16,020 Stoke on Trent Landlords – Is This a Legal Tax Loop-Hole?

In November 2015, George Osborne disclosed plans to restrain the buy-to-let (BTL) market, implying its growing attractiveness was leaving aspiring first time buyers contesting with landlords for the restricted number of properties on the market.  One of things he brought in was that tax relief on BTL mortgages would be capped, starting in April 2017.  Before April 2017, a private landlord could claim tax relief from their interest on their BTL mortgage at the rate they paid income tax – (i.e. 20% basic /40% higher rate and 45% additional rate).

So, for example, let’s say we have a Stoke on Trent landlord, a high rate tax payer who has a BTL investment where the rent is £900 a month and the mortgage is £600 per month.  In the tax year just gone (16/17), assuming no other costs or allowable items …

·         Annual rental income £10,800.

·         Taxable rental income would be £3600 after tax relief from mortgage relief

·         Meaning they would pay £1,440 in income tax on the rental income

And assuming no other changes ... the landlord would have income tax liability’s (at the time of writing May 2017) in the tax years of ...

·         (17/18) £1,800

·         (18/19) £2,160

·         (19/20) £2,520

·         (20/21) £2,880

Landlords who are higher rate tax payers are going to have be a lot smarter with their BTL investments and ensure they are maximising their rental properties full rental capability.  However, there is another option for landlords.

 The Stoke on Trent landlords who own the 16,020 Rental properties

in the town could set up a Limited Company and sell their

property personally to that Limited Company

 In fact, looking at the Numbers from Companies House – many landlords are doing this.  In the UK, there are 93,262 Buy To Let Limited Companies, and since the announcement in November 2015 – the numbers have seen a massive rise.

·         Q2 2015 / Q3 2015 – 4,193 Buy to Let Limited Companies Set Up

 

·         Q4 2015 / Q1 2016 – 5,403 Buy to Let Limited Companies Set Up

·         Q2 2016 / Q3 2016 – 3,007 Buy to Let Limited Companies Set Up

·         Q4 2016 / Q1 2017 – 7,149 Buy to Let Limited Companies Set Up

So, by selling their buy to let investments to their own limited company, owned 100% by them, these landlords could then offset the costs of running their BTL’s as an 'allowable expense' - effectively writing off the cost of 100% of their mortgage outgoings, wear and tear and upkeep, letting agent’s fees etc.  

I am undeniably seeing more Stoke on Trent landlords approach me for my thoughts on setting up a BTL limited company, so should you make the change to a limited company? 

In fact, I have done some extensive research with companies house in the 15 months (1^st January 2016 to 31^st March 2017 and 81 Buy To Let Limited Companies have been set up in the ST postcode alone).

Well if you are looking to hold your BTL investments for a long time it could be very favourable to take the short-term pain of putting your BTL’s in a limited company for a long-term gain.  You see, there are huge tax advantages to swapping property ownership into a limited company but there are some big costs that go with the privilege.

As the law sees the new Limited Company as a separate entity to yourself, you are legally selling your BTL property to your Limited Company, just like you would be selling it on the open market. Your Limited company would have to pay Stamp Duty on the purchase and if you (as an individual) made a profit from the original purchase price, there could be a capital gains tax liability of 18% to 28%.  The mortgage might need to be redeemed and renegotiated (with appropriate exit charges).

On a more positive note, what I have seen though by incorporating (setting up the Limited Company) is landlords can roll up all their little buy to let mortgages into one big loan, often meaning they obtain a lower interest rate and the ability to advance new purchase capital.  Finally, if the tax liability is too high to swap to a limited company, some savvy buy to let investors are leaving their existing portfolios in their personal name whilst purchasing any new investment through a limited company?  Just an idea (not advice!).

 It’s vital that landlords get the very best guidance and information from tax consultants with the right qualifications, experience and insurance.  Whatever you do, always get the opinions from these tax consultants in writing and you shouldn't hurry into making any hasty decisions.  The modifications to BTL tax relief are being progressively eased in over the next three years so there is no need to be unnerved and rush into any decisions before finding out the specifics as they relate precisely to your personal situation, because with decent tax planning (from a tax consultant) and good rental / BTL portfolio management (which I can help you with) ... whatever you do - let’s keep you the right side of the line!

