Li Magazine 35th edition by Landlord Investor Magazine

LANDLORD INVESTOR LANDLORD | PROPERTY | INVESTMENT

35TH EDITION | 2018

LIMAGAZINE

COULD THIS BE THE END OF SECTION 21? / HOW TO KEEP MORE OF THE MONEY YOU EARN! / INVESTING 101 / INDUSTRY UPDATE / THE CHANGING TIDES OF BTL / ALL YOU NEED TO KNOW ABOUT A PROPERTY PENSION / AIRBNB AND UNLAWFUL SUBLETTING / ROGUE LANDLORDS BEWARE! / OUT OF THE FRYING PAN AND INTO THE FIRE! / WHY LONDONâ&#x20AC;&#x2122;S BUY-TO-LET LANDLORDS SHOULD CONSIDER REMORTGAGING

STORM CLOUDS GATHER ON SECTION 21 COULD THIS BE THE END? TO FIND OUT MORE TURN TO PAGE 6 OR VISIT OUR OLYMPIA SHOW ON MARCH 15

#LIMAGAZINE

WRITTEN BY INDUSTRY EXPERTS COVERING ALL ASPECTS OF BUY-TO-LET

WELCOME

C O N T E N T S

4 SHOW UPDATE Focus on key issues at Olympia show

As we draw closer to our first show of the year at Olympia on Thursday 15 March, we ask essential questions as to why it is that landlords are easy targets to fill the Government’s coffers by using taxation hikes. Now that it’s essential for any investor or potential investor in property to understand the market fully, we’ve put together a comprehensive programme of

6 EXPERT ADVICE Could this be the end of Section 21?

features and content at the show which you can read about on page 4. With leading suppliers of buy-to-let, the return of the Expert Property Panel, plus the UK’s largest council debate, the show will be sure to provide the latest information and advice for landlords both in and around London and throughout the UK. This issue you will be able to read more about the proposed abolishment of Section 21, and how this has affected landlords with properties North of the border in Scotland. Simon Zutshi, author and Nova Financial gives readers a low-down on different types of investments and who they would suit. Peter Littlewood of the Southern Landlords Association goes through the recent legislative changes and what landlords need to be aware of. We also talk to Shawbrook Bank about the big issue of tax – and how several governmental and regulatory initiatives have impacted landlords and investors over the past 18 months but importantly, how 2018 represents the first year in which the impact of these changes will actually be felt in the shape of their tax bill. We look forward to seeing UK landlords and investors at the forthcoming show at Olympia and get to hear from you first hand on the issues that affect

12 – 17 INVESTMENT How to keep more of the money you earn! What are your investment options?

18 MARKET UPDATE

The latest industry news

22 – 25 FINANCE The changing tides of BTL Virgin Money expect to enter the specialist BTL portfolio landlord market

you and how you are planning for the future.

PENSIONS All you need to know about a property pension

30 – 33

LANDLORD INVESTOR MAGAZINE

LEGAL Airbnb and unlawful subletting

Editor Tracey Hanbury editor@landlordinvestmentshow.co.uk Editorial Contributors Andrew Turner Arman Khosravi Emma Cox Gareth Bertram Paul Mahoney Peter Littlewood Russell Conway Simon Zutshi

Tom Entwistle Tony Gimple Design Marc Riley Advertising Beverley Meliniotis Marketing Anna Jackson

Rogue landlords beware! Follow us @LandlordInShow @LandlordInvestmentShow Contact Telephone: 020 8656 5075 landlordinvestmentshow.co.uk Tenants History Ltd, 27 Stafford Road, Croydon CR0 4HA

Statements and opinions expressed in articles, reviews and other materials herein are those of the authors; the editors and publishers. While every care has been taken in the compilation of this information and every attempt made to present upto-date and accurate information, we cannot guarantee that inaccuracies will not occur. Tenants History Limited and our contributors will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through the promoted links.

36 TAXATION Out of the frying pan and into the fire!

46 MORTGAGES Why London’s buy-to-let landlords should consider remortgaging

Meet the team TRACEY HANBURY

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Subscribe to LI Magazine Landlord Investor Magazine gives property professionals, landlords and investors monthly advice and information on the topics, news and legislation that matter to the industry. Your subscription gives you the latest industry information in 11 issues per year. Subscribe today for just £65.00 per year to get news, advice and comment on all areas of buy-to-let: • legal services & tax • insurance • investments • deposit schemes & landlord associations • property hotspots Call the subscription hotline on 020 8656 5075 today or visit landlordinvestormagazine/subscribe Published by LI Media, organisers of National Landlord Investment Show

LANDLORD INVESTOR 35TH EDITION

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SHOW UPDATE

Focus on key issues at Olympia show 4

LANDLORD INVESTOR 35TH EDITION

SHOW UPDATE

National Landlord Investment Show addresses key issues plaguing landlords in 2018 at Olympia on 15 March

The National Landlord Show arrives at Olympia on Thursday 15 March to give advice to up to 4,000 landlords via complimentary seminars, leading suppliers and two landlord debates with advice from accountants, estate planners, mortgage broker, councils and financial advisors. Why are landlords easy targets? As landlords have become easy targets to fill the Government’s coffers by using taxation hikes, it’s essential for any investor or potential investor in property to understand the market fully. With Corbyn describing himself as a socialist, the instability of the Sterling currency and incorporation, the potential threats are both numerous and serious. Also, the show will also discuss opportunities such as licensing and how standards, demand, rents, and profits can all rise. Now that the tax changes are likely to see unprofitable ‘accidental’ landlords leaving the market, it’s essential for all in the BTL market to see their investments as a business, not a sideline or hobby. Knowing how to react to the change afoot is a priority for all involved buy-to-let. The National Landlord Investment Shows at Olympia bring together the diverse landlord community of up to 4,000 active investors to solve these problems as a community. The Council Landlord Debate The UK’s largest council debate will allow landlords to ask questions to five London councils. Visitors will be able to join a complimentary panel hosted by some of London’s councils to find out about the checks, fees, standards and procedures in each London Borough. Attendance at the panel is complimentary and on a first come, first served basis. The Expert Property Panel, launched in 2017, is also returning to the March show and is expected to host 450 +

LANDLORD INVESTOR 35TH EDITION

landlords and investors at what is the UK’s largest series of landlord debates. This open panel debate focuses on tax and how landlords can manage their taxes and finances effectively; the afternoon session covers local councils – understanding their processes, legislation and differences in each borough. 100+ suppliers of buy-to-let services Leading suppliers exhibiting include sponsors Clive Emson, Less Tax for Landlords, Shawbrook Bank – plus Alan Boswell Group, Bedford Insurance, Countrywide, Female Property Alliance, Envirovent, Glide and HMO Tax. Other show features include the Tech Corner, suppliers from the Northern Powerhouse and the Morning Networking Event. The Morning Networking Event is sponsored by property investors network and all attendees will receive a copy of ‘Property Magic’ by author and entrepreneur Simon Zutshi. Speakers this time include Tony Gimple, Founding Director at Less Tax 4 Landlords, Emma Cox, Sales Director for the Commercial Property Finance Division of Shawbrook Bank and Russell Conway, Senior Partner at Oliver Fisher Solicitors, who is regularly featured on LBC Property Hour. The most recent speaker to be announced is Jim Haliburton, MD of HMO Daddy. Marie Parris, CEO of George Ellis Property Services, will once again present.

educational approach designed to shed light across a variety of important topics including the economic environment and the regulatory landscape” Visitors can register for the show at landlordinvestmentshow.co.uk About Landlord Investment Show National Landlord Investment Show is the UK’s leading property investment exhibition, providing solutions, networking and advice for new seasoned and investors in the buy-to-let market. Established in 2013 and operating in property hotspots throughout the country, it has now run 54 shows successfully, and has provided property investment solutions for over 20,000 landlords in the last 12 months alone, a growth of 31% since 2015. www.landlordinvestmentshow.co.uk

The UK’s largest council debate will allow landlords to ask questions to five London councils.

Shawbrook Bank attests to the importance of the education at the event, “Shawbrook is proud to support the Landlord Investment Show for 2018. We have worked together for a number of years and it has always been important to Shawbrook to partner with organisations that support an

EXPERT ADVICE

TOM ENTWISTLE LANDLORDZONE

Could this be the end of Section 21? 6

LANDLORD INVESTOR 35TH EDITION

EXPERT ADVICE

The highly valued (by landlords and agents) no-fault Section 21 eviction process is under threat. Labour have committed to its abolition, and a statement will be in their next election manifesto; it’s already been disbanded in Scotland, and now the Conservatives may also be considering its demise.

