House Prices

[AVB]

If people have unearned income via a pension they get tex relief and are to be applauded for their financial good sense and planning for a retirement.

 

Likewise, people who put money into a government approved ISA get tax relief and are encouraged to save this way for a rainy day.

 

I invest in a property to make some money (do bear in mind the above examples) and all of a sudden the terminology changes - that house I bought to rent out and with an eye open to capital growth / appreciation is now referred to as 'a second home' (despite the fact I'll never live there) and the government are now looking to tax the life out of my investment.

 

 

Take the income you get from the property and put it into a pension. Then you can claim back the income tax you have paid on it. The restriction with a pension is that you can't take it until you retire but with your 'second' home you could sell it when you want.

Edited September 2, 2017 by AVB

[Mungler]

The point I was making is that anyone with an investment property is vilified by the left wing as having more than 1 home and there is an increasing negative 'spin' in the media over any property ownership beyond your own home.

 

As such, it's easy pickings for the government to keep hitting that sector with more and more tax penalties.

.

Edited September 2, 2017 by Mungler

[silver pigeon69]

 

I'm in a similar position I pay stamp duty to buy ,tax on the income , and capital gains when i sell . So maybe i should sell up spend the cash and let the state keep me ......

Dont sell and pay CG and fee's etc, if you want to release the cash re-mortgage. Then let the tennant's rent repay the loan for you and do it again in 5-10yrs!

[Mungler]

Dont sell and pay CG and fee's etc, if you want to release the cash re-mortgage. Then let the tennant's rent repay the loan for you and do it again in 5-10yrs!

That worked until the government changed the regime for tex relief on mortgage interest payments

[AVB]

The point I was making is that anyone with an investment property is vilified by the left wing as having more than 1 home and there is an increasing negative 'spin' in the media over any property ownership beyond your own home.

 

As such, it's easy pickings for the government to keep hitting that sector with more and more tax penalties.

.

 

I agree regarding vilification. It is a difficult one though as without controls around it it just becomes an income stream subsidised by other tax payers. I don't believe that you should get tax relief on mortgage payments for a BTL when you don't for your main residence. Unless of course you want to run it as a legitimate investment business and submit annual accounts. The problem is that most landlords want the tax benefits but not the hassle of running a company. Out of interest does anybody on PW do that? Why don't more people do that?

[silver pigeon69]

That worked until the government changed the regime for tex relief on mortgage interest payments

True! I think It still works but not as well. I still think your better off doing it this way as there are a lot less fees and i believe you are better off spreading the income (rent over say 10yrs) tax wise, than having a large lump sum from a sale in one tax year.

[silver pigeon69]

 

I agree regarding vilification. It is a difficult one though as without controls around it it just becomes an income stream subsidised by other tax payers. I don't believe that you should get tax relief on mortgage payments for a BTL when you don't for your main residence. Unless of course you want to run it as a legitimate investment business and submit annual accounts. The problem is that most landlords want the tax benefits but not the hassle of running a company. Out of interest does anybody on PW do that? Why don't more people do that?

If by "run it as a legitimate investment business and submit annual accounts", you mean are they in a LTD company ? Then yes

[AVB]

If by "run it as a legitimate investment business and submit annual accounts", you mean are they in a LTD company ? Then yes

 

What are the downsides of doing that? The upside is that you can offset interest against Corporation tax. The only downside I can think of is paying for an accountant but that's not too big a deal. Or am I being too simplistic and missing something? Just interested to know why a lot more people don't do it.

Edited September 2, 2017 by AVB

[JohnfromUK]

 

I agree regarding vilification. It is a difficult one though as without controls around it it just becomes an income stream subsidised by other tax payers. I don't believe that you should get tax relief on mortgage payments for a BTL when you don't for your main residence.

I would agree with you here. I am a big supporter in encouraging everyone (who can) to save ........ (1st) home ownership, savings accounts, shares, unit trusts, ISAs, pensions. Here your saved money is used to finance other business activity and if you like, provide the 'working capital' for businesses.

 

BTL I am not 'against', but I think it is rather too close to one 'better off' person getting richer at the expense of less 'well off' who cannot afford to buy ........ and as such it makes getting on the ownership ladder more difficult for the less well off. Therefore my inclination is that any tax advantages should go to the ISAs, pension savings and not BTL.

[silver pigeon69]

 

What are the downsides of doing that? The upside is that you can offset interest against Corporation tax. The only downside I can think of is paying for an accountant but that's not too big a deal. Or am I being too simplistic and missing something? Just interested to know why a lot more people don't do it.