Council House Waiting List in Stoke-on-Trent Drops by 61.5% in last 5 years

Should you buy or rent a house? Buying your own home can be expensive but could save you money over the years. Renting a property through a letting agent or private landlord offers less autonomy to live by your own rules, with more flexibility if you need to move.

Yet, there is third way that many people seem to forget, yet it plays an important role in the housing of Stoke-on-Trent people. Collectively known as social housing, it is affordable housing, which is let by either Stoke-on-Trent City Council or a housing association to those considered to be in specific need, at rents below those characteristic in the private rental market.

In Stoke-on-Trent, there are 26,371 social housing households, which represent 22.57% of all the households in Stoke-on-Trent. There are a further 2,513 families in the Stoke-on-Trent City Council area on their waiting list, which is similar to the figures in the late 1990’s. The numbers peaked in 2011, when it stood at 6,533 families, so today’s numbers represent a drop of 61.5%.

Nevertheless, this doesn't necessarily mean that more families are being supplied with their own council house or housing association property. Six years ago, Westminster gave local authorities the authority to limit entitlement for social housing, quite conspicuously dismissing those that did not have an association or link to the locality.

 

 

Interestingly, the rents in the social rented segment have also been growing at a faster rate than they have for private tenants. In the Stoke-on-Trent City Council area, the average rent in 1998 for a council house/housing association property was £165.84 a month, whilst today its £311.35, a rise of 88% in 19 years.

When comparing social housing rents against private rents, the stats don’t go back to the late 1990’s for private renting, so to ensure we compare like for like, we can only go back to 2005. Over the last 12 years, private rents have increased nationally by a net figure of 19.7%, whilst rents for social housing have increased by 59.1%.

So, what does this all mean for the homeowners, landlords and tenants of Stoke-on-Trent?

Rents in the private rental sector in Stoke-on-Trent will increase sharply during the next five years. Even though the council house waiting list has decreased, the number of new council and housing association properties being built is at a 70 year low. The government crusade against buy-to-let landlords together with the increased taxation and the banning of tenant fees to agents will restrict the supply of private rental property, which in turn using simple supply and demand economics, will mean private rents will rise – making buy to let investment a good choice of investment again (irrespective of the increased fees and taxation laid at the door of landlords).  It will also mean property values will remain strong and stable as the number of people moving to a new house (and selling their old property) will continue to remain restricted and hence, due to lack of choice and supply, buyers will have to pay decent money for any property they wish to buy.

Interesting times ahead for the Stoke-on-Trent Property Market!

Stoke on Trent First Time Buyers Mortgages taking 28.6% of their Wages

I received a very interesting letter the other day from a Stoke on Trent resident. He declared he was a Stoke on Trent homeowner, retired and mortgage free. He stated how unaffordable Stoke on Trent’s rising property prices were and that he worried how the younger generation of Stoke on Trent could ever afford to buy? He went on to ask if it was right for landlords to make money on the inability of others to buy property and if, by buying a buy to let property, Stoke on Trent landlords are denying the younger generation the ability to in fact buy their own home.

Whilst doing my research for my many blog posts on the Stoke on Trent Property Market, I know that a third of 25 to 30 year olds still live at home. It’s no wonder people are kicking out against buy to let landlords; as they are the greedy bad people who are cashing in on a social woe. In fact, most people believe the high increases in Stoke on Trent’s (and the rest of the UK’s) house prices are the very reason owning a home is outside the grasp of these younger would-be property owners.

However, the numbers tell a different story. Looking of the age of first time buyers since 1990, the statistics could be seen to pour cold water on the idea that younger people are being priced out of the housing market. In 1990, when data was first published, the average age of a first time buyer was 33, today it’s 31.