Given that Section 21 has been a main reason for the rapid growth of private renting in the UK since the 1990s, any change must surely be attempted with extreme care. Otherwise the PRS - the small-scale landlord - already under threat from tax and regulatory changes, could go into decline once again; it was practically driven out of existence prior to the introduction of the Assured Shorthold Tenancy (AST). What effectively killed off the private rented sector in the 1960s and 70s was overprotective tenant’s legislation introduced by the Housing Acts. These socialist policies gave tenants security of tenure for life and controlled rents; it’s a legacy that persists to this day, with hundreds of tenants still sitting in run-down properties on peppercorn rents – the so called regulated or “Rent Act” tenancies. When landlords cannot get their properties back and cannot increase rents to market levels, there will always be three automatic consequences: 1: Properties and whole neighbourhoods fall into disrepair as the rental return (profit) is insufficient for the private landlord to keep their investments properly maintained and up to modern standards. 2: Tenants never move. Why would they when they are on such favourable rents? Labour mobility therefore suffers and eventually, in old age, tenants block key locations for young workers, who otherwise have to commute long distances. 3: Private landlords no longer see any benefit in investing in property. So they

LANDLORD INVESTOR 35TH EDITION

start to divest, quickly reducing the pool of available properties to let. All of this scenario was played out until 1988 when the then Thatcher government deregulated the private rented sector (PRS). By introducing the Assured Shorthold Tenancy (AST) landlords were “assured” that they could get their properties back: it gave them confidence in the event they wanted to sell it; to occupy for themselves; or if they got a bad tenant. This timely legislation and its “assurance” had the effect of boosting investment in the private rented sector to such an extent, as we have seen, it now accommodates fully 20% of households in the PRS. This contrasts starkly with the traditional social housing sector (local council housing and housing associations) which went into decline. Section 21 was an absolute key driver in this process. Given the sheer size of the PRS - most notably young people in “Generation Rent” and those previously in social housing – it now occupies a very important position in the country’s housing provision. But public opinion, helped by media hype, has moved decidedly against the private landlord. Political reality therefore means that the government is effectively being forced to look at rebalancing the housing market and the landlordtenant equation.

misfortune of others - money grabbing and uncaring leaches on society, if you are to believe the hype. Of course, in the vast majority of cases this could not be further from the truth, but that’s the public perception being created, and in politics perception is more important than reality. Nobody seems to highlight the fact that local council tenants face far more evictions and generate far more repair complaints that in the PRS. Nobody seems to appreciate the excellent community service that the majority of private landlords perform, in increasingly difficult circumstances.

What effectively killed off the private rented sector in the 1960s and 70s was overprotective tenant’s legislation.

Landlording has never been a revered profession, and the antics of a minority of rogues, constantly highlighted by modern media, have further reinforced the impression that all landlords are making fortunes through the

EXPERT ADVICE

The PRS, it would seem, is a victim of its own success. A sector which grew exponentially, using private investment rather than public money, filling a void that was crying out for investment, but vilified by a misguided section of public opinion. Private landlords, many having taken on the mantle of the “social landlord”, housing families and welfare tenants, have become almost pariah figures in the public psyche. The Conservative government, cognisant of public opinion (votes), is treading a “tightrope” of trying to keep smallscale private landlords happy, erstwhile Conservative voters, while at the same time addressing the social issues of generation rent. Home ownership has always been a Conservative tenet, but economic reality has moved away from that ideal. Their strategy now is to encourage institutional (large scale) renting at the expense of small-scale landlords, now being hammered with tax, mortgage restrictions and more regulation – the “Tesco-isation” of the PRS is taking place. Housing Courts Communities Secretary, Sajid Javid MP, has already hinted at plans to establish a

new housing court and has announced that landlords will be given incentives to offer longer tenancies. The communities secretary said at the Conservative Party Conference in Manchester last autumn that it is a “national outrage” that so many people cannot afford to buy a home. He made the comment as he announced a four-point plan to improve conditions for people who have to rent: a mandatory ombudsman scheme for landlords; regulation for all letting agents; incentives to encourage landlords to offer longer tenancies; and consultations on a new housing court. Mr Javid said the government would work with the judiciary to establish a housing court – something the RLA says it campaigned for in its manifesto at the last the general election. RLA Policy Director, David Smith, has said: “We called for Housing Courts to speed up and improve access to justice for good tenants and landlords as well as for tax incentives to support good landlords. “This is a welcome sign that the government is ready to listen to practical proposals from the RLA to

improve the working of the sector and encourage the majority of responsible landlords and tenants who want to and are doing the right thing.” But the hint of a Housing Court could actually be a precursor to softening the tenancy laws, because that could not realistically be done without it. Removal of Section 21, as has happened in Scotland, would mean landlords going to court (a Housing Court?) to justify why they want to remove their problem tenant. Labour have committed themselves to bringing in similar new measures in England to those already enacted in Scotland, which if implemented would necessitate a similar tribunal system in England, with all the attendant costs and bureaucracy that would go with it. The First-tier Tribunal for Scotland (Housing and Property Chamber) was formed to deal with determinations of rent or repair issues in private sector housing; assistance in exercising a landlord’s right of entry; and relatively informal and flexible proceedings to help resolve issues that arise between homeowners and landlords.

LANDLORD INVESTOR 35TH EDITION

EXPERT ADVICE

Is the government hellbent on driving out the small-scale landlord to the detriment of tenants, and to the benefit of institutional investors?

From 1 December 2017, following the introduction of The Private Housing (Tenancies) (Scotland) Act 2016 and the new 'private residential tenancy', the Tribunal began to receive more private rented cases, rent assessments, drawing up of terms, evictions and other non-criminal matters, being applications provided for by the transfer of jurisdiction from the Sheriff Courts of non-criminal matters arising from regulated, Part VII and assured tenancies (Housing (Scotland) Act 2014). The new Scottish tenancy is not just a longer tenancy, it is open-ended. It lasts until either the tenant wishes to leave or the landlord exercises one (or more) of 18 grounds for eviction. It offers a higher degree of protection for tenants including: limits on rent increases, fair rent officer assessments, and extended landlord notice periods. Landlords must give 84 days' notice to a tenant to leave after the first 6 months. There will be rent compensation orders for 'wrongful termination’ and some local authorities in Scotland are given the power to cap rent levels. So is the Scottish tenancy the direction of travel for England?, will the

LANDLORD INVESTOR 35TH EDITION

government bow to public opinion and remove the Section 21 eviction process?; a tried and tested method where landlords have a no-fault, no need to give a reason, eviction process. The alternative is a similar process to section 8, where the landlord must prove default on one of 17 grounds for possession, 8 of which are mandatory, the rest being discretionary - at the whim of a judge. Invariably judges sympathise with the underdog, the “struggling” tenant who can give a good account of himself, as opposed to the “wealthy” landlord, often completely disregarding the fact that she may be under just as much financial pressure as her non-paying tenant. I’m not saying that the nearly 40-year old process (Section 21) that drove the PRS to the size it is today will be totally abolished, but clearly the danger is there: take away the assurance that the landlord can regain control of his property when things go wrong, in a relatively simple, inexpensive way and without the skills of a Philadelphia lawyer, and you will see a continued decline in the PRS as far as the smallscale landlord is concerned.

A recent study shows that rates of homeownership among young people are plummeting which, as a recent article by the RLA says,” demonstrates the folly of choking off investment in private rented homes”. The Institute for Fiscal Studies (IFS) study shows that just 27 per cent of 25-34 year olds with incomes in their middle 20 per cent for their age are homeowners compared with 65 per cent in 1995/96. Is the government hell-bent on driving out the small-scale landlord to the detriment of tenants, and to the benefit of institutional investors? If so, given the slow take-up by the latter, and the scale of the housing crisis, it demands a complete strategic re-think from government. Policies are needed to support investment in homes to rent to meet the increasing demand, just as much for small-scale investor landlords, as large corporations. Tom Entwistle is Editor of LandlordZONE® and an experienced landlord

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LANDLORD INVESTOR 35TH EDITION

INVESTMENT

SIMON ZUTSHI

How to keep more of the money you earn! Most people believe that if you want to be wealthy then you need to learn how to make lots of money, however this is only the first step. The second step is that you need to know how to keep the money you earn, mainly by minimising your taxes and make sure you donâ&#x20AC;&#x2122;t spend everything you make. The third step is to grow your money. This is how you become wealthy.

