Friday, 29 January 2016

Beat the tax trap by owning buy to let properties in Aylesbury through a company

From time to time I come across articles that are worth sharing with landlords. On this occasion Keith Witchell has agreed I can post his article for your benefit on the Aylesbury Property Blog...

Following changes to tax relief for buy to let properties announced in last year’s Summer Budget, individuals that own rental properties are being hit hard. Here’s a quick re-cap of the forthcoming changes:

Tax relief for mortgage interest on a buy to let property to be restricted to 20% by 2020;
10% wear & tear allowance for furnished lettings to be scrapped from April 2016

In addition we have the 3% stamp duty hike on second properties which arrives in April and, although this equally applies to limited companies (in most cases), it is fair to say that higher rate taxpayer property owners are being targeted by the taxman.

So what can you do about it? One option is to own properties through a limited company, which pays 20% tax on its rental profits and is not affected by the mortgage interest relief restriction mentioned above.

In the past owning properties through a company was not tax efficient in most cases, due to the much feared double tax on the increase in value of the properties when sold. This is because the company will pay Corporation Tax on any capital gain made when it sells a property PLUS the shareholders would pay income tax (in most cases) when they withdraw the profit as dividends. This compares unfavourably to the capital gains tax that an individual property owner would pay.

However, there have been lots of changes over recent years that make property ownership via a company more attractive.

Firstly, companies get indexation allowance which allows property values to increase by a measure of inflation (linked to RPI) before any tax is due on the increase in their value. Individuals do not get indexation allowance, although they do benefit from the Capital Gains Tax annual exemption.

Secondly, if rental profits are not used to supplement income but instead are saved up to buy further properties, then company ownership works well as Corporation Tax is at 20% and there would be no personal tax for the company owners to pay. Compare this to 40% tax on rental profits for many investors and the company structure starts to make real sense.

Thirdly, we have the new dividend allowance. From April 2016, even higher rate taxpayers can earn up to £5,000 a year in dividends tax free. So if the investor is a higher rate taxpayer already and they are not using the dividend allowance on any other shares, then holding their properties via a limited company allows them to withdraw some money from the company tax free each year, effectively meaning the tax on rental profits remains at 20%.

Fourthly, the Corporation Tax rate is due to reduce from 20% to 18% by 2020.

Taking the above factors and then adding in the changes to mortgage interest relief for individual property owners really builds a case for company ownership. Plus it is a very flexible structure, allowing other family members to hold shares.

In addition, for people who already have a trading company and intend to use funds from that company to invest in buy to let properties it often makes sense to form a group of companies with a separate property company that sits alongside the trading company. By doing so the funds for the purchase do not need to be withdrawn from the trading company and therefore personal tax can be avoided, while the properties are effectively ring fenced from the trading activities.

So are there any downsides? The main downside is that the property company will need to prepare annual accounts and file these at Companies House together with an Annual Return, plus a Corporation Tax return will need to be prepared and submitted to HM Revenue & Customs. This all represents an annual administrative burden/cost which is likely to outweigh the tax benefits of company property ownership for those with only one or two properties. However, for those with three or more properties the company ownership model really starts to make sense.

A further downside is that there are fewer mortgage lenders that will lend to limited companies and therefore interest rates tend to be higher. However, with more and more people looking to own properties via a company demand is increasing and more lenders are expected to enter the marketplace which should drive interest rates down.

Is there anything else to consider? One important point is that if you already own properties personally then transferring them to a company will generally be subject to stamp duty based on their current market values (with a 3% hike in stamp duty rates from April!). Capital Gains Tax is also triggered, although this can be avoided in some cases using incorporation relief.

Keith Witchell

Keith Witchell ACA FCCA CTA

What does the Aylesbury tenant look like?

What does the Aylesbury tenant look like?” asked one of my landlords from Lower Hartwell yesterday. He carried on before I could reply, “Let me guess, a professional couple, both in their 30’s, flawlessly tidy, pays their rent early, do not complain or fuss, who has no plans to move and cheerfully accepts annual rent rises”!

