Primas Law is urging landlords and property developers to seek legal advice about potential stamp duty rebates on ‘uninhabitable’ second properties after a landmark tribunal case. A recent ground-breaking case, between P N Bewley Ltd and HMRC, held that properties that are not immediately habitable at the time of completion do not constitute as a “dwelling” for the purpose of the Finance Act 2003.
This finding could have major implications for the UK housing market, according to Primas Law, as the decision meant that P N Bewley was not liable to pay the additional 3% stamp duty surcharge applicable to second homes. It could mean that those who have paid stamp duty on similar uninhabitable properties – including potentially thousands of landlords and developers – may have paid an inappropriate level of tax and could seek to reclaim them.
Consequently, Primas Law is being instructed to act for a large and growing number of landlords and developers seeking to recover stamp duty paid for properties that, potentially, should not have attracted the additional tax.
Daniel Thomas, Head of Litigation at Primas Law, said: “To provide more context to this particular case, the property that P N Bewley purchased was a bungalow and a plot of land in Western-super-Mare.
“The company’s intention was to demolish the bungalow and build a new dwelling on the land with planning permission already being granted. The bungalow was essentially a derelict building that had been unoccupied for around three years.
“The tribunal was provided with photographs of the derelict building and these demonstrated the heating system, radiators, floorboards and pipework had been removed, and that the property – both internally and externally – was in a very poor condition.
“It was also provided with reports from surveyors that concluded asbestos was present in the property and urgently needed removing.”
If you are a developer and are buying property unfit for habitation, then this law could definitely apply, but you may need to use a solicitor who is up to date with property law, as most who simply deal with run of the mill conveyancing may not be aware of this law, or not familiar with the process of appeal, meaning that you could potentially pay out many thousands that you need not pay.
Germany’s rent controls place strong restrictions on in-tenancy rent increases, while the ‘rent brake’ introduced a couple of year ago makes it harder for landlords to charge higher rents when re-letting a property. But would a similar system work as far as the UK’s rent control system is concerned?
Last week the German finance minister Olaf Scholz voiced his support of a controversial five-year rent freeze to tackle the increasing cost of living in the city.
The aim, according to Scholz, is to ensure that Berlin does not ‘end up like London’.
In the last five years, London rents have increased from an average of £1,530 a month to £1,679 – an increase of 2.44% annually.Should this growth trend persist for a further five years, it would push the average rent in the capital to £1,894 a month.
However, the implementation of a five-year rental rate freeze would see London tenants save a total of £7,620 in rental costs, according to the research. Tenants in Newham stand to save the most, with rents increasing by 6.95% on average in the borough over the last five years, an increase of £329 in the monthly rent. If this continues, the average rental price could hit £1,977 a month in five years, but a freeze would see tenants save a notable £19,413 as a result.
A five-year rental rate freeze would also see a five-figure saving for tenants in Barking and Dagenham, Hackney, Waltham Forest, Tower Hamlets, Redbridge, Kensington and Chelsea, the City of London, Havering, Lewisham, Southwark, Enfield and Ealing.
Oxford tenants would benefit with a rental freeze saving totalling £17,746 over the next five-years. The average rent in Oxford over the last five years has increased at an average of 7.3% a month, second only to Manchester at 8%, which could see Oxford’s rental costs hit £1,741 a month.
Bristol has also seen a sharp increase in rental prices, up 6.75% annually over the last five years. A similar growth trend would see the average monthly rent hit £1,489 however, a five-year rental freeze would save tenants a total of £14,294. Tenants in Manchester, Oxford, and Newcastle would also enjoy a five-figure saving.
Tom Gatzen, co-founder of ideal flatmate, said: “The figures suggest that should such a rental rate freeze be introduced in London and the wider country, the saving for tenants could be considerable. This saving could go some way towards a mortgage deposit and a foot on the ladder, while at the same time helping to alleviate some of the pressure on the rental sector.
“Any pro-tenant initiative can, of course, be viewed as a positive, but the mere suggestion of a rental rate freeze in Berlin seems to have sent the property market into meltdown. There is every chance that the same could happen here as a recent string of government changes to the buy-to-let sector have already diminished landlord confidence levels.
“This further dent on profitability could see more opt to invest elsewhere, however, the meteoric rise of the build-to-rent sector is providing a viable alternative to traditional stock supply and could therefore be the answer, stomaching a static rate of rental growth far better without any detriment to the tenant.”