LANDLORD INVESTOR 35TH EDITION

INVESTMENT

The reason so many wealthy people invest in property is because you can achieve all three of these wealth creation steps in one go: you can make money with property; there are ways of minimising your tax with property; and of course the value of your investments goes up over time thanks to the long term growth in property prices. Most people who invest in property seem to focus on just making money and miss out on many of the ways of reducing the amount of tax they pay. As we approach the end of the current financial year, I wanted to share with you some ways of minimising the amount of tax you pay. You may be paying more tax than you need to pay so I suggest your read this carefully.

“What you know will make you money, and what you don’t know will cost you money” – I love this Robert Kiyosaki quote, as it is so true and particularly relevant in the current property market due to all the changing legislation and tax situation. With the introduction of Section 24 in April 2017, it is now even more important for you to understand all the ways in which you can legally minimise the tax you pay. Using a business to save tax The way in which you have structured your property portfolio, will depend very much on your personal tax situation and your investing objectives. If you have been investing for a while, your portfolio is probably in your own name as this was generally the most tax efficient way to structure it for long term buy and hold. Whereas, if you were trading property, a company was the best way to hold it. I have used this dual structure for many years. However, now it is time for change. Moving forward I believe you should be buying your properties in a company structure. There are many other benefits to having a company such as you can offset the cost including your mobile phone, cost of life insurance (if set up in the correct way) and best of all the cost of any property training you attend, including travel, accommodation and food whilst doing the training. It is important not to just set up any company, but one that is specifically designed to maximise the tax benefits for the owners. I highly recommend you get specialist advice on this. I would just like to mention here that if you attend any of the March pin meetings you will receive

LANDLORD INVESTOR 35TH EDITION

a special tax report which goes into more detail than I have space for in this article and also I will share all of my personal tax advisor contacts with whom you can get a complimentary 30 minute tax consultation. Company pensions Once you have a company you can also set up a company pension such as a SSAS (Small Self Administered Scheme). You can then reduce your corporation tax by transferring up to £40k per year of profits from your business into your SSAS tax free. This can be backdated up to 3 years, which would save £24k in corporation tax. You can also transfer other pensions into your SSAS. I did this with my Cadbury’s pension. Once you have funds in your company SSAS, you can lend money to other investors, buy commercial property (for commercial to residential conversion) or even get a loan back from your own pension. This has to be set up and run in the correct way to make sure you do not incur any penalty tax rates so you need to get advice to make sure it is done properly. Personal Capital Gains Tax allowance A great tax efficient strategy is to sell one of your rental properties each year to take advantage of your personal Capital Gains Tax allowance. When you sell a rental property you pay capital gains tax on the profit you make but the first £11,500 is tax free. This is £23,000 if owned in joint names with your partner. Each year I review my portfolio and sell the worst performing property. I have a few properties which I have purchased over the last 22 years of investing which seemed like a good purchase at the time, but given what I now know, I would not buy them again. So I sell the property, take the tax free gain and then reinvest the capital in a much better cash flowing property with a higher return on investment. This means that often I do still have some Capital gain Tax to pay but I don’t mind as I offset this tax using Enterprise Investment Schemes.

funding for growth. Before you get too excited about this, I should just point out that a property business would not qualify for EIS funding. However, as a property investor making money you should be aware of this to minimise your tax. By investing in a number of these EIS approved businesses,which will hopefully grow into profitable ones in the future, you can offset CGT and get a rebate on Income Tax, whilst diversifying your investment portfolio. Please be aware you should never invest in something just because of the tax benefits. It must be a sound investment for diversification reasons with the added tax incentives as a bonus. It is very important you do your due diligence and only invest in companies with a really good chance of being successful. This is definitely worth looking into. Reduce tax on your savings There are two main ways of saving money on your savings. First of all, you have the Personal Saving Allowance. This is where a lower rate tax payer can earn as much as £1,000 in interest and pay no tax. Higher rate tax payers can earn £500 and pay no tax. Let’s say you are earning 8% per annum by lending through the property specialist peer to peer lending platform CrowdProperty, you could invest up to £12,500 and pay no tax on your £1,000 of interest. Higher rate tax payers could lend up to £6,250 and pay no tax on their £500 of interest.

What you know will make you money, and what you don’t know will cost you money” Robert Kiyosaki

Enterprise Investment Scheme (EIS) If you have sold any properties (or shares) over the last few years, which result in you needing to pay Capital Gains Tax (CGT), and or if you need to pay any Income Tax due to profits from your property portfolio, then you really should be aware of the Enterprise Investment Scheme. EIS is a Government backed initiative to help new businesses gain much needed

INVESTMENT

When you put money into an ISA the interest you earn is tax free.

Individual Saving Accounts (ISA) In addition to your Personal Savings Allowance you can put up to £20k a year into an ISA account. There are several different types of ISA including cash, stocks and shares and the new Innovative Finance ISA (IFISA). When you put money into an ISA the interest you earn is tax free. If you invest £20k a year this can add up over the years to a sizable tax free fund. There are lots of ISA providers out there but I am delighted to announce that CrowdProperty now also offers an IFISA so you can lend money to the property development projects and receive a secured return of up to 8% tax free thanks to the ISA. You can also transfer in ISA funds from previous years. As with all loans you capital is at risk. Full details on the CrowdProperty website here www.CrowdProperty.com Capital allowances Capital allowances are a very powerful but little known tax strategy when we first introduced them to my Mastermind delegates back in 2010. I have personally used this to save tens of thousands of pounds in tax. I know several Mastermind Graduates, who were able to more than pay for their Mastermind Fees from the savings they made from this one simple tip.

The rules around this have changed, so we can’t really use this with HMOs anymore, but the good news is that you can still use this for any commercial property including: serviced accommodation, furnished holiday homes in UK, any commercial to residential conversion, or any other commercial building such as shops, warehouses, offices, care homes, or restaurants.

Minimise Inheritance Tax

When you buy a qualifying property, a certain percentage of the purchase price and money spent on refurbishment can be offset against your personal income tax. For example, let’s say you purchase a property worth £200k to use as serviced accommodation. You might get a 20% capital allowance, which would be £40K you can offset against your personal tax. For a higher rate tax payer this could be worth an extra £16k in your pocket.

As well as protecting your family and assets, if you are working with private investors, it can be very reassuring for them if you have life insurance, whereby if something happens to you, they can get their money back quickly rather than having to wait for your estate to be settled. This insurance really does not cost a lot and I have a policy in place to cover all of my current and future private lender requirements. What’s more, if done in the correct way this can be done as a tax deductible expense for your business.

Only the owner of the property can claim the capital allowance and it can be directly offset against their personal tax (or corporation tax if the owner is a business). Claims can be carried back for a few years so definitely worth looking into.

What would happen to your assets and portfolio if something happened to you? It is really important to protect your assets with the appropriate life cover. Unfortunately, most people are badly advised and set this up incorrectly, which means they will lose 40% of their life insurance due to inheritance tax.

I do hope you have found this article useful and found some ways in which you can minimise your tax liability this year. Now is time to take action and think about what to do now to make the most of this information.

Landlord Investor Recommends The bigger your network the bigger your net worth. The best way to build your personal network is to attend your local property networking events. At LANDLORD INVESTOR we highly recommend the property inventors network (pin) who have 50+ meeting around the UK every month, so there is bound to be a property meeting close to where you live or invest. You can find your local meeting here: www.PinMeeting.co.uk At the March pin meetings, everyone who registers in advance will receive a Special Tax Saving Report that Simon Zutshi has created for his Property Mastermind Graduates. This includes more details on the topics covered in this article, as well as the contact details of all the various tax consultants which Simon personally uses, and the opportunity to benefit from a complementary 30-minute tax consultation. These are available only to people who attend any of the pin meeting in March. Book your place at your local pin meeting now.

LANDLORD INVESTOR 35TH EDITION

At Shawbrook we appreciate that everyone’s different, which is why we’ve designed our mortgage products to work for everyone. We take the time to look at your circumstances, allowing our specialist teams to deliver a tailored offering to property professionals and SMEs across the UK. ■ ■ ■ ■

Short term & Development Finance Residential Buy-to-let (BTL) Commercial & Semi-commercial investment Trading Business Finance

Contact our award winning team

0330 123 4522 salesdesk@shawbrook.co.uk shawbrook.co.uk

Proudly different. Proudly different ANY PROPERTY USED AS SECURITY, INCLUDING YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT. EARLY REPAYMENT CHARGES MAY APPLY. BROKER FEES APPLY TO TERM PRODUCTS ONLY

INVESTMENT

PAUL MAHONEY NOVA FINANCIAL

What are your investment options? Investing 101 16

LANDLORD INVESTOR 35TH EDITION

INVESTMENT

When it comes to investing, you have three broad options which are; interest bearing investments, shares and property.