Before I can answer that question properly, I have always believed all a landlord wants (and expects) of their tenants is that they pay their rent on time and look after the property as if it were their own. In return, the tenant expects the landlord should provide a property that is warm, clean, modern and damp free and resolve any issues (such as repairs) quickly and without fuss. 

Back to the tenants – tenants tend to fall into several groups ... 20 something professionals; young and middle aged families; corporate tenants (i.e. their employer finds their employee a house to live in); students; older singles/couples and housing benefit claimants – and they come with different needs and wants. So choosing who best suits your Aylesbury property – and steering clear of those tenants that do not match your criteria – is a big factor in making property investment a success.

One topic that I am often asked is should a landlord, accept tenants on housing benefit?

It might interest the landlords of Aylesbury that of the 8,096 private rented properties in the local council area, 24.6% of the tenants of those properties are in receipt of some form of housing benefit. (1,993 properties to be exact).

I know many landlords have suffered late rent payments with tenants on benefit, especially since 2008, when local authorities started paying housing benefit to tenants rather than directly to the landlords, but you cannot ignore the fact that housing benefit tenants make up a significant proportion of the Aylesbury rental population. Equally there are non-benefit tenants that pay late. The final choice of accepting any tenants has to be the landlords.

Interestingly, it might surprise some readers of the Aylesbury Property Blog, when we compare Aylesbury to the national picture, Aylesbury’s number of Housing benefit claimants are lower, as nationally a higher proportion of private tenants claim benefit. Nationally, 39.2% of the tenants of the 3,891,467 rental properties in Great Britain claim some form of housing benefit (i.e. 1,526,915 properties).

Now, let us look at the occupations of Aylesbury tenants, which makes even more fascinating reading. Of the 8,096 privately rented properties in the Aylesbury area, 6,827 head tenants (the head tenant being classified as the head of the household) are in employment (the other 1,269 rental property head tenants either being retired, long term sick, students or job seekers).

Splitting those 6,827 head tenants down into their relevant professions, 3,209 of them are Managers, Directors, Senior Officials, Professional or Technical Professions, 544 in Administrative and secretarial occupations, 1,002 in Skilled Trades, 596 in the Caring, Leisure and other service occupations, 393 Sales and Customer Service Occupations, 470 Process, Plant and Machine Operatives and finally, 613 in Elementary Occupations.

The one thing I have always known anecdotally, but until I did my research, never had anything to back it up with, was the high proportion of professionals and skilled trades renting property in Aylesbury.

As a landlord you need to decide what sector of the market you are trying to let to. Most landlords have a preferred tenant type and will buy property to suit their desired tenant.

For example many landlords have come to me over the years wishing to buy a property close to Stoke Mandeville Hospital so they can let to medical staff, however most of these staff are not paid well enough to be able to afford the rent unless they share and many landlords see sharers as problematic.

To discuss your investment needs, what property you should be buying and your ideal tenant please give me a call or pop in to the office when you are passing.

Sleepy husky, a rare sight.

Friday, 22 January 2016

Aylesbury Landlords count the cost of a Tory Election win

Can you remember 10.05pm on Thursday, 7th May 2015 ... with the shock news that BBC Exit Polls suggested the Conservatives would be returned with a majority? The middle classes exhaled a huge sigh of relief, as Aylesbury landlords, faced with rent controls from Red Ed and the Labour Party, now had something to cheer about. The Tory’s were always considered to be a political party that accepted the importance of the rental market, supported its development while properly targeting the lawbreaker landlords renting out below standard rental accommodation.