Nevertheless, the average age doesn't tell the whole story. In the early 1990’s, 26.7% of first-time buyers were under 25, while in the last five years just 14.9% were. In the early 1990’s, four out of ten first time buyers were 25 to 34 years of age and now its six out of ten first time buyers.

Although, there are also indications of how un-affordable housing is, the house price-to-earnings ratio has almost doubled for first-time buyers in the past 30 years. In 1983, the average Stoke on Trent home cost a first-time buyer (or buyers in the case of joint mortgages) the equivalent of 2.5 times their total annual earnings, whilst today, that has escalated to 4.5 times their income (although let’s not forget, it was at 5.0 times their income for Stoke on Trent first time buyers in 2007).

Again, those figures don’t tell the whole story. Back in 1983, the mortgage payments as percentage of mean take home pay for a Stoke on Trent first time buyer was 25.9%. In 1989, that had risen to 55.5%. Today, it’s 28.6% … and no that’s not a typo .. 28.6% is the correct figure.

So, to answer the gentleman’s questions about the younger generation of Stoke on Trent being able to afford to buy and if it was right for landlords to make money on the inability of others to buy property? It isn’t all to do with affordability as the numbers show.

And what of the landlords? Some say the government should sort the housing problem out themselves, but according to my calculations, £18bn a year would need to be spent for the next 20 or so years to meet current demand for households. That would be the equivalent of raising income tax by 4p in the Pound. I don’t think UK tax payers would swallow that.

So, if the Government haven’t got the money… who else will house these people? Private Sector Landlords and thankfully they have taken up the slack over the last 15 years.

Some say there is a tendency to equate property ownership with national prosperity, but this isn’t necessarily the case. The youngsters of Stoke on Trent are buying houses, but buying later in life. Also, many Stoke on Trent youngsters are actively choosing to rent for the long term, as it gives them flexibility – something our 21^st Century society craves more than ever. 

32.1 miles – The average distance people go to escape living in Stoke-on-Trent

“How far do Stoke-on-Trent people go to move to a new house?” This was an intriguing question asked by one of my clients the other week. Readers of my property blog will know I love a challenge, especially when it comes to talking about the Stoke-on-Trent Property Market!

For the majority, the response is not very far. It is much more common for homeowners and tenants in Great Britain to move across town than to the next town or county. Until now, it’s been hard to say how many homeowners and tenants moved from (and to) relatively far away to buy or rent their new home. However, I carried out some research and requested some statistics from the Royal Mail. What came back was fascinating!

Using statistics for the 12 months up to the middle of Autumn 2016, 486 households moved out of Stoke-on-Trent, moving an average distance of 32.17 miles - the equivalent of moving from Stoke-on-Trent to Chester (as the crow flies).  The greatest distance travelled was 333 miles – that’s more than 12.5 marathons (when someone moved to Dingwall in Scotland).

Considering there were 763 property sales in ST4 for example in the year and countless tenant moves, the numbers seems consistent – once you find a town you like, you tend to want to settle down and if you do move, you might only move to a different neighbour-hood, or for better transport links or, to be closer to the school you want to get your children into, but the likelihood is you won’t travel far.

I then turned my attention to people moving into Stoke-on-Trent. Using the same statistics for the 12 months up to the middle of Autumn 2016, 373 households moved into the ST4 area of Stoke-on-Trent, moving an average distance of 33.86 miles - the equivalent of moving from Wrexham to Stoke-on-Trent (again as the crow flies). The greatest distance travelled was 314 miles – that’s more than 12 marathons (when someone moved from Peterhead in Scotland to Stoke-on-Trent).

I have looked at the data of every person moving into Stoke-on-Trent and these have been plotted on a map of the UK. Looking at the map below, it shows exactly where most people come from, when moving into Stoke-on-Trent. As you can see, there are a high proportion of people moving from London and the South East.

So, what does all this mean for the landlords and homeowners of Stoke-on-Trent?

When an agent markets a property for rent or let, it is vital to know the tenant or property buyer well, that the properties they are letting/selling fit those tenants/buyers, so they almost sell themselves. These days that means not only knowing how many bedrooms, reception rooms etc., a property offers but the budget buyers and tenants want to spend on a property in that area as well as where they come from.

