Many landlords have vacated the industry over worries of huge tax bills and exposing themselves to more hassle than its worth but should they all be panicking?
Before I go any further, I must stress I am a mere letting agent and while I have most certainly done my homework on the matter, no information in this blog should be taken as tax advice!!! For advice, I suggest you contact your IFA/accountant to double check everything I am writing about!
Tony knows what these new landlord tax rules are like!
What’s Going On?
Lets start at the beginning: 2017/18 saw the start of an start of the new tax regime. Before this, landlords were allowed to deduct mortgage interest and other allowable costs from all rental income received prior to being taxed. Good old spreadsheet Phil took objection to this and decreed that landlords should not be allowed to do this and thus came the purge of landlords! This does not include the stamp duty surcharge of +3% to anyone who dares aspire to own more than one property i hasten to add!
As of 2020/21, landlords will be taxed on their full rental income rather than rental income less mortgage interest. “What is the impact on me?” I hear you say. Well, that depends on position regarding your property:
Those that will be hit hardest!
- Higher Rate Tax Payers
- Landlords with high mortgage costs in comparison to low rental income
- Landlords who may become higher rate tax earners due to the changes
One thing that should be mentioned is that, despite all your rental income now being taxed rather the “income minus mortgage interest”, there is some mortgage interest relief applied post tax calculation. Therefore, if you’re earning £x from your rental property, once you have taken off your allowable expenses, you calculate your taxable income THEN you can then apply the Mortgage interest relief at 20% (basic rate). This amount is then offset against the tax calculated. Does that make sense? To summarise, we now have the following:
Rental Income minus allowable expenses = Taxable Rental Income.
Taxable Rental Income is taxed at the rate depending on your financial situation = Tax Due.
20% of mortgage interest can then be subtracted from your Tax Due.
You can then see what you must have over to the Exchequer and what will be due to you.
So Now What?
So getting back to the initial question: Should all landlords be running for the hills and sell their rental property? I would say it depends on your circumstances most certainly but one should also look at the industry as a whole and not just these set of rules. It is well publicised that landlords are exiting the market at a fairly alarming rate (click here). This may be because lots of landlords are focusing on the capital growth of housing and the impending doom of Brexit (or what the media would have you think is the impending doom). Comments from the Governor of the Bank of England regarding the effect a “no deal Brexit” on the housing market was quite shocking to say the least (see the BBC for more information here).
But I don’t Want To Not Be A Landlord!
However, as we wrote in September 2018 (click here), there is cause for optimism with rental prices expected to rise by 15% in the next 4 years. If landlords do stay the course and are set up correctly as to not be clobbered by tax changes, there is still strong scope for money to be made. It is also important to note that without a healthy rental market, the housing market will collapse. The Help to Buy bubble can not be indefinitely sustained and while builders are making their billion pound profits, not much consideration has been put towards what will happen if the housing market values collapse, especially if there are nor rental properties available. But that’s a topic for another days blogging!
Thanks for Reading
I hope this has been informative and useful. For all property related queries, please contact WitLet on 01376502500 or email us at [email protected] and we will endeavour to help out. Alternatively, follow us on Facebook back clicking here
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Most parents will tell you that you never stop worrying about your children, even after they’ve long flown the nest. Given how difficult it can be to get started on the property ladder for most people in their 20s or 30s, the Bank of Mum and Dad are increasingly getting involved to give their children the best possible chance of buying that important first home. But with the average deposit for a house in Britain currently standing at a dizzying £51,000, parents need to simultaneously make sure that they protect themselves financially before committing their own futures for the sake of their offspring. With that in mind, here are our top tips for helping your kids to get onto the property ladder:
Bring your children back home (briefly!)
It can be very difficult to save up enough cash for that first home when living in a rented property, purely because the cost of living in Britain can be difficult to manage even if you’re a couple who are both in full-time work. One easy way to help your child and their partner to save some money is to welcome them home for a period. Of course, we can’t help you draw up a washing-up rota, but taking away big costs such as rent, bills and even food expenditure will instantly help them start putting away the money required to get them started.
Gifting our lending them the money
If you’re able to, the benefits of gifting or lending your children money can be huge, as a large sum of money could mean the difference between being able to secure deals with lower interest rates.
However, this option can be potentially difficult to navigate on a personal level, and comes with a strong recommendation of confirming your agreement with your children and their partner prior to any money changing hands. Make sure you confirm that you’re either gifting or lending them the money beforehand, and if it’s the latter, then set up a repayment plan for your own piece of mind.
A Declaration of Trust document is a good way of confirming this, and it can clearly state who owns what part of the property in the event that your child separates from their partner and the home is sold.
Buy the home with your child
If you’re concerned about the long-term implications of giving your child a lump sum, or are unable to make that sort of financial commitment, then a joint mortgage is a good way of sharing the responsibility. In this case, you and your child are both liable for paying for the loan made to purchase your home, and you can come up with a financial plan for repayment that suits you.
Remortgage your own home
This is another option open to you in order to provide you with a lump sum of cash, which can be a huge help when it comes to putting down that all-important deposit. Again, it’s one that comes with strings attached, given that you will have an increased number of payments to consider, including arrangement fees and interest on a higher mortgage rate.
Whichever route you choose when trying to help your children get onto the property ladder, gaining independent financial advice is strongly advised to make sure that you’re making the correct decision for everyone. Helping your children to buy their first home is an important, personal experience, and one that deserves to be as stress-free as possible.
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DIY, decoration and renovation comes hand in hand with owning a home, for some it’s a joy, for others it’s a hassle, but home upgrades are inevitable.
There are many ways to improve a home, from the simple task of changing a room’s colour scheme to fitting an entirely new kitchen, but which improvements are the most popular?
A recent survey looked into the work carried out by UK homeowners across the last 5 years and revealed which projects are the most common.
According to GoCompare Home Insurance, the majority of work carried out in UK homes are cosmetic upgrades (68%) while just over a third of work carried out on a home (38%) falls into the category of essential maintenance.
Following this, it is no surprise that the number one job that has been undertaken by 50% of homeowners across the last 5 years is interior decoration and it’s clear that a new lick of paint can go a long way.
Taking 2nd place in the top 10 with 31% is the task of replacing the flooring with new carpet or hardwood flooring. An upgrade that is somewhat expected as another survey recently revealed that worn flooring can be one of the biggest put-offs for a buyer when viewing a property
The 3rd most common improvement is arguably the most expensive of the bunch, with 29% choosing to install a new bathroom.
Other upgrades that were quite popular included tasks such as a garden makeover, fitting a new kitchen and installing a new boiler or central heating system, all of which were chosen by 25% of survey participants.
Moving towards the bottom of the table and chosen by 21% of homeowners was new windows/double glazing, an upgrade that not only improves the aesthetics of a home but also can help with energy efficiency.
The final 3 to make the list were installing a new shed or garden building (16%), Exterior redecoration (13%) and Improving the insulation (13%).
So, what does this top 10 list reveal? Well, it shows a clear desire for both style and efficiency, while most upgrades are down to homeowners wanting to add their own personal flair to a home, there is a good number of upgrades that ensure the property isn’t wasteful when it comes to heating.
This survey also shows that as a nation we aren’t afraid to get stuck into the bigger projects and renovate a property to make feel more like a home.
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