The massive increase in the build to rent sector is beginning to filter through, but there needs to be more money made available for this. As it stands, there is not enough private funding of build to rent, but with amendments to tax rules, this could change rapidly. If legislation were introduces to allow people to plough their pension funds in to build to rent, but under strict return guidelines, to ensure affordability, this could not only give our ageing population a source of income, but it would also help to create more housing stock, thereby distributing demand and curbing spiralling rents. As build costs on a large scale are less than property on the open market, this would give the investors a fair return, without the need for excessive rent costs.
The holiday rental market in this country looks set for another busy summer as the weak pound persuades millions to opt for a staycation.
The fall in the UK pound since the Brexit vote three years also means Britons get less for their money abroad.
Meanwhile, more tourists than ever before are visiting the UK. VisitBritain figures show that 2018 was a good year for inbound tourism to the UK, with spending by overseas visitors to the UK reaching almost £27bn.
The strength of the UK tourist industry is paying dividends for holiday property owners, according to Bournemouth-based holiday letting agency, Bournecoast Holiday Agents, which reports that holiday lets are on the rise.
It has been known for a long time that owning a holiday let can be very advantageous in the holiday letting industry. Not only can it provide a potentially lucrative additional income for buy-to-let landlords, but it also offers certain tax advantages to holiday let owners.
There are specific requirements a property needs to meet in order to be classed as a furnished holiday let, such as its availability, actual bookings and level of furnishings.
Capital allowances can be claimed on a furnished holiday let property. This means the cost of kitting out a holiday property to a luxury standard (and in return, increasing the potential rental income) can be deducted from pre-tax profits. This is not an option available for long-term rental properties.
Income generated from a furnished holiday let property is classed as ‘relevant earnings’ which means a landlord can also make tax-advantaged pension contributions.
If the landlord should come to sell the furnished holiday let property, they may be able to claim certain Capital Gains Tax reliefs. These are unavailable to long-term rental properties and include Entrepreneur’s Relief, Roll-over Relief and Hold-over relief.
With long-term rental properties, profits would be distributed according to the official ownership split (e.g. if they owned 50% of the property, they would share 50% of the profits). With a FHL property, they can portion the profit however they decide.
A self-catering property which is available for short-term lettings for more than 140 days in any given year, is subject to Business Rate property tax. Since all furnished holiday let properties must be available to let for a minimum of 210 days, they fall into this category. However, this isn’t necessarily bad news as the landlord can claim Small Business Rate Relief, which can be up to 100%, dependent on what area you are in.
Des Simmons, Bournecoast’s managing director, said: “The holiday let market has gained considerable momentum over the past year, as evidenced by the growing number of lenders now offering mortgages suitable for this type of investment.”
Phil Wadham, director of Elite Financial, added that “the range of products for holiday letting is improving and more borrowers are thinking it’s a market to look at.”
Personally speaking as a small private Landlord, after the difficulties I have faced with the last possession, which is still not finalised as I write this, I can say that the days of my letting out on AST are over…..at least under the current anti-landlord legislation. It appears that I am not alone, many landlords have sold up, are planning to sell up, or have decided to switch to other options, either rooms on a licence or short term holiday lets.
I am sure it is only a matter of time before they try to pull the rug from beneath the short term letting market, but it will be very difficult to enforce. I for one, believe that the measures taken over recent years to punish landlords is having a detrimental effect. In the first instance, those at the bottom end are now very unlikely to find a property to rent, certainly in the South East, where there is demand, because there is increased likelihood that they may have problems, the local authorities advise them to ignore notice to leave, because they will consider them to have made themselves homeless, this means that the landlord has no other option but to go through the courts, which is expensive, the tenant finds themselves with a CCJ against their name as well as the likelihood of them finding another property will then be zero, and then, the landlords may well decide not to re-rent on AST, as I have.
Earlier this month the Tenant Fee Ban was introduced, after much fanfare from the Government. However, it is not the only piece of regulation and policy change set to affect the landlord market this year. It joins what can only be described as a slew of restrictive government policies – including tax changes, tougher HMO requirements and the recent announcement / threat to ban ‘no fault’ evictions– which many would agree amount to an unfair and sustained attack on the landlord market.