Since May though, George Osborne has announced future rises in stamp duty for buy to let landlords and a change in the interest relief on buy to let mortgages, some people have started to question that loyalty. However, things could have been a lot worse for Aylesbury landlords as previous ideas of making landlord’s pay more tax was the idea (which was seriously considered) of increasing Capital Gains Tax rates to the landlord’s own income tax levels. If Landlords would have had to pay capital gains tax of 40% to 45% on any uplift in value, that would have made investing in property a non-starter for almost everyone.
However, the loss of mortgage higher rate tax relief will make a number of properties not stack up financially. The new rules are likely to slow demand in the Aylesbury housing market, which is in fact good news for some landlords, as there will be less competition.
Just a thought, but making Aylesbury landlords think twice and run their numbers more cautiously is not such a bad thing.
So looking at the numbers, the November figures have just been released and they show a growth of property values in Aylesbury of 0.8% over the month of November. That figure doesn’t surprise me due to the time of year. It’s quite dangerous to look at one month in isolation, so looking at a more medium term view, over the last 12 months, property values in Aylesbury have risen by 8.7%, not bad when you consider inflation is running at -0.1%.
However, regular readers of the Aylesbury Property Blog know my passion for looking deeper into the stats. The really interesting information is the value growth, but what types of property are actually selling in Aylesbury?  Looking at all the properties sold, as recorded by the Land Registry, within 2 miles of the centre of Aylesbury in September 2015 (this data always runs a couple of months behind the house price data) compared to September 2007 (a couple of months before the credit crunch started to bite and the subsequent property crash).

Sept 2007
Sept 2015
Detached in Aylesbury
+ 25%
Semis in Aylesbury
Terraced Houses in Aylesbury
Apartments / Flats in Aylesbury

 Now I have mentioned in previous articles that the numbers of properties selling in the Town has certainly dropped post 2008, but what amazed me were the drop in the number of semis and apartments selling in Aylesbury compared to the sales of detached and terraced properties.
Fewer properties are selling than last decade in Aylesbury and the types of properties selling have changed ...interesting times ahead for the Aylesbury Property market! 

Therefore, all I can say to the landlords of Aylesbury is do your homework, make sure the numbers do stack up, take advice and opinion from professionals and above all, for those of you planning to add to your portfolio, buy the right property at the right price. One place for such advice and opinion on the Aylesbury Property market is the Aylesbury Property Blog
Ooh that's something new!

Tuesday, 19 January 2016

Aylesbury apartment in Hilda Wharf with higher than average yield

Aylesbury gross rental yields average around 4% to 5% although some of this is being eroded by the high prices in the sales market the high rental figures achievable seem to be making a strong effort to maintain this average. Therefore you could do worse than buy an apartment that is already at the higher end of that average especially if you prefer yield over capital growth. Rental around £750pcm asking price £169,950, gross yield 5.29%
I have owned a property here myself for some years and it has always worked well for me.

Hilda Wharf, Aylesbury, HP20 1RJ

 Hilda Wharf is situated just off the High Street in a most convenient location with both the town centre and railway station being within a short walk.  The Tesco supermarket on Tring Road is within easy walking distance of the property and the local bus route can also be found nearby.
This well planned first floor apartment is offered for sale with no upper chain making it an ideal first purchase or buy-to-let investment.  Internally the property offers good sized accommodation including a lounge with separate dining area, refitted kitchen, two bedrooms and bathroom.  Outside there are well maintained communal gardens and allocated parking for residents together with further spaces for visitors.
For fuller details
If you want to discuss the numbers or are looking for investments of a different type please give me a call 01296 398555 or pop in to see me
UPDATE 19/01/2016 Sorry this property is already under offer

Monday, 18 January 2016

Where will Aylesbury Property Prices be by 2021?