We have an accountant and it seems to work well for us. There are downsides, your not taking out a mortgage as such, your taking out a business loan at higher rates for shorter periods. It is a lot more complicated tax wise and loan wise etc but we have a good accountant.

[BrowningB525]

 

I agree regarding vilification. It is a difficult one though as without controls around it it just becomes an income stream subsidised by other tax payers. I don't believe that you should get tax relief on mortgage payments for a BTL when you don't for your main residence. Unless of course you want to run it as a legitimate investment business and submit annual accounts. The problem is that most landlords want the tax benefits but not the hassle of running a company. Out of interest does anybody on PW do that? Why don't more people do that?

I an looking at starting at the moment. My biggest hurdle are the ongoing accountancy fees. And that I am starting the company with a bit less money than is ideal (80k, which in property terms is light).

 

I plan on buying, renovating then remortgaging then renting out on interest only mortgages.

[Mungler]

 

I agree regarding vilification. It is a difficult one though as without controls around it it just becomes an income stream subsidised by other tax payers. I don't believe that you should get tax relief on mortgage payments for a BTL when you don't for your main residence. Unless of course you want to run it as a legitimate investment business and submit annual accounts. The problem is that most landlords want the tax benefits but not the hassle of running a company. Out of interest does anybody on PW do that? Why don't more people do that?

 

The normal pattern is that people buy a single investment property as a one off - if you get one as a one off then a sole B2L mortgage is easy to get (and you can get one anywhere).

 

Likewise people may get a property left to them following a death.

 

Factor in that commercial borrowing for investment property is a different ball game - you're into commercial arrangement fees, the formation of a limited company (with the usual filing and accounts rigmarole that goes with that).

 

If the first goes well then there maybe another.

 

Once the property(ies) have been bought in the name of an individual / individuals then it's almost impossible to move them into a limited company vehicle - you sell the property to move it into a ltd company you immediately crystallise a capital gain (and will get a CGT bill) and then there's the conveyancing fees and fresh stamp duty for the company to pay on the acquisition.

 

So, once you've bought 1 in your own name it has to stay there which means you're getting a big tax bill following the government disallowing tax relief on the mortgage interest.

 

It's not right because in a limited company vehicle you can offset the cost of borrowing as a business expense.

 

If you're not living in the property and you are treating it as a business then the cost of borrowing is a cost of performing that business whether that be under the guise of a sole trader or a limited company.

[Dellbert]

 

What are the downsides of doing that? The upside is that you can offset interest against Corporation tax. The only downside I can think of is paying for an accountant but that's not too big a deal. Or am I being too simplistic and missing something? Just interested to know why a lot more people don't do it.

 

Dowsides are loan length and cost

Bank Charges

Taxation on taking money from the company

Taxation when ultimately selling up

 

I run mine as a sole trader type company but the tax laws are just reducing profit ,stopping my expansion and sadly increasing tennants rents . (originally my rents were £100 a month cheaper than estate agents recomended ,very soon they will be about the same .

[AVB]

I get that people are unhappy about having to pay tax (CGT or income) on their BTL houses but that's just life isn't it? I don't see why investment in houses should be treated any differently than investment in shares, art, fine wines, cars etc. If I were to take a take a personal loan out to buy a classic car and then rent that car out I would expect, unfortunately, to pay tax on the rental income and CGT on the appreciation of the car. If I ran that hire company as a commercial enterprise I would take out a commercial loan, and be able to offset the loan against the income. What is the difference between that and the house? It's just that more people have been drawn into BTL than classic car rental and the tax breaks have been tightened up so people are, justifiably, feeling more hard done by but isn't it just an alignment of the rules?

 

I do feel that pensions should be even more flexible to allow a wider range of assets, including houses, to be included within pension wrappers.

[Bigbob]

We are getting over 100 thousand houses built on ground i used to shoot over but the hard bit to stomach is there calling it Edinburgh's Rural Expansion Scheme for folk who cant afford to buy houses in the capital no wonder they put the new bridge in the rush hour starts from 06.30 till 10.00 weekdays . Anyway i pasted them yesterday and you can own one for a 5% deposit and only £485 a month thats some cash tying you down for 25 years i dread my kids getting on the housing market

[yod dropper]

The average return on BTL is 3%. Almost always taxable. Many of the amateur and accidental landlords forget about vacant periods, fees and maintenance costs. And taxes. In reality it's been about capital gain (on borrowed money), which of course is taxed on disposal, but I think the days of heady growth are far behind us.

 

Even without the new legislation and housing having become a political issue, net of tax, I'd ask if can I get a better return than that 3% yield + annual capital gain, at less risk and with greater liquidity. Or a balance of these things. I'm just not sure I'd be buying into it now.

 

Buying to live in is another matter.