It is clear the government seems to have forgotten landlords are often just ordinary, hardworking people and savvy investors,who have saved to buy an additional property as a nest egg or source of income. A report from the Institute of Economic Affairs (IEA) recently criticised the government’s approach, concluding landlords are unfairly being discriminated against and scapegoated for the rental housing crisis.
By squeezing profit margins and pushing landlords to exit the market, there is a very real danger that the recent government policies will start to undermine the UK rental sector altogether. The fact of the matter is, the rental market is growing, and landlords fulfil an incredibly important role in providing essential property stock. Instead of increasing red tape and making it harder for landlords to turn a profit, the government should be supporting and encouraging the sector.
Appropriate planning is now incredibly important to ensure you avoid any financial, practical or legal ramifications of new and upcoming legislation. So, as a landlord, what should you be doing to navigate this new regulatory landscape and make sure your assets are protected?
As most will know, the Tenant Fee Ban means the only payments that can now be levied at tenants by landlords or agents are rent, dilapidation deposits and default fees, with the deposit limit reduced from 6 weeks to 5.However, the biggest danger for landlords is the removal of an agent’s ability to charge for tasks like reference checks. Nightmare tenants can wipe out profit through property damage or failure to pay rent. It is therefore vital to commit to paying for reference checks and a rent guarantee to ensure all parties are fully protected. Alternatively, make sure you are using a reputable agent who will continue to carry out these tasks properly, potentially by using deposit replacement schemes that include these as standard.
Another significant change has been to HMO licenses, traditionally required in any property where five or more people live over three floors but are not part of the same family. Non-compliance can result in unlimited fines, a criminal record and a ban from acting as a landlord in the future. What many don’t realise is that HMO rules can be different for each borough, and numerous councils are getting much stricter about enforcement (encouraged by the fact they now profit from any fines!). For example, in Camden, London, HMOs are now required for any property with three unrelated persons, and also within properties on a single floor. Tenants are also being invited to report non-compliance, encouraged by the fact that landlords can be forced to repay all rent to tenants for the length of their contract. In just one of the London boroughs, there have been 1,200 prosecutions of landlords and agents for HMO breaches in the last five years, so ensuring you are HMO compliant by checking your borough’s specific rules is an absolute must.
On 20th March this year, the Homes Act 2018, or ‘Fitness for Human Habitation Act’, also came into effect. While not entirely new, rather a clarification and bringing into line of previous legislation, it is harsher in a number of ways. There are now 29 hazards that landlords are responsible for monitoring – including damp, mould, cold, asbestos, heat, and radiation to name a few. Tenants can take landlords to court and sue if it is found they have failed to maintain standards in one of these areas. The problem here is that it can be incredibly difficult, as an independent landlord, to both have the necessary knowledge on these matters and make sure you are compliant. This is where a knowledgeable and reliable agent or adviser is key.
Finally, the government have also announced that they intend to end ‘no fault evictions’, by removing the Section 21 notice. Although their proposals presently lack any real detail, this will make it even harder for landlords to get rid of disruptive tenants. Their current suggestion that Section 8 notices should be used instead, by which grounds such as failure to pay rent must be provided for eviction, are little comfort thanks to a backlogged court system thatwith three-to four-month delay in hearings can make this an incredibly lengthy and costly option. Given the lack of detail, there might still be opportunity to adjust this law, and so lobbying MP’s and Parliament members on this could provide some relief.
Rental yields are improving and buy-to-let can still prove to be a good investment for many, so you should not necessarily be put off. However, it is vital to remember the onus is now on you to put the necessary precautions in place to protect both your property and rental income.
Increased costs, devastating changes to Tax allowances, ridiculous legislation designed to create many ways for landlords to trip up and be unable to evict tenants. The end of the S21, it is time for Landlords to fight back. I am in favour of AST properties to be removed from the market EN MASS. It is not difficult to cover a long term rent with short term yields and it will finally turn the table on this spitefully draconian attitude towards Landlords.
The Labour Party recently commissioned a proposal paper entitled: ‘Land For The Many: changing the way our fundamental asset is used, owned and governed’ which can be downloaded here (pdf).
Within this, a number of recommendations for reform are set out for possible inclusion in the next Labour party manifesto.
While much of the paper focuses on land ownership in England, the paper also includes a number of recommendations regarding inheritance tax and amendments to the current rates of capital gains tax.
In this note we provide a brief summary of these proposals.