The estate and lettings industry loves the mantra “location, location, location”. I say it might be helpful to factor in where (and how) far people are moving from, so the property can be sold or let more easily. Many say knowledge is power and whilst I do enjoy writing my blog on the Stoke-on-Trent property market, I also use the information to help my clients buy, let and sell well. So for example, the information gained for this article, will enable my team and I to be more efficient in where to direct our marketing resources to ensure we maximise our clients’ properties sale-ability or rent-ability.

1 in 22 Stoke on Trent Properties are Leasehold

There are 23.36 million properties in England and Wales with 64% being owner occupied and 36% being rented either from a private landlord, local authority or housing association.

Over nine out of ten of those English and Welsh owner-occupied properties are a whole house or bungalow. Now, most people would assume they would be freehold - however, of those renting nearly half of rental properties, 44% to be precise, lived in other leasehold apartments and flats.

It might be wise to quickly explain the difference between freehold and leasehold. When someone owns the freehold of a property they own it outright, including the land it is built on, whilst with a leasehold property the leaseholder owns the property for the length of their lease agreement. Leaseholders must pay the person who owns land (the freeholder) ground rent and other fees. When the leasehold ends, ownership returns to the freeholder although the leaseholder can extend the lease or they can buy the freeholder out, but there are rules and regulations with regards doing that.

Therefore, it would be safe to assume that houses are freehold and flats are leasehold .. wouldn’t it? Not necessarily! Most houses are freehold but some might be leasehold - usually through shared-ownership schemes – but more and more new homes builders are selling houses on a leasehold as well. The protection of the law afforded to leaseholders who own a flat is massive, but sadly lacking to leasehold houses sold privately.

Looking specifically at the figures for Stoke on Trent, at the last count in ST4 there were 27,125 properties. Since 1995, 24,067 properties in ST4 have changed hands and have been sold. Looking further at those 24,067 transactions in ST4 since 1995, using data from Land Registry and solicitors practice My-Home-Move, 4.50% have been leasehold (lower than the national average of 15%).

However, I am concerned about a few new homes builders selling new houses (not flats - houses) as leasehold. There has been a growing (yet small) trend for new-build houses to be sold as leasehold in recent years. While not all house builders use this model, those that do maintain it helps make developments financially viable.

The issue comes when builders sell the freehold separately to an investment company without informing the lease holder  – which they are legally allowed to do without telling the leaseholder. In England and Wales, the "right of first refusal" to buy the freehold is written in law to leaseholders of flats i.e. the freeholder must offer it to the leaseholders of all the flats of the building first), but not leaseholders of houses.

.. and this is the point I am trying to get across. If you are buying a new home and it’s a house (i.e. not a flat) – please check very carefully indeed whether its freehold or leasehold. If it is a leasehold, whilst you do have rights, they are not as strong as for those people buying a leasehold flat. I appreciate I am only talking about a very small percentage of the property market, but potentially this could end up costing thousands of pounds to those affected.

Stoke on Trent Flats Out Perform Property Market Average by 59%

According to the Land Registry's latest House Price Index for Stoke on Trent and the surrounding locality, the value of apartments/flats are rising at a faster rate than terraced/town houses, semi-detached properties and even detached property.

Values of apartments in Stoke on Trent have increased by 6.19% over the past year, which is proportionally 59% more than the Stoke on Trent average rise of 3.9%. The last time flats/apartments in Stoke on Trent out performed all the other types of property, by such a gulf, was back in the spring of 2003. For comparison, the other property types performed as follows ..

·         Detached homes rose by 4.66%

·         Semi-detached homes rose by 3.65%

·         Terraced/Town-Houses rose by 3.62%

 This moderately increasing rate of property value growth is opportune – but no one should confuse it with a strong and vigorous healthy Stoke on Trent property market. Instead, it is somewhat an indicator of the long-lasting lack of property on the market. In fact, I have spoken about the lack of homes for sale in Stoke on Trent on a number of occasions in my Stoke on Trent Property Blog and whilst it isn’t as bad as it was 12 months ago – choice is quite limited for buyers.