Other investments such as commodities and fine wine etc. don’t generate an income and are therefore more of a speculation on their potential for an increase in value rather than an investment in the true sense of the word. Which one is right for you? Well it very much depends. Interest bearing investments This type of investment includes cash in the bank, term deposits, ISAs and any other types of investment where you invest your funds and receive a fixed or variable cash flow return without the chance of the capital value of your investment increasing or decreasing other than with inflation. You can get your initial funds back at some point in the future with interest. In general, historical returns tend to be approximately 2-4% per annum. Shares When investing in shares you are buying a portion of ownership in a company. There are many different ways to determine which companies you should invest in such as fundamentals, qualitative, value, analysis or simply guessing and hoping for the best and so on which are outside the scope of this article however mostly it is based upon optimism with regards to the prospect of that company. Often such companies will have a historical return that is made up of capital appreciation (or depreciation) and dividends which is the yearly income provided through the share of profits. In general, historical returns tend to be approximately 6-8% per annum but vary greatly across different sectors and types of companies. Property The direct purchase of real estate generally for the purpose of letting it out to generate an income and ideally an increase in the capital value. The old cliché of location, location, location is very important here and often determines the demand for a property due to employment, facilities and

LANDLORD INVESTOR 35TH EDITION

amenities in an area. In the right locations supply tends to be restricted due to land being a limited commodity and therefore if there is a strong demand then prices tend to increase. Similar to shares, the return tends to 6-8% per annum but the big differentiating factor with property is the ability for finance over the long term at relatively low interest rates and that lenders have no ability to call in the loan until the end of the period. Should you borrow to invest? When it comes to making an investment, you must decide whether your investment will be solely cash or will you leverage your cash to make a larger investment. Taking debt to invest can be higher risk but not taking debt can put you at risk of not meeting your goals and under-utilising your money. Unfortunately, most people struggle to save sufficient funds over their working life to be sufficient to provide for retirement so the prudent use of investment debt is in many cases essential to reach set goals. If investing in interest bearing investments, then in most cases borrowing doesn’t make any sense. This is because the cost of borrowing will outweigh the return and hence defeat the purpose. When investing in shares, you can borrow to invest with what is called a margin loan. Margin loans work on the basis that your lending can only be a certain percentage of your portfolio value. The risk here is if the value of your shares falls and therefore the loan percentage increases then you can be forced to sell at the worst time or add more money in a falling market. Interest rates tend to high (6%+ at the time of writing) and maximum loan to values of 60%. So borrowing to invest in shares is high risk and high cost meaning the return you need to generate must be higher to make it to worthwhile.

for recall and at loan to value rates of 75%+. So low risk, low cost and hence an average return on the overall asset value can actually result in a great return on the cash invested given the multiplying factors that debt provides. E.g. £25,000 invested in a £100,000 property; just a 5% increase in value which is less than the historical average is a 20% return on your £25,000 of £5,000. Assuming your rental yield is sufficiently higher than the interest rate and costs then you can also add net income. This is the beauty of leveraged property, fairly average returns on the overall value result in great returns on your cash applied. Add to this the ability to remortgage to invest further when you build equity through price growth and pay down debt with the income and you have a strong strategy for building an investable asset base over the long term. If you have any questions or would like to determine how Nova Financial can be of assistance, please call 0203 8000 600, visit www.nova.financial or email; info@nova.financial

Taking debt to invest can be higher risk but not taking debt can put you at risk of not meeting your goals and under-utilising your money.

Property is the third option, which enables you to borrow at low interest rates 2-3% at the time of writing, for the long term 20 years plus, with no ability

INDUSTRY MARKET UPDATE UPDATE

PETER LITTLEWOOD SOUTHERN LANDLORDS ASSOCIATION

Market update Date for new rules on HMO confirmed. In one of first announcements as the new Housing Minister, Dominic Raab has confirmed that the new rules on HMOs (House in Multiple Occupation) are proposed to come into place in October this year. In summary it is proposed that all HMOs with 5 or more occupiers will be subject to mandatory licensing, thus doing away with the current rule that a mandatory licensed is required with 5 or more occupiers and 3 or more stories. It is anticipated this new rule will bring an extra 1/4 million properties into mandatory licensing; what is not known is any transitory arrangements for an HMO currently in additional licensing but having to become mandatory licensed. Will they have to pay twice? It is likely that the new room sizes for HMOs will come into place at the same time. Rooms used for sleeping by one adult will have to be no smaller than 6.51 sqm, while those slept in by two adults will have to be larger than 10.22 sqm. Rooms slept in by children of ten years or younger must be no smaller than 4.64 sqm. As part of the licensing requirements, local councils will be able to make sure that only rooms meeting the standard are used for sleeping.

Raab can’t currently guarantee this timetable as Parliamentary time will need to be found for this.

Banning orders confirmed The Government have announced that the database of banned landlords and agents will become law in April. The updated legislation will result in landlords and agents who are convicted of a banning order offence being prohibited from working in the lettings market, whether as a landlord, letting agent, or working as part of a property management team. Some of the most common banning order offences are: • Unlawful eviction and harassment of occupier

Right to Rent Scheme being challenged There are currently two legal challenges to the Government's controversial Right to Rent checks, whereby a landlord has to ensure all occupants of the their properties have the right to be in this country, and to rent property. NB – not the How to Rent Guide shown above right. There is a judicial review of the policy being sought by the Joint Council for the Welfare of Immigrants (JCWI), which argues that the policy discriminates against non UK passport holders. There is also a similar legal challenge by the Camden Community Law Centre. The JCWI has established that 51% of landlords are less likely to let to foreign nationals, because of the fear of forged documents.

• Violence for securing entry • Failing to comply with an improvement notice • Offences in relation to House in Multiple Occupation (HMO) licensing • Gas safety and fire safety offences • Harassment and stalking • Theft, burglary, blackmail and handling stolen goods

Research by the BBC found that criminal gangs are using forged passports that are impossible to identify with the naked eye. An undercover reporter for BBC Inside Out London was able to purchase fake passports, as well as National Insurance cards and residence permits, from illegal dealers across London.

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MARKET UPDATE

New version of How to Rent Guide Please note that the Government have released a new version of the How to Rent Guide. It removes reference to the now abandoned London Rental Standard. It is important that you use this version for any new ASTs from January 18th 2018 else any future Section 21 might be invalid at court. Note that we have been advised that it is liable to change again in April because of the potential changes to the Section 21 regarding the Homeless Reduction Act.

Using a secret camera, the reporter recorded the deals, with fraudsters charging up to £500 for a forged passport. Some documents arrived within 48 hours. The forged IDs were then presented to letting agents, who were secretly filmed accepting them without question as proof of UK residency status. The same JCWI research shows that 48% of landlords were less likely to let to someone without a British passport as a result of the scheme, due to the threat of criminal sanctions. This poses serious difficulties for the 17% of UK residents that do not have a passport.

New bill will allow tenants to sue their landlord Karen Buck MP has tabled a private members bill aimed at improving rental conditions, which now has the full support of the Government, so is likely to become law. Entitled ‘Homes (Fitness for Human Habitation and Liability for Housing Standards) Bill’ it aims to bolster both the 1985 and the 2004 Housing Acts.

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It doesn’t introduce any new obligations on the landlord; they have always been liable to maintain the property to a good standard, as designated in both those Acts, but rather gives the tenant an ability to directly take the landlord to court if they don’t fulfil those obligations. Previously it was only possible for a tenant to complain to their Local Authority to hope that they would take action. Now they can circumvent that. Note that it also applies to ALL housing tenures - councils, housing associations, private landlords and build-to-rent will be on an equal footing. Whereas previously council housing was exempt.

The Homes (Fitness for Human Habitation and Liability for Housing Standards) Bill 2017-19 is expected to have its second reading debate on Friday 19 January 2018. The summary of the Bill states it is to amend the Landlord and Tenant Act 1985 to require that residential rented accommodation is provided and maintained in a state of fitness for human habitation; to amend the Building Act 1984 to make provision about the liability for works on residential accommodation that do not comply with Building Regulations; and for connected purposes.

