. Here’s what you need to know.

Who is affected?

The changes will affect all landlords with finance costs associated with letting their properties, although in this blog we refer primarily to mortgage interest costs, because buy-to-let borrowing is the most prevalent source of finance in the sector.

What’s changing?

You’ve probably heard by now, but when calculating your taxable profit your ability to deduct finance costs from your rental income/ turnover is being phased out over the next 4 years. Instead you will be able to claim just 20 per cent of your finance costs as a tax reduction.

What are the exact details?

To fully grasp what will be changing we first need to understand the difference between:

Tax deductions – legitimate business costs that are deducted from your rental income before you declare your taxable profit.

Tax reductions – reductions to your tax bill after your taxable income, and therefore profit, has been calculated.

Here goes….

Until today (6 April 2017) you were able to deduct your mortgage interest costs from your rental income before declaring your profit to the taxman. But by the time we reach the 2020-21 tax year you will no longer be able to do this. Instead, you will receive a tax reduction to your final tax bill, the equivalent of 20% of your mortgage interest costs – regardless whether you are a higher rate tax payer.

Are the changes immediate? 

The changes aren’t being introduced immediately, and will be phased in over the course of the next 4 years…

  • Year 1: Current financial year (2017-18): This year you can deduct 75% of your mortgage interest costs from your rental income before declaring your taxable profit. The remaining 25% of your mortgage interest will then be used to calculate a tax reduction (equivalent to the basic rate of Income Tax of 20%) which is then applied to your final tax bill.
  • Year 2: 2018-19: Next year, the split will be 50% deduction and a 50% reduction.
  • Year 3: 2019-20: In year three the split will be 25% deduction and a 75% reduction.
  • Year 4: 2020-21:…until finally, by year 4 you will no longer be able to deduct any of your mortgage interest costs and receive only the tax reduction.

What’s the take away message?

Your mortgage interest costs are no longer deductible and will count towards your taxable income.

The NLA predicts that almost half a million landlords who currently pay the basic rate of tax will be forced into a higher tax bracket as a result.

Is there a way around the changes?

Yes, but only if you own your properties as part of a limited company, in which case you will continue to pay corporation tax on your profits alone. However, transferring personally held properties into a company incurs potentially both capital gains and stamp duty charges, which will price the process out of most landlords’ financial capabilities.

We estimate that a ‘typical’ landlord with only one or two properties and fairly standard gearing would take in excess of 8 years to recoup the cost of incorporation. Hardly worthwhile for the majority.

What are my options?

There are a few options for landlords who will be hit by the changes:

  1. Incorporate: as above, many landlords have taken this action already, but sadly the costs involved mean it isn’t an option for everyone.
  2. Raise rents: faced with an increasing expense of providing housing many will have to raise rents in order to cover costs.
  3. Sell up: Many landlords will not be able to absorb the increased costs and will need to sell. There’s already evidence of this happening.

What is the NLA doing about it?

To date the NLA has, and continues to, lobby government over the changes, but while they are willing to listen to our arguments, they have yet to be convinced.

In order to provide a more compelling evidence base we have commissioned a large scale research project to outline the impact of the changes on the sector, and we’ll be sharing the findings with landlords and the Government in due course. NLA members can read more about this in the May / June edition of UK Landlord magazine.

The NLA also donated £10,000 to the (eventually unsuccessful) Judicial Review to fight the case at the High Court, and we remain, with other industry stakeholders, part of the Tenant Tax Coalition raising awareness on the matter.

What should I do?

If you are yet to do so, our advice is to crunch the numbers as soon as possible in order to assess whether you will be affected by the changes.

We also provide a list of trusted and vetted tax and accountancy specialist services through our Recognised Supplier scheme, including bespoke tax software from GoSimple Tax, which helps to calculate and submit your tax return directly to HMRC, even if you are not an expert. NLA Members receive a 50% discount.

 

 

Landlord tax changes: Are you about to be pushed up a tax bracket?