The average property value in Stoke on Trent

now stands at £140,100.

When split down into property types ..

·         Stoke on Trent Apartments at £101,000

·         Stoke on Trent Detached at £231,800

·         Stoke on Trent Semi-Detached at £128,800

·         Stoke on Trent Terraced/Town-House at £88,600

 

So why have Stoke on Trent apartments performed so well, and is it just a Stoke on Trent thing? When I scrutinised the figures for the rest of the UK, it appears that apartments are pacemakers in the clear majority of the country. Of the 379 local authority areas in the UK, the value of apartments is rising faster than detached, semi-detached and terraced houses in 320 of them.

So, should Stoke on Trent apartment owners be getting out the Champagne? Well, I would keep it on ice as the Land Registry figures are notorious for short term fluctuations. It’s hard to have faith in the fact that Stoke on Trent house values rose rapidly last month given that, in the last six months, the Land Registry has frequently made downward revisions to their first published House Price Index figures.

Thankfully, the bigger picture from the Council of Mortgage Lenders (CML) stated that home buying activity last month was up 2% over the same month in 2016 – not bad as we have had the Autumn, Winter and now Spring since Brexit. The CML stated first time buyer’s levels of affordability was being squeezed and that the average amount borrowed by those first-time buyers dropped slightly last month, but the overall amount borrowed (by all buyers) was an impressive 12% higher than the same month in 2016.

So, what next for the Stoke on Trent Property market? I believe the uplift in the values of apartments is a short-term blip. The real issue is with the way wage growth might not keep up with inflation as the effects of 2016 exchange rate sucks in inflation (meaning real wage growth stagnates). This will mean buyer demand growth will be curtailed and with property values already so full, I believe a renewed hastening in house price growth is unlikely.

I believe we are starting to return to the housing market we saw in the mid 1990’s, Steady demand, steady supply – nothing silly when it comes to house price growth. Therefore, I believe, with what is happening around us – this isn’t a bad thing at all. HMS Stoke on Trent Property Market…. “Nice and steady as she goes”, says the Captain

Cycling London to Blackpool!



This one of the very few occasions where I will post an article that isn't about the local Stoke-on-Trent or Newcastle under Lyme property market or the housing market in general but it is a subject very dear to my heart.  Plenty more articles about the property market in the pipeline which I will be posting over the next days and weeks.

Mark and Liz, the owners of the Martin and Co Stoke-on-Trent and Newcastle under Lyme offices, are once again tackling the 100km ride from Manchester to Blackpool.  They put together a small team last year and managed to raise a good amount of money, Liz in particular found it a real challenge having only recovered from a broken ankle 3 weeks before the ride but we still managed to complete it.  For 2017 Liz has organised a team of 50 riders with a far more ambitious target of raising £10,000 in support of Parkinson's Research

Liz’s day job is with Mercedes Benz where a number of the riders also work and the rest of the team come from various customers and the MB commercial vehicle network.  Mercedes Benz has been kind enough to provide entry fees for the whole team, transport, cycling gear and sustenance on the day so every penny raised will go to our chosen charity.  Whilst no Chris Froome or Laura Trott Mark and Liz are better prepared this year and are looking to put in a more respectable time than last year.  The team is made up of a mixture of abilities, some have even gone out and bought a bike for the first time in years! 

Once again, the event will start from the iconic Imperial War Museum on Salford Quays and is an “invigorating” ride. The route covers 100km from Manchester, along the scenic country lanes of Lancashire, and then finishes on the South Promenade in Blackpool.

There are personal reasons for choosing to support Parkinson's Research this is an awful condition with currently no cure and the whole team wants to raise as much money as possible.  If you have been touched by Parkinson’s in any way or just want to help to support this brilliant cause and wish to donate then you can do so via our JustGiving page https://www.justgiving.com/fundraising/mb-vans