The Bill still requires a landlord to be notified of any disrepair, and have an opportunity to carry work out – and tenants must allow landlords access to homes to inspect them. Tenants cannot simply instigate court action, they need hard evidence, and the courts will very quickly deal with vexatious or malicious cases. The Bill will initially only apply to new or renewed fixed term tenancies after it is implemented. It will then apply to periodic tenancies 12 months after the bill comes into force, giving landlords time to ensure properties are up to standard.

Previously it was only possible for a tenant to complain to the Local Authority to hope that they would take action.

in partnership with

YOUR TWO BIG TAX QUESTIONS FOR 2018

Will Property Capital Allowances save you tax? How will you know?

If you are a Landlord, Property Developer, Property Investor or Professional Advisor this is what we have achieved in 2017 for our clients: £6,325,436. That’s in actual tax savings... How much could we have saved you last year? Or save you next year? 300 definitions

Over 600 pages

Are you thinking of buying or selling your portfolio? How will you know how much tax you could save or lose? You should speak to us soon to see if your portfolio qualifies. WHY? Because we understand the law on Capital Allowances. Here is the latest guide to the law. It’s complicated and complex. Who do you know that has a 13 year track record and a 100% success in submitting provable and sustainable claims to HMRC, using this knowlege? Can we help you? Ring 01327 340408.

In 13 years we have submitted over 4,000 successful claims, worked with over 1,000 accountants, helping them to help their clients save tax. We guarantee all our tax advice for 6 years, have PI cover of £1.5 million per claim. You are never at risk with us. Do you have multi-lets, HMOs, holiday lets, pubs, clubs, care homes, offices, restaurants, hotels? How do you know if your properties qualify? Ring us now for an illustration of how much tax you could be saving this year. There are no upfront fees.

2018/19 will bring serious changes to how much extra tax you will be paying. What have you done about changing your Portfolio Tax Structure to reduce and mitigate your future tax bills?

We can help answer this question and provide solutions to the property tax problems Landlords are facing. Our challenge is that because we are Chartered Accountants we cannot give specific tax advice unless we understand everything about your current tax situation and your plans for the future. (NOR CAN ANYONE ELSE. All you will have is opinions without the facts.) RING US NOW for a discussion on how much tax you could be saving with the right advice.

The Bailey Group has over 20 years of experience working as Property Tax Law Specialists for the benefit of over 4,000 clients, now specialising in offering tax restructuring advice and Capital Allowance expertise to owners of £1million + property portfolios. Please ring 01327 340408 or email: billloryman@thebaileygroup.co.uk Visit our website at: www.thebaileygroup.co.uk to see evidence of our success.

FINANCE

EMMA COX SHAWBROOK BANK

The changing tides of BTL 22

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FINANCE

There have been several governmental and regulatory initiatives impacting landlords and investors over the past 18 months but importantly, 2018 represents the first year in which the impact of these changes will actually be felt in the shape of their tax bill.

Shawbrook has undertaken research demonstrating that the consequences of a shifting tax regime and the PRAled changes to affordability have perhaps not been fully understood, but when the financial impact crystallises we may well see the property investor community take action. Rental increases are one response, and we are also likely to see landlords looking more closely at Ltd company structures. What we have already begun to see is a slowdown in momentum – particularly on purchases - as investors consider next steps carefully against the backdrop of recent and continuing political uncertainty. What is perhaps safe to assume is that the political landscape will cause investors across the UK to continue to “wait and see” as opposed to looking at any significant growth plans for 2018. It is important to mention that the response may vary according to the two newly categorised investor types. Last year we saw the PRA draw a distinction between “portfolio” and “non-portfolio” landlords and these groups are likely to differ in terms of their strategy moving forward. Non-portfolio landlords may well be deterred (depending on their overall level of debt) from expansion in this space, and may look to sell in the first instance if not exit altogether. The larger portfolio landlords will certainly look at their existing investment strategy, but could well seek to take advantage of opportunity

to buy given the decreased competition and a slowdown in property values. When looking at the research, Shawbrook data supports the finding that although there is awareness of the changes themselves, it is the impact around which there may be some uncertainty. This comes from the “Broker Barometer” survey conducted by the bank to its network of professional broker partners, which highlighted the need for lenders and industry bodies to step up and support the market with educational material to help clarify what the future looks like in this new environment. As a specialist lender active in the portfolio space, we would encourage investors to be wary of chasing yield to compensate for any decrease in activity or financial performance across their portfolio’s. Some of our most successful customers focus on a particular area of the market, developing experience in one niche prior to looking at other asset classes or regions. They maintain a sustainable approach backed with specialist advice rather than jumping up the risk curve in response to external factors outside of their control. It is important to note that in spite of the impact of any regulatory or government-led change, arguably the biggest challenge remains the fundamental lack of UK housing stock that continues to drive the need for a robust private rented sector.

Shawbrook is compiling the results of another piece of research into its customers to reveal market sentiment from those ‘on the ground’. This will be covered in this forum over the coming weeks, but in the meantime the results will shortly be available in bite size form at the @LandlordInShow and also @ShawbrookBank, and will make for interesting reading. Emma Cox Sales Director, Commercial Property Shawbrook Bank

According to those surveyed, the knock on effect of the PRA/FCA regulations was likely to be the biggest issue facing their clients in 2018.

With these factors playing such a key role for investors and landlords,

What we have already begun to see is a slowdown in momentum – particularly on purchases – as investors consider next steps carefully against the backdrop of recent and continuing political uncertainty.

LANDLORD INVESTOR 35TH EDITION

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Once you’ve reviewed our guides, we would like to offer you a complimentary consultation in our Central London office and if there is a fit between what we offer and your situation then we can offer you a range of freebies for a limited time. Call us on 0203 8000 600 | Email us on info@nova.finacial | Visit our website at www.nova.financial Nova Financial Ltd is an appointed representative of Connect IFA Limited which is Authorised and Regulated by the Financial Conduct Authority. Nova Financial Ltd are registered with the Property Ombudsmen and the Information Commissioner’s Office. Level 1, 25 Copthall Avenue, London, EC2R 7BP

FINANCE

Virgin Money expect to enter the specialist BTL portfolio landlord market Boosting confidence in the industry Virgin Money is to enter portfolio Buy to Let mortgage market this year.

Virgin Money announced: “Overall, we achieved a market share of gross lending of 3.3% despite lowering volumes towards the end of the year to manage margins and protect returns in an increasingly competitive market. “Further progress in our direct channel saw the number of mortgage applications increase by 12% from 2016 with the value of direct mortgages exceeding £1bn for the first time.” “We also expect to enter the specialist buy-to-let portfolio landlord market during 2018.” Despite attacks on landlords Virgin Money reports: “the buy-to-let

LANDLORD INVESTOR 35TH EDITION

market is expected to be flat as the recent regulatory and taxation changes weigh on customer demand.” Jayne-Anne Gadhia, Chief executive for Virgin Money told Landlord Investor: “I am delighted to report that our customer focused strategy of growth, quality and returns continued to drive strong financial and operational performance in 2017. “We generated market beating growth across our core products as we continue to capture high quality market share in mortgages and credit cards. We maintained our uncompromising focus on asset quality and we continued to improve our operating leverage.”

Progress in our direct channel saw the number of mortgage applications increase by 12% from 2016.

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UK’S LEADING PROPERTY INVESTMENT EVENT The National Landlord Investment Show connects 1000s of property professionals at venues throughout the country and is the UK’s leading buy-to-let event. The shows give landlords and investors the chance to connect with suppliers, network and increase their knowledge.

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PENSIONS

GARETH BERTRAM THE LANDLORDâ&#x20AC;&#x2122;S PENSION

All you need to know about a property pension 28

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PENSIONS

Gareth Bertram, Director of The Landlord’s Pension shares his insight into SSAS pensions and dispels the common myths.

