Welcome to this week’s post about UK Landlord tax changes in 2017, it’s another biggie Рupcoming changes to tax law which unfortunately will affect Landlords of all shapes and sizes, whether you live in the UK or somewhere warmer.

Accidental Landlords (let-to-buy or inheritance) and overseas investors would seem to be the biggest losers.

Accidental Landlords will now only have 18 months of private residence relief (compared to 36) before they qualify for Capital Gains Tax (CGT). This is relevant where Landlords previously lived in the rental property from April 2014.

Any expats in the house? There will be CGT due on any sale or disposal of all or part of the property from April 2015. Previously any overseas Landlord was exempt from tax. Osborne stated this was about ‘fairness’ rather than ‘personal tax changes’.

Further misery unfortunately for expats:

  1. You will likely be paying a higher amount of GCT than the rest of us. Osborne is considering 20%, compared to the basic rate of 18% for UK residents and higher rate (40%) and additional rate (45%) are charged 28%.
  2. You will lose the Annual Exempt Amount – a personal CGT allowance deducted from any chargeable gain which is currently £10,900.00 (for tax year 2013-2014). At 20% this will add £2180.00 to the CGT bill.

So what are the changes being brought in?

Landlords who have a mortgage will pay more tax, those who have no mortgage will not be affected. The Chancellor wants to tax Landlords on turnover as opposed to profit, as ridiculous as it sounds this means that tax will be payable on non-existent income.

Middle class savers who have invested in property and become Landlords will be hardest hit, dependent on the size of the mortgage. The Treasury estimate it will affect 1 in 5 Landlords.

When?

Gradually over 4 years from April 2017 so there is a bit of time to play with.

What are the options?

  1. Selling if the return becomes too low. A large % of Landlords in the UK fall into the above bracket, an increase in stock to buy is great for that side of the market and perhaps this is the Chancellor’s plan given the property drought. The only issue is that the current values are generally too high for families and first time buyers so the most likely buyers are wealthy investor Landlords. If the increase in stock is sufficient it will reduce values overall, this in turn will further reduce rental stock for the 8 million or so UK Tenants.
  2. Reducing the mortgage. Those Landlords who have more than one property could liquidate some of their assets with the aim of reducing the mortgage for one or more of their remaining properties. The lower the mortgage the higher the profit margin.
  3. Increasing rents. Given that the majority of rental property is owned by the described Landlords above this is quite likely in the short run and would put further strains on Tenants paying increasing rents.
  4. Move to a tax haven, yes that would be nice.
  5. Seek reductions on property letting agent costs to increase profit. This is a competitive market and I know some Landlords who are paying as much as 12% (before VAT) for the Managed service in this area. Seek and thou shalt find…

Who will benefit?

It certainly will not be Landlords with large mortgages and quite likely not Tenants due to potential for increase in rent and reduction in stock. The most likely beneficiaries will be wealthy investors who are able to take advantage of any stock coming onto the market and buy without a mortgage, as well as the likely rent increases.

One positive effect could be that those properties which maintain good returns despite the new tax will increase in value.

Why are they really doing this?

I read recently that the Housing Benefit bill could reach £200bn by the point today’s 1st year University students retire in 2066, from £24.4bn in today’s money (1/4 of the 2015-2016 budget). If you own your own home you can use the equity to pay for care in old age and that might be an indicator as to why Govt want more home owners.

The Treasury’s aim is to “reduce the distortion between property investment and investment in other assets, and reducing the advantage landlords may have in the property market over ordinary home buyers”.

How do I petition against these tax changes?

It’s funny you ask, click here. We need to get to 100,000 before it triggers a debate in Parliament.

Final word

I hope this is of some use to you, needless to say I recommend you seek the advice of a professional accountant to be 100% certain of where you stand and what you can do about it.

Next up will be a short piece on the Non-Domestic Landlords tax changes made in April 2015.

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