I was having lunch the other day at the Chequers Inn , Weston Turville, with a local Aylesbury solicitor friend of mine, when the subject of property inevitablity came up. He asked me my thoughts on the Aylesbury property market for the next five years.  Property prices are both a British national obsession and a key driver of the British consumer economy.  So what will happen next in the property market? Here is what I told him, and now share with you.
Before I can predict what will happen over the next five years to Aylesbury house prices, firstly I need to look at what has happened over the last five years.  One of the key drivers of the housing market and property values is unemployment (or lack of it). That drives confidence and wage growth – key factors to whether people buy their first house, existing homeowners move up the property ladder and even dictates whether buy to let landlords have an appetite to continue purchasing buy to let property.
When the Tory’s came to power in May 2010, the total number of people who were unemployed in town stood at 1,489 (or 2.6% of the working age population in Aylesbury parliamentary constituency). Last month, this had dropped to 610 people (or 1.0% of the working age population).
As the Aylesbury job market has improved with better job prospects, salaries are rising too, growing at their highest level since 2009, at 3.4% per year in the private sector (as recently reported by the ONS).  That is why, even with the turbulence of the last few years, property values in the Aylesbury area are 25.62% higher today than they were five years ago.
Many home occupiers have held back moving house over the past seven to eight years following the Credit Crunch but with the outlook more optimistic, I expect at least some to seize the opportunity to move home, releasing pent up demand as well as putting more stock onto the market. With a more stable economy in the town, this will, I believe, drive a slow but clearly defined five year wave of activity in home sales and continued house price growth in Aylesbury.

I forecast that the value of the average home in Aylesbury will increase by 22.2% by 2021.
22.2% might sound optimistic to some, but according to Land Registry, values are currently rising in Aylesbury at 8.1% year on year, I believe my forecast to be fair, reasonable and a reflection of both positive (and negative) aspects of the local property market and wider UK economy as whole.

However, it would not do not to mention those potential negative issues as I do have some slight concerns about the future of Aylesbury housing market.  The number of properties for sale in Aylesbury is lower than it was five years ago, restricting choice for buyers (yet the other side of the coin is that that keeps prices higher). Interest rates were being predicted to rise around Easter 2016, but now I think it will be nearer Christmas 2016 and finally the new buy to let taxation rules which are being introduced between 2017 and 2021 (although choosing the right sort of property / portfolio mix in Aylesbury will, I believe, mitigate those issues with the next taxation rules).
I am telling the landlords I speak to, that with interest rates at their current level 0.5%, the cash in your Building Society Passbook is going to grow so slowly that it might as well be kept under their bed. Property prices, by contrast, have rocketed over the years, even after the property crashes, far outstripping bank accounts and inflation.
So my final thought ...  property is a long term investment, it has its’ up and downs, but it has always outperformed, in the long term, most investments. Those in their 40’s and 50’s in Aylesbury would be mad not to include property in their long term financial calculations. Just make sure you buy the right property, at the price in the right location. One source of information on such matters would be the Aylesbury Property Blog ...
I think I have her attention

Friday, 15 January 2016

Aylesbury landlords...Something for the weekend

A great opportunity for landlords who do not mind doing a bit of work. Need to put in new kitchen, bathroom, carpets and decorate throughout. General tidying up throughout.

26 Palmer Avenue, Aylesbury HP19 8EF

This excellent and well proportioned two bedroom semi detached property is offered for sale with no upper chain and does require a degree of updating.  On the ground floor there is a good size lounge/dining room and a kitchen whilst on the first floor there are two good size double bedrooms and a bathroom.  A particular attractive feature of the property is the delightful rear garden which extends to approximately 50ft in depth and backs onto park land.
Full details available via Rightmove
If rented once updated you could expect around £900pcm giving a gross yield of around 4.5% and sensible opportunity for capital growth.
If you are considering a purchase to let in Aylesbury and want to give your figures a sanity check please give me a call 01296 398555. The archive pages of this blog are likely to answer many questions but please call me if you need something that is not available..
UPDATE 19/01/2016 Sorry this property is already under offer

Tuesday, 12 January 2016

A great buy for Aylesbury landlords with 5.2% gross yield.

55 Stoke Road, Aylesbury HP21 8BL

This superb three bedroom terraced Victorian home has recently been the subject of a comprehensive modernisation program and is now ready to move straight into.  The property benefits from gas fired central heating to radiators, refitted kitchen and bathroom, re-wiring and many other improvements.  On the ground floor the entrance hall leads to two good sized reception rooms and in addition there is a nicely refitted kitchen, utility area and bathroom.  On the first floor there are three good sized bedrooms.  Outside the property enjoys a pleasant low maintenance courtyard garden  to the rear.