What is a SSAS? SSAS stands for Small Self-Administered Scheme, and it gives you complete control over your pension funds. It’s available to anyone who is a director of a company. The size of the company or whether it is trading or not is not an issue, you just need to be a director, as that gives you the legislative right to establish a SSAS pension. It can be set up regardless of whether you are a sole director or if there is more than one director. A board of directors can establish a scheme of up to 12 people. However, pooling your money in this way doesn’t automatically confer rights to your funds to any other person, you each retain separate benefits in proportion to the amount you put in. But what it does do, is enable you to access a larger pool of resources to use within the business. Alternatively, each board member can have their own individual SSAS, if the other directors agree. In many pension schemes, the funds are often invested into stocks and shares. Working with a SSAS gives you control over any investment decisions, thus giving you the responsibility of growing your pension. Also, many of the traditional schemes are run on the basis of investing money and then charging the owner a fee. Most people don’t know where that money is going or how much they are being charged. A SSAS takes away the mystery and it can cost as little as £500 a year for the management, so it’s a lowcost scheme. How hard is it to set up? It’s very straightforward to set up a SSAS. You must ensure that you establish your scheme with a corporate trustee that you’re confident will work with you in terms of the investments you’re looking to make. Trustees restrict what you can and can’t do with your funds, so it’s important that if you have a specific plan for your money, you’re certain that your trustee will be able to work with you on it. If you start working with the wrong trustees, those who are not in the property sector,

LANDLORD INVESTOR 35TH EDITION

for example, then it makes everything very difficult for everyone involved. Setting up a SSAS is not complicated. There appears to be a myth that it’s a difficult and costly process, which isn’t true in the slightest. The process is that the pension scheme needs to be registered with HMRC, which we do on the behalf of clients we work with. Once that’s done, you set up a bank account and transfer the funds into it. You’re now ready to start using the money for your investments! Simple! A SSAS really comes into its own when you consider the options of what you can invest into: • Low cost SSAS pension • Invest in property • Loan back to company • Easy setup, no forms Find out if you qualify today! We’ve put together a very quick test which enables you to find out if you qualify for a SSAS. You can take the test here: www.thelandlordspension.co.uk/ test What can you do with a ssas? As mentioned, a SSAS gives you control over your pension funds. It can include new contributions and/or you can transfer any former pension schemes from previous employment. There are some restrictions over what you can and can’t do with the money for it to continue to benefit from tax-free status. A SSAS really comes into its own when you consider the options of what you can invest into, as it offers more benefits and options than any other pension scheme. From a property investment perspective, you can invest into plots of land with the aim to develop. There is no restriction over developing residential property, owning the land and building it from the ground up. But the development needs to be sold out of the scheme before it’s deemed substantially complete, as you cannot own residential property in a pension scheme. Investing into commercial property is also possible.

We have had clients who have bought factories or high street offices as premises for their business. And we’ve had some stranger ones too, like people who own orchards! Properties such as blocks of flats and HMOs are not considered as commercial property as far as HMRC and legislation is concerned, so you may not hold these in your pension. If you are found to have a residential property in your pension, you will suffer a substantial tax charge. From a business perspective, one of the great benefits of a SSAS pension is that it’s possible to utilise 50% of the value within your business. For example, let’s say someone had worked for a corporate company for 20 years and had built up £100,000 in their pension scheme, then decided to set up their own business within a limited company structure. If they were to establish a SSAS in conjunction with that limited company and transfer those funds into it, they could use up to £50,000 (ie, 50% of the value of the fund) as an investment for their business. When doing this, the money is treated as a loan from the SSAS into the company. Naturally, the money needs to be protected from being spent frivolously to ensure that it can indeed be repaid. In reality, what is happening here is you’re having your cake and eating it! By borrowing from your pension, you’re building and growing your business. But in the background, you’re also increasing the value of your pension through interest on the loan. This helps the tax liability for the company because the interest payments are tax deductible. Free SSAS download, discover… • Why now is a great time to have a SSAS • How you can acquire property using a SSAS • Fund your business using your SSAS • Reduce pension charges Visit the link below to download our completely free guide on SSAS pensions: www.TheLandlordsPension.co.uk/ freedownload

LEGAL

ARMAN KHOSRAVI OLIVER FISHER

Airbnb and unlawful subletting 30

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LEGAL

It is now more common than ever that a prospective tenant will procure a tenancy with the intention of subletting without permission. This is known as ‘unlawful subletting’.

With Her Majesty’s Government having rubber stamped the short term letting of residential premises, the less aware and ‘hands off’ landlord now faces grave consequences. A landlord can be a private individual, a trust, a charity, a company or even a local authority. Whichever the case, without a pro-active ‘hands on’ approach to property management an unlawful subletting could result in a claim for breach of Lease that requires premises not be used for commercial/ business purposes, and or that the occupiers do not cause nuisance or noise beyond a certain time. An unlawful subletting can also result in placing a property owner in breach of the terms of its mortgage and/or insurance policy. A direct consequence of short term lettings is a high turnover of occupiers usually for care-free leisure/recreational purposes and the intermediary tenant a profit. What follows are disgruntled neighbours that inevitably force the hand of the Freeholder to threaten/apply to the First-Tier Tribunal (Property Chamber) for a determination of breach. Armed with a determination that there has been a breach of Lease, a Freeholder can ask the County Court to order the property owner’s valuable long Lease forfeit resulting in a windfall to the Freeholder. Forfeiture is a draconian measure leaving the property owner

LANDLORD INVESTOR 35TH EDITION

with little option but to apply for relief resulting in costly proceedings and ultimately (if unsuccessful) the lease being ordered forfeit. A recent case involved the unlawfulsubletting of a prime Knightsbridge penthouse to wealthy Arab families visiting London and requiring accommodation within walking distance of Harrods. The property was advertised via Airbnb and in shop windows along the Edgware Road. The property was initially rented to a single young female who held out to be a student at a rent of £3,625.00. The property was advertised as available for short term lettings at £525.00 per day.

A direct consequence of short term lettings is a high turnover of occupiers usually for care-free leisure/recreational purposes.

With a landlord locked in to a 12 month fixed term tenancy (without a break clause) that precludes subletting, then the only option is to serve a S.8 Notice and issue possession proceedings. This is a costly and time consuming process that may involve a contested hearing. The process may place a costly, stressful and time consuming burden on any landlord. The lucky owner of the Knightsbridge property consulted solicitors who handled the freeholder sensibly, holding it off long enough (having also served a S.21 Notice) to avoid costly tribunal and court proceedings. The property owner was able to recover possession under the accelerated route saving time, stress and money.

LEGAL

RUSSELL CONWAY OLIVER FISHER

Rogue landlords beware!

LANDLORD INVESTOR 35TH EDITION

LEGAL

Whenever there is a shortage of accommodation this can be an introduction to Landlords cutting corners and providing sub-standard accommodation.

Whenever there is a shortage of accommodation this can be an introduction to landlords cutting corners and providing sub-standard accommodation. When desperate tenants are looking for somewhere to live they will sometimes elect to reside in accommodation which is unfit for human habitation. Too many flats are damp with dangerous plumbing and electrics and not every Landlord does the compulsory Gas Safety Check every year. Sadly until recently the Local Authorities and indeed the Government were slow to deal with this problem. Since the introduction of The Housing and Planning Act 2016 which was given Royal Assent on 12th May 2016, things are set to change.

Obviously crucial to all of this is: what is a banning order offence? It may relate to having carried out illegal evictions, possibly it will relate to Health & Safety offences and it will certainly, I would imagine, deal with failure to comply with improvement or over-crowding notices. Will the Government be brave enough to extend it to harassment? We will have to wait until the Spring to find this out. Nevertheless, Banning Orders may also apply to where Landlords or their agents have been convicted in the Crown Court for serious offences such as fraud, offences in relation to drugs or sexual assault that are committed in or in relation to a property that is owned or managed by the offender.

The Housing and Planning Act 2016

The procedure for getting a banning order is relatively straightforward and will involve the Local Authority serving a Notice on the Landlord and thereafter making an Application to the First-tier Tribunal.

Whilst the Act does not give a definition of what a rogue Landlord is it does give extensive powers to Local Authorities to deal with this problem. In particular Local Authorities are now able to make an application for a “Banning Order” to stop a landlord or indeed a landlord’s managing agent from continuing to let properties where they have committed certain offences. Unfortunately, the nature of those offences have not yet been set out by the Government albeit that the Minister is just about to set out a list of possible offences for consultation. We are told however that the comprehensive list should be out by Spring 2017. Once a landlord is placed on the banning list this will also go on to a national database which will be maintained by Local Authorities and which hopefully should be searchable by members of the public seeking to rent property.

LANDLORD INVESTOR 35TH EDITION

Once a banning order has been imposed this can last for at least 12 months and if the Landlord is in breach of the Banning Order he will be liable to a term of imprisonment up to 51 weeks or a fine or both. Nevertheless, most importantly the Local Authority has the option to avoid prosecution and instead can impose a financial penalty of up to £30,000.00 on the landlord. The consequences of being on a banning list will be severe for landlords. Mortgage lenders will almost certainly be able to search the list and being on a banning list will almost certainly prevent mortgage lenders from advancing monies for the purchase of other properties.

