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.
The Cyprus Mail reported……………..
Cyprus could be inflating another property bubble through the citizenship-by-investment programme, and at a time when such extraordinary policies are no longer necessary, distinguished economist Christopher Pissarides has warned. Now based in London, the 2010 Noble Laureate in Economics tells the Sunday Mail he is monitoring developments on the island and is not sanguine about the economic policies implemented, calling them unsustainable in the long run.
“It looks like we may be creating another bubble in the property sector. The property market in Cyprus is growing at a rate that’s out of sync with the fundamentals of the economy at large, such as GDP, demand and demographics,” he said.
According to the Rics Cyprus Property Price Index as at June 30, 2018 property prices across Cyprus, on an annual basis flats increased by 7.6 per cent, houses by 4.8 per cent, offices by 11.6 per cent, warehouses by 4.2 per cent and retail by 1.7 per cent. For comparison purposes, GDP growth for 2018 hovered around 4 per cent. Pissarides says the upsurge in demand for property is being driven by artificial factors – a specific government policy, the citizenship-by-investment scheme.
“Fast-rising property prices and increased construction activity are risky, and not a good sign for the economy, which might be damaged in the future.”
Essentially, punters are looking not to acquire Cypriot citizenship so that they can live and work on the island, he said. “What they’re after is a European passport. I’m in London now, and I bump into people who tell me they live in the UK but have a Cypriot passport.
“When I ask them how they got the passport, they say ‘Oh, I bought a house in Limassol’. This whole business reminds me of the sham marriages scheme.”
Official statistics show that during 2018, 4,367 properties were purchased by foreign buyers, of which 1,428 were EU nationals and 2,939 non-EU nationals. Purchases by foreigners accounted for almost half of all sales, which totalled 9,242. According to the latest data released by the Department of Lands and Surveys, in 2018 aggregate sales of property were 6 per cent up on the previous year.
But the 6 per cent growth marks a considerable slowing down from the 24 per cent increase recorded in 2017, or the 43 per cent growth in 2016. In December 2018, compared to the same month of 2017, sales fell by 48 per cent.
In absolute numbers of property sales, Limassol led the way with 3,411. Is there a property bubble? The jury is still out on that one. George Mouskides, general manager of FOX Property Group, tells the Sunday Mail that the property market in Cyprus normally hovers between 9,000 and 10,000 transactions per year. In this respect, the 9,242 sales contracts filed in 2018 are not out of the ordinary.
In fact, the 6 per cent overall rise in transactions is a “healthy increase”, Mouskides said, adding that the market may be correcting after previous years. As for the proportion of foreign buyers, this has indeed been going up since 2013 and the introduction of the citizenship-by-investment scheme. However the apparent surge in foreign buyers from 24 per cent of all sales in 2017 to 47 per cent in 2018 is misleading.
The department of lands and surveys has amended its definition of foreign buyers, although it has not explained in what way. The department itself includes a footnote in its statistics cautioning the public that comparisons to 2017 and before are therefore not reliable.
“I suspect that, if you account for the change in definition of foreign buyers, the percentage of foreign buyers was about the same in 2018 as in 2017,” Mouskides observes.
On the ‘sharp’ drop in December 2018 sales (domestic and foreign buyers) compared to December 2017, again a disclaimer is in order. Average property sales stand at about 700 per month. But in December 2017, sales had soared to 1,537. The reason: people were scrambling to buy or transfer property before the VAT came in on January 1, 2018. The December 2017 spike was therefore a one-off, Mouskides explains.
Regarding prices, again it’s not cut and dry. Rates have shot up in coastal areas, especially Limassol, due to the construction of high-rise buildings. That is because the cost per metre rises the higher up you go. But elsewhere, the small increase in property prices is nothing to write home about. Back to Pissarides who qualifies that, for the time being, the situation appears to be going well.
But, he muses, “Let’s say a meeting is convened at the European Commission, and as you know a new EC president is coming in this year. What if the new EC president says they can’t tolerate this passport scheme in Cyprus anymore, that it needs to be curtailed? The bubble will burst instantly.”
Moreover, in his opinion, at this stage there’s no need for Cyprus to pursue such emergency measures: the economy has come out of recession, the budget is balanced, while the banking system slowly regains the public’s confidence. The absorption of the co-op bank by Hellenic and Bank of Cyprus’ handling of non-performing loans (NPLs) are steps in the right direction, albeit belated.
“Over the next two years I hope to see a significant decline in NPLs. But in order to restrict NPLs, debtors need to find money. And the only way for them to find the money is for the economy to rebound. If that happens, all well and good, the banking system will be on a sound footing.
“OK, but what happens next? People will start seeking loans to start up businesses. But where will these investments be made? This is what matters. The supply of loans has to be matched by demand.”
In short, Pissarides says that Cyprus needs a plan going forward.
“There’s many little things we can do, but frankly it’s beating about the bush. If you want real reform, you have to go the heart of the problem. And the core problem is the public sector and how it serves the private sector.”