How to boost your chances of a successful buy to let investment!

According to Belvoir, when searching for a buy to let property there are several factors, both financial and factual, which need to add up in order to maximise your chances of a successful investment.

To help you in your search Belvoir have put together a useful ticklist so you can recognise a property’s potential at speed and with ease…

Price potential

Paul Rice, co-owner of Belvoir Liverpool Central and Belvoir Liverpool West Derby, has this to say: “One of the most important things to think about at the initial stages of your property search is budget.

How much should you spend on purchasing the property? Research the sales market carefully to ensure that the property is being offered at market value with room for capital growth. Check out how much it has been sold for previously too – this information should be readily available online.

If possible try and secure a deal. Vendors are often open to negotiation on sale prices, especially if you are a cash buyer or in a position to promptly proceed.

Buying an overpriced property will affect your profit potential, both in the short-term and when you wish to release your asset on resale.”

Ins and outs

Paul continues: “Additionally, always make sure you’ve done your research in terms of rental return and how much you could realistically ask per month for the property once tenanted.

Look at the property portals online and ask your local letting agent too. They are industry experts who will be able to provide a desktop valuation or valuation visit.

As well as the probable income, also look at your possible outgoings. Costs, such as annual gas safety certificates, boiler services, property maintenance and repairs, and any management or agency fees, should all be comprehensively calculated so you can work out a property’s potential yield after expenses.”

Rental ready

“Is the property you’re looking at rental ready?” Paul asks. “Today’s tenants want clean neutral spaces with modern bathrooms and kitchens. If a property is already move-in ready then immediate cash flow in terms of rent will potentially be available on completion of the sale.

If work needs to be done, however, then this should be factored into your budget before purchase. Until a tenant moves in there will be no rental return so it’s vital to be aware of not only what the work will cost but how long it will take too.”

Perfect postcodes

“Location is one of the essential keys to opening the door to a successful property investment so make sure you’re searching in the right postcodes,” he adds. “If budget is limited it’s often said that buying the worst property in the best area can be better than buying the best one in the worst.

Areas attractive to tenants usually have a wide selection of local amenities, such as shops and restaurants, plus are near to major transport links. If you’re aiming at the family market, good local schools are also a must.”

In demand

“Before starting your search it’s also vital to research the local rental market carefully to determine tenant demand,” continues Paul.

What type of properties are tenants looking for in your chosen area? Are they typically young couples who can’t get on the property ladder? Maybe they are re-locating families with young children? Perhaps there’s a university nearby creating a high demand for rental units for the student market?

Always identify your target market and buy with their wants and needs in mind. Budgets can soon spiral if unnecessary personal touches are added.”

Rental rivals

Assess the competition too,” he adds. “How many similar properties are available to let? What is the turn over and timeline from being marketed to a tenant moving in?

Always ensure there is still sufficient demand and that the local area isn’t already over-saturated with the type of property you are considering to purchase.

Look at the rent levels other landlords are asking too, plus the quality of the properties on offer so you can compare and contrast.”

Purchase purpose

Paul concludes: “Even before you’ve committed to a property it’s important to know what your exit strategy is likely to be.

What is the purpose of the purchase? Are you looking to move into the property on retirement? Are you intending to keep hold of it as an investment for your children or grandchildren? Perhaps you’re hoping to benefit from capital growth on resale so you can reinvest?

To a certain extent your long-term goals will dictate which property is right for you,” he says. “So it’s essential to have your end aims in mind even at the very beginning of your investment journey.”

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Mandatory Client Money Protection is here!

On 27 March 2017 Housing Minster Gavin Barwell confirmed via twitter, that Client Money Protection Insurance would be made mandatory for agents in England following the recommendation of a working group set up in Autumn 2016.

What is Client Money Protection Insurance?

CMP ensures the money that a landlord or tenant pays to a letting agent is safely protected against misappropriation by the agency.