Edited September 3, 2017 by yod dropper

[Cosd]

The average return on BTL is 3%. Almost always taxable. Many of the amateur and accidental landlords forget about vacant periods, fees and maintenance costs. And taxes. In reality it's been about capital gain (on borrowed money), which of course is taxed on disposal, but I think the days of heady growth are far behind us.

 

Even without the new legislation and housing having become a political issue, net of tax, I'd ask if can I get a better return than that 3% yield + annual capital gain, at less risk and with greater liquidity. Or a balance of these things. I'm just not sure I'd be buying into it now.

 

Buying to live in is another matter.

That depends on the area you are buying and the Capital gain you are likely to make.

 

Having bought in London I know my annual return can seem on the low side but the investment grows at such a rate that it's still worth it.

[Dellbert]

I get that people are unhappy about having to pay tax (CGT or income) on their BTL houses but that's just life isn't it? I don't see why investment in houses should be treated any differently than investment in shares, art, fine wines, cars etc. If I were to take a take a personal loan out to buy a classic car and then rent that car out I would expect, unfortunately, to pay tax on the rental income and CGT on the appreciation of the car. If I ran that hire company as a commercial enterprise I would take out a commercial loan, and be able to offset the loan against the income. What is the difference between that and the house? It's just that more people have been drawn into BTL than classic car rental and the tax breaks have been tightened up so people are, justifiably, feeling more hard done by but isn't it just an alignment of the rules?

 

I do feel that pensions should be even more flexible to allow a wider range of assets, including houses, to be included within pension wrappers.

Well yes its the rules and ive been paying tax on the income of one property for close on 10 years .As you rightly say the rules have changed dramatically by the increase in stamp duty for buy to let and the mortgage against tax rules ,it has or will mean that the small time 'pension' landlords are going to be squeezed out as the big boys move in (as i stated my rents are going up to help compensate for it ,something i dont want to do ) . I like your idea about the pesion thing but cant see that working out as the government will lose to much money

[Dellbert]

The average return on BTL is 3%. Almost always taxable. Many of the amateur and accidental landlords forget about vacant periods, fees and maintenance costs. And taxes. In reality it's been about capital gain (on borrowed money), which of course is taxed on disposal, but I think the days of heady growth are far behind us.

 

Even without the new legislation and housing having become a political issue, net of tax, I'd ask if can I get a better return than that 3% yield + annual capital gain, at less risk and with greater liquidity. Or a balance of these things. I'm just not sure I'd be buying into it now.

 

Buying to live in is another matter.

 

3% Is a realistic return as in rent versus property value and around 5% capital growth (well thats what two of mine have made ) sadly the capital will fall when they re adjust the interest rates to stop spending but property is long tem isnt it .

[yod dropper]

That depends on the area you are buying and the Capital gain you are likely to make.

 

Having bought in London I know my annual return can seem on the low side but the investment grows at such a rate that it's still worth it.

 

One of my closest friends has accumulated a pretty penny over the years through property. He's still got a couple but his agent told him his London flat (West Kensington I think) is down 15-20% this last couple of years. He bought about 1995 so when he sells he'll have a whopping CGT bill which will reduce what looks like profit today, he does know this of course. If you bought at the right time and have been in a while, you ought to win, it's just entering right now I'm not sure about, but I do bet there are parts of London that will still return a profit.

 

 

3% Is a realistic return as in rent versus property value and around 5% capital growth (well thats what two of mine have made ) sadly the capital will fall when they re adjust the interest rates to stop spending but property is long tem isnt it .

 

The question is what will happen to house prices and what will happen to the cost of money. One can go either way, the other can only go up. As the difference narrows, or even reverses, then the investment becomes much less attractive. Long term it's still got to be a decent bet but I'd have my eyes wide open.

[Wb123]

Well yes its the rules and ive been paying tax on the income of one property for close on 10 years .As you rightly say the rules have changed dramatically by the increase in stamp duty for buy to let and the mortgage against tax rules ,it has or will mean that the small time 'pension' landlords are going to be squeezed out as the big boys move in (as i stated my rents are going up to help compensate for it ,something i dont want to do ) . I like your idea about the pesion thing but cant see that working out as the government will lose to much money

Part of the issue that has perhaps been missed in this debate is the cost of buy to let to the tax payer that results from increasing the pool of buyers and increasing property prices, in turn increasing rents, and subsequently increasing the benefits bill, and in turn the amount of tax that has to be raised...

 

Invest your money elsewhere and your activities have less of a knock on effect on the taxpayers outgoings.

 

I am a big fan of the free market, but do feel that it occasionally can need nudging. In this instance the removal of interest as a tax deductible may well move many properties back onto the market and reduce yeilds to the point that people chose other investments.