The procedure for getting a banning order is relatively straightforward and will involve the local authority serving a notice on the landlord.

Conclusions The new concept of rogue landlord and banning orders along with a national database will go a long way to alert landlords to the fact that simply cutting corners in relation to letting accommodation is unacceptable. This should lead to an increase in standards generally. For a landlord to face a penalty of £30,000.00 is extremely serious. Further for a landlord to be prevented from getting mortgage finance by virtue of his inclusion in the national database is perhaps even more serious.

LANDLORD INVESTMENT SHOW 2 0 1 8 D E S T I N AT I O N S LONDON THURSDAY 15 TH MARCH

MIDLANDS WEDNESDAY 16 TH MAY

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LONDON TUESDAY 6 TH NOVEMBER

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TAXATION

TONY GIMPLE LESS TAX 4 LANDLORDS

Out of the frying pan and into the fire! The heat turns-up on landlord incorporation.

LANDLORD INVESTOR 35TH EDITION

TAXATION

Since the introduction of the 3% Stamp Duty (SDLT) uplift and George Osborne’s now infamous S24 landlord tax and everything that went with it, landlords have certainly been feeling the heat. And if you do the wrong thing now, you’ll be walking towards the flames and not the extinguisher!

A simple Google search will reveal that landlords are being told that the only answer is to incorporate, i.e. move their property portfolio into a limited company. And, as limited companies can deduct 100% of their finance costs and the like, that would be the obvious thing to do. The trouble is that what landlords are not being told is that incorporation is a one-way street and could end up being the most expensive ‘business’ decision they ever make. Talk about jumping out of the frying pan and into the fire! Here’s why. Apart from the transactional costs (re-mortgaging, professional fees, etc.) and the significantly higher tax regime that you’ll eventually find yourself in, you’ll have to qualify for what is known as S162 Incorporation Relief. In basic terms, that means the transfer of ownership of all your ‘investment’ properties at the same time from being in your name, to that of your limited company, without having to pay CGT or SDLT in the process.

LANDLORD INVESTOR 35TH EDITION

Pretty much up until the end of 2017 HMRC was happy to give non-statutory clearance for S162 applications, meaning that you had the certainty that there wouldn’t be a massive and wholly unexpected tax bill upon completion. Sadly, that’s no longer the case, which means that you won’t know whether you have a tax bill until it’s too late to stop. When it comes to mortgages, upon incorporation you go from being a private individual with a whole raft of consumer legislation protecting you, to becoming a commercial borrower whom the law expects to be able to look out for themselves - a very different world.

When it comes to mortgages, upon incorporation you go from being a private individual to becoming a commercial borrower.

And if, perchance, you’re being told that by using a Beneficial Interest Company Trust (BICT) you can avoid the need to remortgage, then think again. BICTs constitute a breach of your mortgage terms and conditions, and some lenders have powers to call in your debt if any others do so.

TAXATION

The Transactional Costs

The Tax Position

The value of your time to one side, moving from being a private landlord to a corporate one will incur you in the following costs:

Limited Companies and the individuals within them are taxed up to seven different ways:

• CGT and SDLT if you don’t qualify for S162 Incorporation Relief • Early redemption charges

• Corporation Tax (19% falling to 17%, but could be uplifted for ‘investment’ companies, as CGT was for individuals)

• Lenders fees

• Capital Gains Tax on personal withdraws of capital resulting from selling assets (10%, 18%, 28%)

• Legal fees

• Directors Loan Account Tax (32.5%)

• Losses cannot be carried forward

• Dividend Tax (7.5%, 32.5%, and 38.1%)

Whilst not in themselves direct transactional costs, being a commercial borrower impacts you in the following ways:

• Income Tax (20%, 40%, 45%, and 60% on the slice between £100,000 and £123,000)

• Brokers fees

• Significantly reduced choice of lenders and higher interest rates • Lenders will mostly require full personal guarantees (you remain personally responsible for the debt) • Lenders will take a debenture (legal charge) over the company’s balance sheet, restricting your ability to use your director’s loan account if at all • You’re tied in to the first lender and their appetite for further lending (each new acquisition or remortgage may need a new lender and a new company if your existing lender isn’t interested) • If property prices fall thereby increasing the loan to value beyond the point to which the lender originally agreed, you’ll have to find the cash difference • Restrictions on what you can borrow (i.e. remortgage) to fund lifestyle.

• Employees and Employers NIC (12% and 13.8% respectively) • Inheritance Tax (40% - ‘investment’ companies, i.e. those that hold residential property for 12-months or more for the sole purpose of collecting rents, are fully subject to IHT) For most landlords, the above information will come as something of a shock, even though they may have already received professional advice. Already incorporated? Don’t panic, it may still be possible to reduce the ongoing tax bills, albeit that’s sophisticated accounting territory and not something that the average firm either understands or knows how to do. Thankfully though, there are alternatives to outright incorporation. You could simply stay as you are; not every landlord will suffer, and those on basic-rate tax with small loan to values

should be ok, albeit IHT and CGT will most likely remain a problem. If, however, your goal is to maximise the commercial benefits of building, running, and growing a recognised professional property business that’s fully in line with stated Government policy, and to pass it on as intact as possible to the next generation without suffering the huge disadvantages associated with Incorporation, then a ‘hybrid’ approach could work for you. When properly arranged and managed, hybrid tax and property ownership delivers a recognised business arrangement that means: • No need to remortgage or change title, thus no CGT or Stamp Duty • Tax from your property income at basic rate regardless of how much you draw • Seamless succession planning with Inheritance Tax typically mitigated within two years • Two layers of commercial limited liability and protection against family/ marital break up • Maximum commercial flexibility and choice of finance • Being fully in line with Government policy to professionalise the sector and compliant with both the letter and spirit of the law • Quick, easy, and cheap to unwind if the rules change • More money in your pocket You can complete our free assessment at Lt4l.uk/s24. If you'd like to speak to us please email info@lesstaxforlandlords. co.uk or call 0203 735 2940

if your goal is to maximise the commercial benefits of building, running and growing a professional property business, then a ‘hybrid’ approach could work for you.

LANDLORD INVESTOR 35TH EDITION

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Introducing Equity Release for Landlords

Are you a UK based buy-to-let landlord aged between 55 and 90? You could now release equity from your rental property. What would you do with a tax-free cash injection? With a new form of equity release UK landlords can now join the thousands of UK homeowners releasing tax-free cash from their properties. The funds released are yours to spend as you wish, allowing you to gift an early inheritance, bolster your income, or expand your property portfolio, all whilst retaining your rental revenue. This allows you to make the most of your property wealth, without reducing the size of your portfolio and potentially facing expensive implications of Capital Gains Tax, estate agent costs, or legal fees. How does it work? Releasing equity in this way allows UK landlords to access some of the wealth from properties they are not currently resident in whilst retaining full home ownership. The funds released are tax-free, and with no required monthly repayments you could benefit from that all-important cash boost. The plans are designed to run for your lifetime, with fixed interest rates allowing you to build an accurate projection of future costs. You can choose to let the interest roll-up over time if you wish, or, if you are concerned about the build up of interest, plans are available that allow you to make voluntary interest and capital repayments over the course of the loan without penalty. With no affordability checks or minimum income requirements, could you benefit from a tax-free cash injection?

For more information and instant calculations call us free today on 0800 011 6562

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ADVERTISING FEATURE

WWW.PASSTHEKEYS.CO.UK

Maximise rental income in 2018 - short letting is the new idea 42

LANDLORD INVESTOR 35TH EDITION

ADVERTISING FEATURE

With the latest tax relief changes on buy-to-let mortgages leaving UK landlords struggling to stabilise their yields, many are now finding opportunity to increase their returns in the short-letting market.

Short letting is defined as a tenancy of less than three months. In this case, a typical “tenant” would be tourists, business travellers or people who are relocating. In 2018 a number of landlords list their properties on websites such as Airbnb, HomeAway and Booking.com and market it to city visitors. Compared to the longterm let market, landlords could earn 50% - 100% more on the short-term let marketplace. As a reference, the median rent for a two bedroom flat on the long let and short let market are as below.

