Property Investment Seminar Witney Blanket Hall Wednesday 2 nd March - - PowerPoint PPT Presentation

Property Investment Seminar

Witney Blanket Hall Wednesday 2nd March 2016

Agenda

Funding Your Investment

Laura Lamb – The Mortgage Company

Property Update

Brendan Kay – Martin & Co

Maximising Your Returns

Darren Green – The M Group

Legal Update

Geoffrey Cotterill – Everyman Legal

**this will follow as a separate blog post**

Property Investment Seminar

Mortgages

Buy to Let

• Buy to Let
• Regulated
• Non Regulated
• Let to Buy
• Holiday Lets
• Ltd Company BTL

Why are Buy to let mortgages different?

• Regulation
• Affordability
• Deposit
• Assessment
• Age

Basic Lender Requirements

• Minimum income - £25,000 for most lenders
• Minimum Deposit 25% in Oxfordshire
• Rental cover – 125% requirement at 5, 5.5% or 6%
• Example – Mortgage rate 3.29% (payment £300) - lender

assessment rate = mortgage at 5% (payment £450) + 125% rent cover - Required rental £563

• Maximum Age 75-90
• AST

Purchase Costs

• Valuation costs £300-600
• Lender booking fee - £1000-£2000 average
• Solicitor costs
• Stamp Duty rates - Normal vs BTL

0-125K – 3% vs 0% 125k – 250k – 5% vs 2% 250k – 950k – 8% vs 5% 950k – 1.5 Mil – 13% vs 10% Extra 3% on all BTL,LTB, Second homes £250,000 house currently = £6250 New Rules = £10,000

Types of Mortgages

• Fixed rates
• Trackers
• Discounted rates

Repayment methods

• Interest Only
• Capital Growth only
• Consider overpaying
• Capital Repayment
• Capital Growth
• Possible income in retirement
• Eventually unencumbered

property

Purchasing your property Timescales

• Get mortgage advice
• Put in your offer
• Complete a mortgage application –

with The Mortgage Company!

• Receive an offer within 2-3 weeks
• Arrange to market the property with a

letting agent.

• Exchange and complete within 8 -10

weeks

Why use The Mortgage Company?

• Tailored advice
• Simplified processes
• Dedicated Updates
• Better rates on Buy to Let vs highstreet
• Mortgage Management
• Most of our clients don’t pay a fee

Will the type of Tenancy affect your mortgage?

• Single Tenancy
• Multiple let (Different tenancy agreements)
• Student let (One tenancy but potentially 3-4

individuals)

• DSS Let (Guaranteed payments but most lenders

don’t like DSS. (Department of social security)

• Company Let

Examples....

2 Bed Property

• Purchase Price £250,000
• Deposit 25% (£62,500)
• Mortgage £ 187500– 2 year fixed 2.74, lender fee £1000,

£350 valuation.

• Monthly payment £428.
• Rent £1000

3 bed property

• Purchase price £250000
• Deposit 35% (£87500)
• Mortgage £162500 - 2 year fixed 2.39%, lender fee

£800 . Monthly payment £323

• Rent £1000

Property Update

Brendan Kay MARLA

West Oxfordshire Local Knowledge

WODC Plan - 10500 2011-2031 Witney - 3700 Carterton - 2600

• Ch. Norton - 1800

Eynsham - 1600 Burford - 800

2015 Values UK +6.2% Oxon +6.9% Witney +9%

Buy-to-Let Sector Update

Political Professionalization Trends

Tax Changes Retaliatory Evictions Over 55’s Stamp Duty New Section Notices BTL Mortgage Availability Fee Transparency Legionella FTB Affordability Wales & Scotland Smoke & CO Alarms More Tenants! Energy Ratings Deposit Protection Right to Rent Tenant Checks & Guarantees

Buy to Let – Asset Class

The average UK house price is expected to rise from just under £250,000 (2014) to £385,000 by 2025 (NAEA Housing 2025 Report)

Limited Availability of Stock

23

100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 1,000,000 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Number of properties

Rightmove Stock - Sales

100,000 200,000 300,000 400,000 500,000 600,000 Number of properties

Rightmove Stock - Lets

Housing Gap Increasing

24 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Net migration Permanent dwellings completed

Oxfordshire +6,000 pa 2/3 From Overseas

25

£0 £250 £500 £750 £1,000 £1,250 £1,500 £1,750 £2,000 2016/17 2017/18 2018/19 2019/20 2020/21

Impact of Tax Changes

5% rental growth still delivers an improvement in net of tax income by 2017/18, significantly better by 2020/21 No Rental Growth 2% Rent Growth 5% Rent Growth

+6.6%

Source: ONS

Tenants – Who Are They?

• Increasing number
• f smaller

households

• Choice / mobility
• Tenant incomes up

14.9% West Oxon

• Witney Rent

£931.93 pcm Annual Variance 7.2% Average Rent £933 PCM

What to Buy?

• Demand
• Purchase Price
• Yield
• Costs
• Preparation
• Exit Strategy
• Legislative Compliance

www.witneypropertynews.com

Maximising your returns

Darren Green, BA(Hons), FCCA

Keep on right side of HMRC

• Notify HMRC
• Complete tax return each year
• Keep suitable records – letting agents help
• Know what type of property you are letting

– Unfurnished – Furnished – Holiday let – Commercial

What taxes will I have to pay

• Income tax at 20%,40% or 45% - based on rent

receivable

• No National Insurance
• Stamp duty land tax on purchases
• Capital Gains Tax on disposals

What expenses can I offset?