 

Now naturally the state could alternatively respond by building a huge pile of social and affordable housing, that needs a lot of capital though and would knock the value of peoples existing investments far more, as you say crippling the smaller time pension landlords who seems incredibly heavily exposed to one asset group.

[Dellbert]

Part of the issue that has perhaps been missed in this debate is the cost of buy to let to the tax payer that results from increasing the pool of buyers and increasing property prices, in turn increasing rents, and subsequently increasing the benefits bill, and in turn the amount of tax that has to be raised...

I am confused as to how it cost the tax payer as the treasury end up with the Stamp Duty (now increased for buy to let ) VAT on the survey , buying fees and estate agents fees ,then income tax on any profit ,then capital gains tax when you sell .

Invest your money elsewhere and your activities have less of a knock on effect on the taxpayers outgoings.

Yes the government earn less

 

I am a big fan of the free market, but do feel that it occasionally can need nudging. In this instance the removal of interest as a tax deductible may well move many properties back onto the market and reduce yeilds to the point that people chose other investments.

And possibly ruin people pension plans by makin the house they live in worth a lot less

 

Now naturally the state could alternatively respond by building a huge pile of social and affordable housing, that needs a lot of capital though and would knock the value of peoples existing investments far more, as you say crippling the smaller time pension landlords who seems incredibly heavily exposed to one asset group.

That would be a sensible way forward unfortunately the community housing is normally run as a charity so they make a profit which the tax man gets nothing of ,and as this country is skint government built housing is unfortunately a no go ,so for now without private landlords the housing situation would be sunk .

 

Then again i suppose im biased lol

[JohnfromUK]

Hmm, at 3% taxable annual income and approx 5% annual growth (figures suggested elsewhere in this thread), it's not for me.

 

A stocks and shares ISA gives a better annual yield (and is tax free) and a similar growth - and is again tax free. By spreading around funds, I would think that the 'risk' is probably lower, and the cash is easier to access.

 

The problem with ISA is that you can only invest a limited (though now quite generous) amount in each year, but if you have been doing it to the available maximum all the time they have been available (PEP and ISA) - you have a nice saved sum (the best will have exceeded 7 figures by now) - and all tax free,

[silver pigeon69]

Hmm, at 3% taxable annual income and approx 5% annual growth (figures suggested elsewhere in this thread), it's not for me.

 

A stocks and shares ISA gives a better annual yield (and is tax free) and a similar growth - and is again tax free. By spreading around funds, I would think that the 'risk' is probably lower, and the cash is easier to access.

 

The problem with ISA is that you can only invest a limited (though now quite generous) amount in each year, but if you have been doing it to the available maximum all the time they have been available (PEP and ISA) - you have a nice saved sum (the best will have exceeded 7 figures by now) - and all tax free,

3% return and 5% annual growth? You can get much better returns if you look around! Where i live you can get a 1 bed flat for 80-100k and a rent of £400-500/month= 6k year so minimum of 6% on annual return and over 5% appreciation, so 11% year (commercial property normally 10% return + appreciation). Is there an ISA that gives you >4% year?? I was under the impression a good performing hedge fund gives 10% year and that is an extremely risky option.

Edited September 3, 2017 by silver pigeon69

[JohnfromUK]

3% return and 5% annual growth? You can get much better returns if you look around! Where i live you can get a 1 bed flat for 80-100k and a rent of £400-500/month= 6k year so minimum of 6% on annual return and over 5% appreciation, so 11% year (commercial property normally 10% return + appreciation). Is there an ISA that gives you >4% year?? I was under the impression a good performing hedge fund gives 10% year and that is an extremely risky option.

I was using the figures for B2L quoted by others in the thread. The 'income' funds yield about 3.5 to 4.5% and there is no tax on that. Your 6% is gross and presumably you have to pay some repairs, insurances, legally mandated inspections etc from that - then tax at your rate on what is left? A dividend fund from a major fund manager currently yields 4.6% which is tax free held in ISA.

 

On growth, I agree that property has done well, but is subject to CGT and stamp duty. Bottom line is both 'work' and I think you can spread the risk better by a mixed (inc overseas orientated funds in ISA and ISA has no CGT). The dividend fund mentioned has averaged just over 10% annual growth over 5 years.

 

I used to let a property and had a bad experience with a tenant going bankrupt, and overall taking into account repairs, insurance, and tax ate into the overall return quite deeply.

 

The best property investments will be hard to beat, but when taxation plays a part (and this varies according to your other circumstances), ISA may prove competitive.

Edited September 4, 2017 by JohnfromUK