This coming tax year marks a new era for buy-to-let investors. With many changes afoot, landlords need to take a thorough look at current portfolios and think carefully about potential future investments.

It is now more expensive to buy since the 3pc stamp duty surcharge was introduced last year.

It’s more expensive to own, since the loss of the 10pc wear-and-tear allowance. And the benefits of having debt are diminishing now that tax relief on mortgage interest is being phased out.

Some are calling this the end of buy-to-let (BTL) for all but the richest. The number of new BTL borrowers plummeted from 29,100 in March 2016 to 4,200 the following month, when the stamp duty surcharge was introduced, and has struggled to pick up substantially since, according to figures from the Council of Mortgage Lenders.

Higher taxation is forcing many landlords to rethink their strategy – and in some cases sell up. “It comes as a blow for many who may have been inclined to try and enter the market as demand for rental property has increased,” comments James Davis, chief executive of the online estate agency Upad.

One way to avoid the new tax rules is to buy the property through a UK resident company
What is certain is that the shifting landscape of buy-to-let tax and regulation means a greater need than ever to keep up to speed with – and get specialist expert advice on – precisely how the finances will stack up with a new property investment.

The gradual loss of tax relief on mortgage interest payments from now until 2020 will hit higher-rate and additional-rate taxpayers particularly hard.

If a higher-rate payer currently sees £10,000 income a year and has mortgage interest payments of £9,000, the resulting tax bill on the difference is £400. By 2020, that bill will rise to £2,200.

For those whose mortgage interest is 75pc or more of their rental income (68pc for additional-rate payers), their profit will be wiped out. The loss in tax relief is also likely to push around 440,000 lower-rate taxpayers into a higher tax band, according to the National Landlords Association (NLA).

One way to avoid the new tax rules is to buy the property through a UK resident company, where profits will be liable to corporation tax instead.

But most likely the landlord will also have to pay capital gains tax (CGT) when they come to sell, which may wipe out any saving or end up costing more. From April 2019, landlords will also be required to pay CGT on any profits within 30 days of selling a property.

“Mortgage regulation will stress-test affordability at much higher mortgage interest cover ratios, reducing the amount of debt that investors take on,” says Lucian Cook, Savills’ head of residential research. He adds that the two-thirds of BTL investors who have no borrowing will remain unaffected.

Jeremy Leaf, former chairman of the Royal Institution of Chartered Surveyors (RICS), describes the reduction in tax relief for higher-rate taxpayers as “the biggest issue on the horizon for landlords”.

But there are other changes they need to be aware of too, including the loss of wear-and-tear relief, which means that landlords can now claim only actual costs spent on repairs, rather than a blanket 10pc reduction for wear and tear.

The proposed ban on lettings agents’ fees from 2018 will also mean landlords “should expect to pay a little more for their agent’s services”, says Paul Sloan, lettings operations director at Haart estate agents. The widespread assumption is that landlords will seek to recoup some of their extra costs by raising rents.

Increased costs are refocusing landlords’ attention on higher-yielding areas of the country to prevent a drop in returns.

Taking into account yields, house price growth, running costs and tax changes, the property auction house Allsop’s latest Rent Check report pinpoints East Midlands and Yorkshire as seeing the best returns in the next five years.

LONDON — Growing rents and a sharp rise in the number of people renting homes means private landlords are earning ever-increasing sums from renters, and deepening a financial division between those who own a home and those who don’t.

Estate agents Savills said landlords earned £54 billion in the year to June, according to a Times report — twice the total amount of interest homeowners paid on their mortgages, who currently benefit from record-low interest rates.

The private rental figure is up by £14 billion in five years, and represents a 35% increase from a 21% rise in the number of homes, Savills said.

The revenue is driven largely by the vast numbers of millennials who cannot afford to buy a property and are forced to pay increasingly expensive rents.

Around 5.3 million UK households are privately rented, of which those aged between 25 and 34 form the largest group at 1.5 million, according to government figures.