Letting agents that have CMP must maintain and operate a separate account with their bank, where all client money is held separately from their operating funds. Examples of client money can include tenants’ deposits (before and after they’re protected), landlords’ repair funds, rents, service charges and arbitration fees. So, in the unlikely event that money is mishandled by the agent, the landlord or tenant’s money is secure, and they can make a claim from the relevant CMP insurance scheme for its return.

How do I get CMP?

CMP is usually obtained as part of trade association membership. So if you join UKALA, ARLA, NALS, RICS or the NAEA then CMP is an automatic member benefit.

However, if being a member of a trade body doesn’t suit your business requirements then you can obtain standalone CMP cover from select providers, including Client Money Protect. Agents that are interested in a trade association membership should look at UKALA, who both mydeposits and Client Money Protect have a close working relationship.

Mandatory Client Money Protection is Here

PART TIME ACCOUNTS ASSISTANT VACANCY!

H.A.S Property Management have an immediate vacancy for a Part Time Accounts Assistant to help With Financial Issues in the office – Hours can be flexible to suit the successful candidate.

The Hourly Rate will be negotiated dependant on experience – Please forward a CV to-  tammie@haspropertymanagement.co.uk

Interviews will be held very soon.

Tax Changes- Are you ready?

As of 1st April 2017, hundreds of thousands of landlords who currently pay the basic rate of tax will find themselves forced into the higher tax bracket as a result of  new restrictions on landlord tax relief.  Yet despite this, very few landlords know anything about the changes or how it will affect them.

Currently, mortgage interest payments are one of a number of expenses that landlords can deduct as a business cost.  However, once changes are fully phased in by 2021, landlords will no longer be able to deduct mortgage interest payments or any other finance-related costs from their turnover before declaring their taxable income.

 

How are the changes going to be introduced?

The changes will be phased in over the next four tax years, starting from April 2017, as follows:

2017/18 tax year – Landlords can claim 75% of allowable expenses, and will receive relief at the basic rate (20%) on the remaining 25%;

2018/19 tax year – Landlords can claim 50% of allowable expenses and will receive relief at the basic rate (20%) on the remaining 50%

2019/20 tax year – Landlords can claim 25% of allowable expenses and will receive relief at the basic rate (20%) on the remaining 75%

2020/21 tax year – the switch will be complete, with the only tax relief being the basic rate of 20% on your allowable expenses.

The announcement to cut mortgage interest tax relief in the 2015 Budget came as a surprise to many landlords.

Landlords need to seriously look at how their investments are performing, just as they would if they had stocks and shares. If a stock price is falling, there is a decision to stick it out or sell. In the case of property, of course there is always capital growth, but what about monthly income versus costs?

Landlords will be faced with higher costs.  At least at present, interest rates are historically low, but what happens when rates rise?

 

An example of how a landlord’s tax liability could change over the next 4 years

John is a landlord. He is already a higher rate taxpayer (40%).
John’s Buy-to-let property generates £20,000 per annum.
His allowable expenses (e.g. mortgage interest) total £13,000

Tax year 2016/2017 (Old system) – John pays tax on the profit after all expenses are deducted. £20,000 – £13,000 = £7,000 (John pays 40% tax on £7000 which is £2,800)

Tax year 2020/2021 (New system) – If John’s rental income and expenses remain the same he will pay tax on his total income of £20,000 = at 40% this is £8,000 (less the basic-rate relief of 20% on expenses of £13,000, which is £2600).  £8,000-£2600 = £5,400.

 

What can landlords do?

Landlords should carry out a business review on each of their rental properties. Remember, banks will be more stringent on affordability checks when it comes to buy-to-let mortgages as well, so it’s vital to know how much is coming in and how much will be going out.

Landlords need to list down all their costs (letting agent fees, management fees, maintenance, etc.) and consider areas where savings could be made. It’s extremely important to seek expert advice from an independent financial advisor who can support a robust and comprehensive financial plan for both the short and long-term.

Tax changes – Are you ready?