Personally, I am always amazed at how quickly time flies (and it seems to be speeding up the older I get!) Another year has come and gone and we find ourselves almost in a new 'era' when it comes to being a landlord and running a portfolio business.
The result of the many changes which have been introduced by the Government over the last few years are having a far-reaching effect and many landlords are facing a big decision as to whether to stay in business and face these changes, or make a timely exit and start selling off their portfolios.
The most important change that we face during the course of this year is the implementation of the reduction in mortgage interest relief, due to start from April this year, and likely to affect nearly 500,000 landlords who will be 'pushed' into the higher rate tax bracket by these changes.
Already, over 100,000 landlords have incorporated their business and are either moving some of their existing portfolios across, or are planning to buy further properties within a different vehicle, primarily a Limited Company structure. Some are transferring ownership or switching a proportionate share of ownership to a lower-rate-tax-paying spouse or are considering doing so.
More lending capacity is becoming available to Ltd Co's, in fact loans into Limited Companies have increased significantly over the last year since the announcement of the pending tax changes.
The impact this is having is vast, however it just goes to show that when a roadblock comes into our path, many of us still have the resilience and determination to find a way around. After all, it is human nature to be creative and find an alternative path where possible, and this is no exception. 'Where there's a will, there's a way!'
Some further important factors to take into consideration for this year are as follows:
- New stress testing measures being implemented by lenders on BTL properties. Many are now prescribing much higher 'pay rates' (the amount of rental coverage compared to mortgage interest payable) and interest rates to stress test a loan, this is affecting the ability to refinance existing properties in your portfolio as well as acquiring new ones.
- Watch out, if you are incorporating your business, for ATED (Annual Tax on Enveloped Dwellings) within a Ltd Co. This affects properties which are worth over £500K and is an annual tax payable by companies which own properties valued at higher than this amount. Speak to your tax advisor for more help on this.
- The good news is that the first £5,000 of any dividend income received from a Ltd Co falls within the new Dividend Allowance, and is therefore exempt from tax.
- If you hold any properties in Wales, you need to be aware that Rent Smart Wales have now fully implemented the registration and licensing of landlords. Make sure you visit their website for more info.
- Tenants are now able to request that landlords carry out certain energy efficiency improvements on privately rented properties, so make sure your EPC rating is good. The Energy Act 2018 will be here before we know it (April 2018) and properties are not allowed to be rented out on new tenancies if the band is lower than an 'E' rating. Plan ahead to make necessary upgrades.
Lastly, changes in December to the Right to Rent legislation now make it, in some instances, a criminal offence for landlords who do not carry out the correct checks.
On a more positive note (for landlords anyway!)...
Rents are highly likely to rise over 2017 to compensate for the new changes in tax relief being introduced from April this year.
More people will be exiting the market, therefore potentially creating more opportunities for those willing to stay in and be versatile.
With so many changes afoot, I have created a useful and FREE guide for landlords, the 'Landlord Checklist'. Making sure you are fully compliant means you can sleep at night. :-)
Here's to happy, safe landlording in 2017 and beyond!
Hazel de Kloe
Property Investor | Property Mentor | Speaker | Author
The contents of this article or for educational purposes only and we make no recommendations of any particular property purchase. The price of property can decrease as well as increase and you make any investments in property at your own risk.
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