City

Median long-term rent

Median shortterm rent

London Brighton Manchester Cambridge Oxford Bath Edinburgh Bristol Glasgow York

£ 1,972 £ 1,250 £ 845 £ 1,300 £ 1,351 £ 1,175 £ 997 £ 950 £ 625 £ 750

£ 3,690 £ 2,376 £ 2,196 £ 3,150 £ 3,255 £ 2,682 £ 2,789 £ 1,980 £ 1,950 £ 1,800

Source: Pass the Keys™, Home.co.uk

How much could your property be earning? There is a free income calculator provided by Pass the Keys™ to estimate your possible short let income. Call 020 8050 2818 or go to www.passthekeys.co.uk, put in simple information of your property and you will see the figures instantly. You may ask is my property suitable for the short let market? Well, to step in, it is recommended the property is located centrally in the city as travellers are looking for a place that has everything nearby to maximise the value of their stay. City centres always see a higher and more stable occupancy rate therefore a higher income to the owner. In terms of the

LANDLORD INVESTOR 35TH EDITION

property size, a one-bed flat to a fivebedroom house would be appealing to different travel groups, e.g. a professional on a business trip to a big family vacation. It is better if a sofa bed is available to accommodate extra guests because the number of guests is one of the filters being used when searching for properties.

Pass the Keys™ also uses in-house smart pricing technology to adjust the price of your Airbnb property based on seasonal festivals in your area and how much your neighbours earn, which can dramatically increase your returns. It is a full service management service, with the promise that if you can Pass the Keys - they will do the rest.

Landlords should be aware however, of the different expectations from short let guests versus long-term tenants. For instance, guests expect fresh linens and towels, and of course, a fully furnished property. Wifi, hair dryer, kettle should be provided, not to mention the coffee table and comfortable sofas. Some hosts (landlords) even provide Netflix or a projector for guests to enjoy movies.

They are exhibiting at the National Landlord Investment Show in Olympia London on 15 March 2018 (Thursday) on Stand number 74. The company’s co-founder Zoe Vu is holding a free seminar at 2:50 pm in Seminar Room 2 on the show to talk about maximising your income through short letting. Come and meet the Host Advisors on the show day, visit www.passthekeys. co.uk or call 020 8050 2818 to find out more about how short-term letting can maximise your rental income in 2018.

Therefore while landlords can certainly increase their immediate returns with short letting, the extra workload must be accounted for: You need to manage the bookings, reply to guests’ request, check them in and out, clean the property etc. It could be a full time job and requires you as much as 40 hours per week to manage a property. Since the rise of short let economy and sites like Airbnb, the UK has responded with a new type of property management company to manage the additional work created by shortletters. Pass the Keys™ is the biggest short let management provider in the UK, serving ten cities and backed by in-house technology to manage the properties smartly and maximise landlords’ profit. The company prepares professional property listing, replies to guest requests, provides 24/7 guest in-stay support, arrange cleanings after each guests’ stay. The service aims to make hosts enjoy the extra income that short letting brings without extra hassle.

Pass the Keys™ is the biggest short let management provider in the UK, serving ten cities.

LANDLORD INVESTOR 35TH EDITION

MORTGAGES

ANDREW TURNER COMMERCIAL TRUST

Why Londonâ&#x20AC;&#x2122;s buy-to-let landlords should consider remortgaging

Buy to let landlords have had plenty of change and financial challenge to endure over the past couple of years, as a series of new laws have impacted on their investment returns. With many coming to the end of the deal period of their buy to let mortgage, there could be a wave of remortgage business over the coming months, particularly affecting London. 46

LANDLORD INVESTOR 35TH EDITION

MORTGAGES

But is remortgaging affordable and plausible for buy to let landlords? The last few weeks have seen conflicting arguments both for and against, underlining the confusing issues facing landlords. The answer lies in each individual’s circumstances and the information they are armed with, when making the decision. A recent Standard & Poors (S&P) article titled ‘Buy-To-Letdown? Recent RMBS Loans Will Struggle With The Perfect Storm Of Regulation And Tax Hikes’, suggested that, as a result of the Prudential Regulation Authority changes introduced in 2017, many landlords will now struggle to refinance to cheaper mortgage rates, as they will fail to meet stricter affordability tests. However, that theory has been blown out of the water by a new report, titled ‘Refinancing options are good news for buy-to-let market’, written by Carla Sateriale, Manager, Buy to Let at UK Finance. Sateriale states that the S&P research failed to take into account significant factors that skewed their conclusion. She wrote: “There are several reasons why we don’t see a substantial jump in loss-making mortgages. The main reason is that throughout 2014, 2015, and 2016, interest rates were driven down by intense competition in the mortgage market. A borrower taking out a 2 year-fix in 2014 could expect to refinance onto a rate around 0.9% lower in 2016. Likewise, borrowers in 2017 could refinance under cheaper deals than were available in 2015. This would have helped cushion borrowers against the higher tax liabilities they would incur starting in 2017. “We also suspect that the pessimistic view expressed in S&P’s research may be underpinned by the assumption that loans issued in the past several years would be ineligible for refinancing, due to the PRA’s new underwriting criteria. What is often overlooked is that the rules don’t apply to pound-for-pound remortgaging— so as long as there is no additional borrowing, a customer should be able to refinance even if they don’t quite meet the new criteria for stress rates. “Modelled into these results are several assumptions: that the borrower is a higher-rate tax payer, incurs taxdeductible business costs which amount to 19% of rent, and, until 2018, refinances every two years to a rate

LANDLORD INVESTOR 35TH EDITION

in line with typical market rates. In 2017/18 and beyond, it’s assumed that borrowing costs for the landlord increase by 0.25% per year. In line with S&P’s assumptions, rent levels are held constant throughout. Eight years of holding rent fixed is a major contributor to the model’s prediction of 15% of 2014-issued mortgages becoming loss-making by 2012/22. In reality, it’s quite rare for PRS rents to be fixed for such a long time.”

at possible future base rate increases, following on from the first rise in a decade, last November.

Whilst much of Sateriale’s comments ring very true, in theory, maybe in practice it isn’t so easy. This is because, when the investor initially took out their mortgage, they would have been subject to very different affordability calculations than are now in place which means that if none of the capital has been paid off during the interim period, it could be harder to secure finance under the new rules.

Historically such an event has served as a catalyst for the mortgage lenders to hike mortgage interest rates. So many landlords have considered insuring against this risk by remortgaging and locking into a fixed rate product.

However, there are other options available. A specialist buy to let broker firm will have the marketplace knowledge and expertise to investigate all avenues to find a solution and may suggest one you have not considered, or been aware of. Why London could see a surge in remortgage business this year In the early months of 2016, there was a rush from many investors to secure buy to let mortgages ahead of the April 1st deadline, when the new 3% stamp duty surcharge on second properties came into force. With London property prices significantly higher than elsewhere in the country, that meant that the subsequent stamp duty costs often ran into thousands of pounds more for London purchases. Little surprise then that so many landlords were keen to secure a purchase, before the added cost became payable. The surge in buy to let business in the run-up to April 2016 was industrywide. Many of those deals were over terms of two years and consequently, will come to an end in the weeks running up to April 1st 2018. But there are other factors which may shape a landlord’s approach, including the likelihood of further Bank of England base rate increases. The Bank of England’s Monetary Policy Committee (MPC) has already hinted

Speculation is rife that another base rate rise could occur as soon as March, although rumours have been proven wrong before. However, MPC members and Mark Carney, the Bank’s Governor, have hinted at the probability of further rates rises to combat the effects of inflation.

With buy to let mortgage rates still exceptionally low, many landlords will undoubtedly be considering their options, this is perhaps more pertinent to London, for the reasons already expressed. The UK Finance article sends a message of reassurance to buy to let investors and certainly in the right circumstances, there are good reasons for many landlords to consider remortgaging. In November 2017, Savills predicted a significant exodus of landlords from the industry over the coming years, as a result of the Government’s changes, supposedly making buy to let a less attractive investment proposition. The latest English Housing Survey reported that in 2016-17, the private rental sector was the largest tenure in London, accounting for 4.7 million households. That equates to 20% of the housing market in the Capital and 30% of people who live there, are renting privately, as opposed to 19% in the rest of the country. Making the right decision is not only crucial for the investor, but also for the millions of people who rely on the private rental sector in the Capital and elsewhere in the UK. The expertise of specialist brokers has a key part to play in navigating the complexities of buy to let and could help identify financial solutions which set landlords up for success, at a time when they are needed most. Andrew Turner is the chief executive at specialist mortgage broker Commercial Trust Limited www. commercialtrust.co.uk.

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