• Letting agents fees
• Maintenance and repairs
• Buildings and contents Insurance
• Interest and finance costs (more on this later!)
• Accountancy fees
• Utility bills (if paid by landlord)
• Ground rent, services charges (if paid by Landlord)
• Gardening, cleaning etc
• Legal fees if short term let
• Other direct costs of letting the property – telephone, advertising
• Furnished properties – 10% Wear and Tear allowance (Until 5 April

2016)

The changing landscape

• Changes from April 2016

– Increased SDLT

• Example £200,000 purchase – NOW:£1500, April: £7500

– (NB: will not impact on companies that own 15 or more properties)

– Removal of the Wear & Tear Allowance

• TIP: Delay any replacement white goods etc until

2016/17

– Increase in rent a room relief

Interest changes from April 2017

• Reduction phased in over 4 years from April 2017:-

16/17 17/18 18/19 19/20 20/21 % of interest allowed as a deduction 100% 75% 50% 25% 0% % of interest given as 20% relief N/A 25% 50% 75% 100% Effective interest deduction will be:- 100% 80% 60% 40% 20%

• Beware also the ‘Stealth tax’
• Basic rate payers into Higher rate tax payers and Higher rate into Additional rate payers
• Restriction in child benefit
• Increased student loan repayments
• Will have greatest impact on higher rate tax payers, highly geared

landlords and particularly those with large portfolios

Some examples

• Example 1: Higher rate tax payer - Low geared,

single property

2016/17 2020/21 Rent £7,200 £7,200 Repairs (£1,000) (£1,000) Interest (£2,500)

• Net profit for tax purposes

£3,700 £6,200 Tax at 40% £1,480 £2,480 Interest relief at 20% of £2500

• (£500)

Total Tax liability £1,480 £1,980 After tax income £2,220 profit £1,720 profit STILL PROFITABLE

Some examples

• Example 2: Higher rate tax payer - High geared,

single property

2016/17 2020/21 Rent £7,200 £7,200 Repairs (£1,000) (£1,000) Interest (£5,000)

• Net profit for tax purposes

£1,200 £6,200 Tax at 40% £480 £2,480 Interest relief at 20% of £5000

• (£1,000)

Total Tax liability £480 £1,480 After tax income £720 profit (£280 loss) NO LONGER PROFITABLE!

Some examples

• Example 3: Basic rate tax payer with other

income

2016/17 2020/21 Other income £38,000 £38,000 Rent £8,500 £8,500 Interest cost (£4,000)

• Total income

£42,500 £46,500 Personal allowance (£11,000) (£11,000) Net profit for tax purposes £31,500 £35,500 Tax at 20% £6,300 £6,400 Tax at 40%

• £1,400

Interest relief at 20% of £4,000

• (£800)

Total Tax liability £6,300 £7,000 EXTRA £700 of tax due to being pushed into Higher rate!

Some examples

• Example 4: Substantial property portfolio (jointly
• wned)

2016/17 2020/21 Rent £600,000 £600,000 Repairs and other costs (£200,000) (£200,000) Interest cost (£350,000)

• Total income

£50,000 £400,000 Personal allowance x 2 (£22,000) Net profit for tax purposes £28,000 £400,000 Tax at 20% £5,600 £12,800 Tax at 40%

• £94,400

Tax at 45%

• £45,000

Interest relief at 20% of £350,000 - (£70,000) Total Tax liability £5,600 £82,200 After tax income £44,400 (£32,200 loss) NO LONGER A SUSTAINABLE PROPERTY BUSINESS!

What options can I consider?

• Transfer property into Spouses / Civil partner – if

Tenants in Common then can alter split

• Increase profitability

– Higher rents – Protect rents – Lower costs

• Review borrowing arrangements

– Best rates / Can borrowing be restructured i.e. business borrowing?

• Incorporation ……..

Incorporation?

– Advantages

• Interest still deducted from profits rather than as relief
• If profits retained in company then only tax is at Company rate (currently

20%, 19% from April 2017 and 18% from April 2020), rather than income tax rates (20%,40% or 45%)

• Flexibility on remuneration i.e. salary / dividends

– Disadvantages

• Existing properties - Possible CGT and Stamp Duty on Transfer to Limited

company

• Tax on Dividends increasing by 7.5% from April 2016 (except first £5000)
• Administrative costs of company
• Funding is more difficult and often more expensive
• ‘Double taxation’
• May trigger ‘ATED’ another annual charge aimed at companies if properties

have MV of >£500,000

Will CGT and SDLT always apply to a transfer?

– SEEK ADVICE OF OWN TAX ADVISER OR ASK US TO REVIEW BUT……

• CGT may not be payable if running a property business

– Business is transferred in exchange for shares in Limited company – Significant activities and reasonable time spent in management – Seek to profit and run as a business

• SDLT

– Can be reduced to the same level as Commercial property (4%) if 6 or more separate dwellings transferred – SDLT may not be payable if the property business is run as a commercial partnership

» Partnership agreement » Partnership return, bank account, accounts » Partners held out as such to outside world i.e. stationery, advertising » Invoices, agreements etc in name of partnership

Action plan?

• Review property portfolio and assess those properties most affected i.e.

high borrowing

• Review borrowing and try and reduce either by lower rates (Speak with

Laura) or restructuring, perhaps consider how any separate business is financed

• Make sure you are generating best rental income (Speak with Brendan)
• Are you claiming for all costs you could?
• Delay any white good / furniture purchases until after April 2016
• If spouse / civil partner is a lower rate tax payer then consider property
• wnership percentages
• Speak to your accountant (or us) as to whether incorporation would work

for you

• Hope legal challenges are successful or that there has been a change of

heart when the Budget is announced on 16 March!!!!!!!!!