It may be the middle of ‘The Season’ and the social butterflies are whizzing between the Summer Party at The Serpentine Gallery, watching the Ashes, attending the Hilton/Rothschild wedding (now that must be some pre-nup) and parking their well-clad posteriors in the Royal Box at Wimbledon (if one can squeeze past the omnipresent Middleton tribe), but for those of us who do not appear regularly in Hello, Vanity Fair and their ilk, it has been a week of much to digest on the property front that may or may not affect one’s ability to flog a house. For some instead, it may be a case of flogging a dead horse. Let me explain.
Pre Gideon’s budget we had an example of what may be wrong with our society and its rewards for earnest endeavour, or let’s be frank, for doing absolutely $&^£ all. We had a second time buyer who made an offer on a house. As any professional agent should do prior to taking somebody to view a property, we checked that he had a deposit, plus funds from the equity from the sale of his house, plus a Mortgage in Principle (MIP). Having had his offer accepted, he went back to his lender of choice to complete the mortgage application. All was rosy in the garden. That is until the lender came along with industrial-strength weed killer and nuked everything within a five mile radius. Our buyer had failed because on affordability, the lender (or should one say the minion completing the form on the computer), had deemed that the cost of looking after and feeding his dog pushed him over the limit. Of course it did. For the sake of procreation! (work it out). The answer is get rid of the dog (unfair) or don’t declare the dog on the mortgage form (untruthful). Incidentally, he has had a mortgage with the lender for four years and has never missed a payment. On the same day, a young female (I would be done under the Trade Descriptions Act if I used the word ‘lady’), came in to the office to enquire about renting. She was on benefits, had three children and the DSS were going to pay her first month’s rent as she was deemed to be ‘vulnerable’. The bond scheme were going to underwrite the deposit, so the system, the state and those members who earn and pay their taxes (see Exhibit 1-the gentleman above), were funding the entire enterprise. Added to this, she wanted to know whether the landlord would allow pets as she had three dogs. I checked with the DSS and the bond scheme and neither of them had taken into account, or seemed unduly perturbed that the taxpayers were subsidising Operation Pooch. Yet the bank that likes to give that “little xtra” fell at the first when learning of the existence of one dog.
Fast forward twenty four hours and I have-after consideration, excogitation and deliberation-deemed that the future prime minister has played a blinder. Let us consider the headlines, misquotes and budget induced hysteria and soothsaying. The Budget Special in the Daily Mail Thursday 9 July 2015 hollered, “Tax Relief Blow to Buy to Let Market”. What a load of tripe. Phillip Waller reported that shares in Baretts, Taylor Wimpey and Bob the Builder Enterprises “tumbled” due to Osborne-limited tax relief on buy-to-let mortgages. There was another corker on page 9 of the same publication penned by none other than Louise Eccles (who has previous on this subject). Apparently, “…shares in house builders…estate agents… and buy to let lenders… tumbled”. Do I sense a pattern emerging here?
Firstly, any professional landlord who is a 40 or 45% taxpayer who was operating pre-budget as a sole trader and not a limited company should consider having their accountant shot and if post-budget the moves are not in place to arrange a limited company, then the said accountant should be hung, drawn and quartered and then shot.
Secondly, in Louise’s article, she religiously quotes many experts including Paul Emery at PWC who opines that, “this is going to make landlords put up rents and does nothing to resolve the issues of a lack of housing supply and credit availability which is creeping up”. ibid The Chancellor is then quoted, “Buy to let landlords have a huge advantage in the market as they can offset their mortgage repayments against their income, where as home buyers cannot”. I wholly agree on the credit situation. But. Nowhere was it mentioned that landlords pay a higher rate of tax on any annual profit and their capital gains tax liability is greater when they come to sell the property. When a home buyer comes to sell their home, there is no capital gains tax. The Big G said that these reforms would create, “a more level playing field between those buying a home to let and buying a home to live in”. People do not buy homes to let, they buy properties. Look at the dictionary definition of a home. But George knows this and is merely letting the poor saps come to the (erroneous) conclusion. Louise (whose fire is well and truly stoked by now), also decries the removal of the automatic 10% wear and tear allowance for furnished properties. So that’s one in every hundred that could be claimed automatically by ticking a box and not having to show any receipts. Again, I think that the man with the red box is well aware that any landlord worth his salt keeps all the receipts for maintenance and that this always comes to more than 10% of the rent. C’mon people, wake up.
My respect for the Chancellor is driven by the fact that, like any truly consummate politician, he does not actually mean what he says in the manner in which the great unwashed have chosen to interpret it and he wants the proletariat to come to their own conclusions about what it means for them. Anyone who is a professional landlord will/should be operating as a limited company and subjecting themselves/their limited company to corporation tax and dividends. Just check those rates out as opposed to higher rate personal tax. If a professional landlord isn’t doing this I refer you to my earlier comment about using accountants for target practice. The area that the Chancellor appears to be going after is the amateur landlord division, referred to in Louise’s article, as “the boom in amateur landlord investing in property in recent years”. ibid That’s right, because 7% yield is better than 2% interest in the bank. If any of these “amateur landlords” are basic rate tax payers then they will lose absolutely nothing and if they happen to be higher rate taxpayers, I would imagine that they are already, or soon will be acquainted with the incorporation forms. What should be noted is that, “The changes only affect residential properties and individual landlords, not those who operate property companies. The changes do not apply to properties let out as holiday homes” ibid
So the G-man has ‘appeared’ to go after those people who have made a major contribution to the housing “crisis” and as a result has tipped his cap to the left wing, property owner hating, ‘down with the capitalist pig’ brigade when in actual fact he has done nothing of the sort. If you are running your property empire as a sole trader you possibly will get what you deserve. These changes are due to come in in 2017, when, ooh, what a coincidence, the rate of corporation tax is being reduced. People, does the Chancellor have to give you an even bigger shove?
The passing of another sunrise and sunset brought news that, “House builders shares recover as buy to let clampdown fears ebb” Hugo Duncan Daily Mail Friday 10 July 2015 Well that didn’t take long.