Being close to the town offsets the lack of car parking on site so finding tenants who walk to work in town should not be an issue. Having just been refurbished initial and medium term maintenance should be at a minimum.
The rental market as we know remains strong and I would see this letting very readily at £900pcm or perhaps even a little more. At £900 the property offers a very respectable gross yield of 5.2%, higher than the Aylesbury average.
More details and pictures available via Rightmove or call the sales team on 01296 398555

Just turn up on the day, no appointment needed
55 Stoke Road, Aylesbury HP21 8BL
UPDATE 19/01/2016 Sorry this property is already under offer

What does 2016 have in store for the Aylesbury Property Market?

Aylesbury house prices up or Aylesbury house prices up a lot? ... and by how much? Those of you who read the Aylesbury Property Blog will know I am not the sort of person who pulls punches nor someone who ever fails to give a forthright and straight talking opinion – so here are my thoughts for the 19,022 Aylesbury homeowners and landlords.

The average Aylesbury property is 8.1% higher today than it was a year ago, but when you consider inflation is currently running at -0.1% (i.e. consumer/retail prices are dropping) and average salary growth is only around 2.5% pa, this is bad news for first time buyers. Property affordability continues to decrease (although I read in The Times that wage inflation (i.e. salary growth) is showing signs of weakening). I think highly paid high ranking civil servants and bankers are doing their level best to increase this average.
Some commentators have said the higher stamp duty taxes announced a few weeks ago in the Autumn Statement for buy to let landlords, concerns over first time buyer affordability and the outlook for UK interest rate rises in 2016 will really dampen the property market. I hope you all read my previous article about what the new stamp duty rule changes would REALLY mean for Aylesbury landlords in my blog, but I believe the real issue in the Aylesbury property market is the shortage of property to buy. People either worry there will be no suitable house to move to, or at least not one they can afford to upgrade to. However, on the supply side, Mr Osborne said in his Autumn Statement that he will change the planning laws to ensure the government meets the pledge made at the General Election (back in May) of 200,000 new homes a year.  All I can say is ... good luck George hitting those numbers!
Why? Because houses take years to build ... not months ... so George and his fabled house building aside, where does that leave us in Aylesbury in 2016?
Well, talking of supply ... whilst Mr Osborne builds his properties (a week doesn’t go by without him being filmed on a building site with a high viz jacket and hard hat building a house here and there!), let us look at the shortage of properties for sale. Back in July 2011, 1,006 properties were for sale in Aylesbury ... today that figure is 235. On the face of it, this means there is considerably less choice for Aylesbury buyers – but it also means a restricted supply of properties for sale and it keeps property prices high for Aylesbury house sellers.
Back in July 2011, the average property in Aylesbury took 92 days to find a buyer ... latest figures state this has dropped to 53 days, a drop of 43% in how long it takes to find a buyer. However, when you delve even deeper, the best performing type of property today in Aylesbury is the 3 bed, which only takes 45 days to find a buyer (on average) compared to the 4 bed, which takes 94 days. It just goes to show, even though the average has dropped since 2011, how varied that change has been!
However it is worth noting that these are average timescales and in our recent experience much of what is selling is doing so in just a few days…and often in excess of the original asking price.
What about all the tax regime and Stamp Duty changes? Well it seems to me that there is no agreement on the impact this will have on the market, ask ten pundits their opinion and guess what you get ten different opinions. Some will buy/sell now some will wait and see what happens…net result? impact.
So, back to the question everyone is asking...What will happen to property values in Aylesbury in 2016?  I suggest they will rise between 6.5% and 7.5% ... nothing out of the ordinary, but unless something cataclysmic happens in the world, 2016 will be like 2015! The property market pricing will be driven by a lack of supply rather than an increase in demand. The demand has remained fairly constant relative to supply over the last few years it is the lack of supply that has driven prices upward.
A pensive Nala before walking.
For more thoughts, opinions and views on the Aylesbury property market ... visit the Aylesbury Property Blog  Or pop in and see me when you are passing our Temple Street office.