The top priority should be to reform the public sector. This takes many forms: cutting red tape generally, proper enforcement of the law, expediting registrations for companies, making courts more efficient so that commercial disputes don’t take years to resolve as they do now. All the above would encourage not only locals to invest in new businesses, but also foreign corporations to choose Cyprus as their base.
“There is much that needs to be done, but there are obstacles in the way. Privatising the state telecoms and power companies is a must, but the government seems to have walked back on its intention to do so, faced with opposition from the unions.
“And even where the government does show determination to press ahead with reforms, these stumble on resistance from parliament.”
Asked to grade the government, Pissarides offers: “Top marks on the fiscal side, but bottom marks on reform.”
Cyprus has been participating in actually selling EU citizenship, which is not only immoral, but it is to the detriment of Cypriot nationals who are finding themselves in the middle of a ridiculous property bubble that is leaving them unable to afford a home. What makes it worse is that the people who are ‘Parking their ill gotten gains’ in Cyprus, DO NOT have nexus with Cyprus, they do not have any loyalty to Cyprus, nor do they care about the tragic side-effects of their actions.
We now have a situation where overseas investors are actually investing in developments to sell on to other overseas investors, further inflating prices and there is no benefit to local people throughout this process whatsoever. Cyprus is a small island that does not have hundreds or even dozens of cities for people to move to, so the hardship continues, while the small number of beneficiaries at the top profit from their misery.
THIS HAS TO STOP………..IT IS IMMORAL!
It’s now three years since the then Conservative Chancellor George Osborne introduced a series of measures aimed, principally, at cooling the overheating London housing market. The inexorable rise of property prices in the Capital threatened to create a financial bubble of potentially devastating proportions whose impact would ripple across the UK when it inevitably burst.
With the effects of the 2008 crash still being felt, the last thing we needed was another recession and the measures were generally seen as sensible. House prices in London were becoming dangerously out-of-step with the rest of the country and something needed to be done. The boom was fuelled by a massive inward flight of capital, mainly by rich investors from the far and middle east and from Russia.
But, as with most macro-economic measures aimed at achieving a political objective, there are unintended consequences and those are now coming back to bite us. The Chancellor, who promised we were “all in it together” at the height of austerity is now, of course, long gone – reclining in the Editor’s chair of the London Evening Standard and tinkering with operations at the many companies with whom he holds six-figure directorships.
And the people left to pick up the pieces are the thousands of small, buy-to-let landlords and potentially tens of thousands of private tenants whose lives are about to be turned upside down, as a result. The first of the punitive tax measures introduced by Osborne to discourage people from investing in residential propertywas a 3% hike in stamp duty (Land and Buildings transaction Tax in Scotland), which was followed quickly by the introduction of stress tests for buy-to-let mortgages.
At the same time, headline rates of Capital Gains Tax (CGT) paid on profits from asset sales were cut from 18% to 10% for basic rate taxpayers and from 28% to 20% for higher rate taxpayers. But it was a third measure – the phasing-out of mortgage interest tax relief on rental income - that will have the most devastating implications when the first tax demands start to land on doormats at the end of next month.
For the first time, landlords will have to pay tax at the upper rate of 50% on income earned on property rental. In some cases,there will be a doubling or even trebling of previous rates paid. HigherIncome Tax bills, due to be paid the day after they arrive, could spell disaster for thousands of landlords across the UK, placing further stress on local authority housing and making many more people homeless.
Research done by Touchstone Education and other organisations suggests that few landlords are aware of the impending changes, contained in Section 24 of the Finance Bill 2015-16 - also known as The Tenant Tax - and even fewer have made any preparations to deal with them. A survey by Tenant Referencing UK earlier this year found that 70% of landlords were unaware of the changes.
The few landlords who do know about the tax rises have been left with no choice but to evict tenants and sell-up or to increase their rents.
Anecdotal evidence from Touchstone Education’s regular Six Figure Summits – at which we offer property investors advice on how to maximise their income – suggests that thousands of landlords have already exited the buy-to-let market, switching their investments into commercial properties or serviced accommodation.
Those who remain,and are unaware of the changes, will have to pay punishingly high tax bills the day after they file Income Tax returns at the end of January and many don’t know they’re sleepwalking towards bankruptcy.
A landlord who attended one of our Six Figure Summits will have to find an extra £120,000 because of the additional tax burden on his property portfolio. His accountant failed to alert him to the changes,but he learned about them elsewhere and now he’s taking steps to deal with it. We’re working with him to find legitimate ways of reducing his exposure.
It was a shock for him but at least he found out in time - there are thousands of others for whom it will be too late, unless they act now. There areseveral HMRC-approved measures that can mitigate the impact of these punitive measures, including claiming capital allowances for residential properties that have been re-designated asserviced accommodation, also known as furnished holiday lets.
We are working with landlords who have been able to claim hundreds of thousands of pounds in capital allowances against their property portfolios, which means they can earn income and pay little or no tax. The highest individual HMRC-approved claim so far is for over £650,000.
Investing in buy-to-let has been a popular way to make money in the past and owners are now having to find ways to diversify. These draconian tax measures shouldn’t mean the end, there are other ways to earn a decent return on residential properties, you just need to know about them.