The chronic shortage of UK housing is currently an important political issue. Labour leader Jeremy Corbyn last week pledged to introduce rent caps if he becomes prime minister, and Theresa May pledged a further £10 billion for the government’s Help-to-Buy scheme which helps first-time buyers to purchase homes.

Lucian Cook, head of residential research at Savills, told the Times that high rents in London could push graduates away and threaten the city’s competitiveness.

“The risk is that this starts to become a threat to London’s competitiveness to attract young people into the city,” he said.

Airbnb wants to help tenants go legit, according to Fortune.

In theory, unless they have an exceedingly unusual lease, renters are not supposed to sublet their places without explicit written permission from the landlords.

If someone wants to list their home or room with Airbnb, the home-sharing service has no reasonable way to check for the lister’s legal right to do so. But landlords know it is happening. And Airbnb knows. Neither group is happy about what are essentially illegal short-term rentals through the service.

So Airbnb is doing something to help tenants who want to list properties and help property owners at the same time.

The new Friendly Building Program lets property owners sign an agreement to work with Airbnb, assuming short-term rentals are legal in the towns or areas where the properties are located.

The landlord, as the property owner, decides the terms of any potential rentals. For example, a property owner may specify which units can be rented and for how long. The revenue split between the landlord and the tenant is also determined by the agreement with Airbnb. The landlord also alters tenant leases to reflect the conditions of the Airbnb agreement under the Friendly Building Program.

Airbnb then handles all the funds received from renting and distributes payments to landlords and tenants, per the agreement the landlord made. According to Airbnb, landlords typically get between five and 15 percent of the Airbnb distribution.

By giving landlords control and some extra money from the arrangement, Airbnb hopes to quell animosity and disputes arising from tenants listing their rental without permission. After initial pilot programs, Airbnb says there are now between 1,100 and 1,500 units either in the Airbnb system or in process of becoming part of it. The participants range from single-rental properties owned by individuals or couples to units in huge complexes.

 

A new licensing scheme proposed by Nottingham City Council to improve housing standards in Nottingham’s private rented sector could move a step closer to being introduced next week – but with a few changes to the original proposal.

The council’s executive board will meet on July 18 to discuss a revised selective licensing scheme which includes some changes to the original proposal following an 11-week consultation.

It comes after official sought the views of tenants, landlords and letting agents on its proposals to license private rented properties.

When the scheme was first announced, in February, the council said it was being proposed to raise standards, reduce anti-social behaviour, and tackle rogue landlords.

However, following the consultation, the proposals no longer cover the entire city. Instead, the council proposes the scheme should focus on areas containing a high proportion of private rented sector properties and cover around 3,700 fewer homes than previously suggested.

The council has also reduced the proposed cost of the scheme by 13 percent for landlords who already have accreditation, from £460 down to £400.

The cost of a licence for non-accredited landlords is now proposed to be £655 over the five-year period of the scheme.

Giles Inman, 53, business development manager for East Midlands Property Owners Ltd, based in Nottingham, which represents around 500 landlords with residential property to rent, believes the idea is good but there are some flaws.

He said: “They are reducing the numbers of properties that they will cover for some reason but 33,000 properties is still a huge number for them to tackle.

If approved by the council’s executive board on July 18, the scheme will be submitted to the Secretary of State for approval, which is a legislative requirement. The aim is for the scheme to be introduced from April 2018.

Councillor Jane Urquhart, the City Council’s portfolio holder for planning, housing & heritage, said: “The introduction of a licensing scheme for private landlords was a key commitment made in our Council Plan. The majority of private tenants who responded to the consultation were in favour of a scheme.

“We have listened carefully to the issues raised in the consultation and made changes to the proposed scheme without losing focus on the improvements it sets to achieve in the overall standard of private rented housing in the city.”

“Reducing the cost of the licence for landlords who have accreditation creates even more of an incentive for landlords to obtain it to demonstrate that they meet the required standards so we would encourage them to make an application now via DASH or Unipol.”