1. Increasing Capital Gains Tax rates
The paper sets out a number of proposed changes to the current system of taxation. One significant proposal is to increase capital gains tax rates for certain transactions. The proposal is that the rate of capital gains tax for second homes and investment properties be increased so that it is in line with current income tax rates.
Currently this would mean a rate of 20% for basic rate payers (as compared to the current rate of 18%) and 40% for higher rate taxpayers (as compared to the current rate of 28%). The policy behind this is a desire to combat what is described as the intuitively unfair policy of taxing “income” derived from asset appreciation, which they state requires no work, at a lower rate than income derived from labour.
The possibility of removing principal private residence relief (which can often exempt property sales from tax) is also raised. While this is given consideration, the paper does acknowledge that it could create difficulties when people look to move house. As such, the paper favours reforming inheritance tax as a means of redistributing wealth.
2. Replacing Inheritance Tax with Lifetime Gifts Tax
The second proposed change to the tax system lies in the abolition of inheritance tax and its replacement with a lifetime gifts tax. Such a system would be intended to tax all gifts during life, with death acting as a final gift (this is similar to the regime of “capital transfer tax” that was in place prior to 1986).
The proposal finds its basis in the work of the Resolution Foundation and the Institute of Public Policy Research and has received public support from the shadow chancellor, John McDonnell.
Under the proposed system, each individual would receive a lifetime allowance of £125,000 for gifts that they receive. Once this limit was reached the recipient of a gift would be taxed. The rates of tax that would apply are not fully set out.
The Labour proposal paper refers to gifts being taxed at the rate of tax on “income from labour” (which could be as high as 45%, or more if national insurance was also charged).
As a comparison, under the modelling set out by the Resolution Foundation (on which the proposals are based) the rate of tax is initially set at 20% with a top rate of 30% for lifetime gifts exceeding £500,000. They predict that such a change, if implemented, would see the system bring in £11 billion in the period 2020-21 compared to the £6 billion predicted to be brought in by the current inheritance tax system.
It is also suggested that because each recipient would have their own allowance (as compared to the current, “nil rate band regime”) such a system would encourage the distribution of wealth to those who have not received large lifetime gifts previously, and as such would encourage a wider spreading of wealth. It is expected that a full spouse exemption would also operate.
The proposal paper recognises that such a system would take time to implement, but again highlights the Labour plan to reverse the Conservative government’s introduction of the inheritance tax residence nil rate band.
Finally, the paper also calls on a new tax be introduced to tax “equity withdrawals”. No further details are provided.
3. Reform to Business and Agricultural Property Exemptions
The final arm to the proposals concerning the reform and potential replacement of inheritance tax is that consideration should be given to the reform of both business and agricultural property relief.
While the paper does acknowledge the importance of such reliefs, it raises the possibility of recasting both reliefs so that they act as a form of tax deferral rather than a full relief.
Under the proposals, the revised reliefs would defer a tax charge until the eventual sale of an asset, or on a business ceasing to trade. This would be similar to “woodlands” relief, which can currently operate to defer tax on woodlands until the timber is cut.
Finally, the paper also addresses what it takes to be abuse of the tax system by people who seek to mitigate inheritance tax liabilities by investing in farmland and forestry assets. It suggests that this area be given a further review in future with a view to removing the opportunities to use such assets as a tax shelter.
The changes, if implemented, could have a very significant impact on succession plans currently in place or under consideration, and at a time of significant political change.
It should be remembered that at this stage, it is only a proposal document but clearly there are major implications should even some of this be brought in to our tax code in the future.
Has anyone stopped to think what would happen to our wonderful country if this MORON were able to sneak in to Number 10? Here is a man with an inherent contempt of the free market, a free economy, fair competition and most importantly free thinking. We have seen Marxism in its worst form over the last century, we are all aware what the Stasi did to all those who’s line of thinking did not fit in with the narrative. People were punished for free thought, for objecting to the mind control, this ranged from anything from arrest and persecution to torture in a Mental asylum.
WE MUST NEVER ALLOW THIS TO HAPPEN AGAIN
This man wants to destroy prosperity, he wants to take away everything you have worked for and give it to those who refuse to work for it, when they run out, he intends to import more and more, until you are little more than mention in the history books.
This is not a change in taxation, this is state theft on a grand scale, Mr Corbyn should be seen for exactly what he is and NEVER allowed in to power!