Thursday, 7 January 2016

A stunning house on Wendover Road, Weston Turville.

Being in the property business every now and again you see a house that ticks all your boxes. This house does that for me. A stunning large kitchen open to dining room, great for entertaining. Generous bedrooms and enough of them to use one as a study. Big enclosed garden for Nala the Husky to run around in. Good parking area for multiple vehicles, good location.

Picture 2

Picture 4Picture 5Picture 10Picture 18

Full details are available on Rightmove
If it ticks your boxes you will need to contact the selling agents at Fine & Country not me.

Aylesbury Landlords could be fined £291,000 per year

“Who would want to move to Aylesbury in weather like this?” was what one landlord said to me as we shook hands outside his property, the other afternoon. It was windy, cold, dark, it had been raining most of the day and it was the last appointment of the day at 5.45pm. I will admit, as I had been out of the office all day, I was looking forward to getting home, putting the fire on, and watching telly with a big mug of tea… but this landlord lived in neighbouring Tring and this was the earliest he could do. 

It turned out he had been self-managing the property over the last few years, but was concerned with all the new legislation that had been introduced recently and that there was more to come. He was particularly concerned about the up and coming ‘Right to Rent’ legislation, so as his tenant had handed in their notice recently, on this new tenancy he called us for our opinion.
For those Aylesbury landlords that don’t know, landlords will need to check the immigration status of any new tenants moving into properties from February 2016 or face a £3,000 fine. It is called the 'Right to Rent' rules. However, tenants should also be aware that as well as traditional landlords, tenants who sub let rooms and homeowners who take in lodgers, must also check the right of prospective tenants to reside in the UK.
Our landlord from Tring wanted to know how much of a real issue was ‘Right to Rent’ in Aylesbury. I was able to tell him, the last available figures (from a couple of years ago) show that 97 people (whom were registered as Non-UK Born Short-term Residents) moved into private rented accommodation in the Aylesbury Vale District Council area in one year alone. If all of those people weren’t supposed to be in the UK, that would be a fine of £291,000 to the landlords of the town.
It doesn’t sound a lot when you think there are 71,977 residents in Aylesbury, and of those, 60,744 people (or 84.39%) were born in the UK. But Aylesbury is a cosmopolitan town as the country of birth of the residents in Aylesbury can be split down as follows:

·         UK                                                                          84.39%
·         Ireland                                                                     0.87%
·         Europe                                                                     4.50%
·         Africa                                                                       2.81%
·         Middle East and Asia                                            6.08%
·         Americas and Caribbean                                      1.10%
·         Australia and Pacific region                                 0.27%   

However, it must also be recognised that landlords, by checking up on tenants, could potentially be accused of discrimination under the Equality Act. This is a real minefield for landlords, especially when you consider that not all of the 3,239 Europeans in the area necessarily have the right to live in the UK either. 
In a nutshell, Aylesbury landlords will need to check and retain copies of certain documents that show a potential tenant has the right to live in the UK. These include ...
·         UK Passport
·         EEA Passport/Identity card
·         Travel document or Permanent Residence Card showing indefinite leave to remain
·         Paperwork from Home Office stating their Immigration status
·         Certificate of registration or naturalisation as a British citizen. 

The new law will target dishonest landlords who repeatedly fail to carry out Right to Rent checks by making it a criminal offence. This means they could face imprisonment for failing to check on their tenants. That is why more and more landlords are asking agents to manage their properties, so they can stay the right side of the law.
So what did our landlord do?
Well after our chat, he asked us to find a tenant and manage the property for him - he had been reading the Aylesbury Property Blog for a while and because of the knowledge we impart to the landlords of Aylesbury, we obviously know what we are talking about.  Even better news for him, though this would cost him agency fees, we were able to get him a higher rent per month for his property.
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Nala enjoying the sights from Coombe Hill