With 14.1% of residential property in the Parish of Oakham
being privately rented (as there are 659 privately rented properties in the town),
these changes are potentially something that will not only affect most Oakham
landlords, but also the tenants and the wider property market as a whole. The
choice of rental properties could drop, especially at the top end of the market
which could push up rents.
However, Oakham
landlords could protect themselves by reassigning 1 or more rental
properties into a company structure (e.g., a Limited Company, Partnership or
Sole Trader) and by doing so, the total tax paid is greatly reduced, because a
company only pays tax on the profit. Nonetheless, before everyone goes off
setting up companies for their B2L portfolios, it must also be noted, if a sole
trader firm is started, stamp duty needs to be paid, yet if the owner is in
business with a partner, they could enjoy some stamp duty relief. The biggest tax variation is Capital Gains Tax
(CGT) where the tax bill will be much higher when you come to sell your
portfolio. In essence, by going into business with your B2L properties, you
will potentially have a modest stamp duty to pay when you start, but you will
have a lot less monthly tax to pay, irrespective of the interest rate, but the
CGT bill will be much higher when you come to sell ... as you can see, it is
not a ‘get out of jail card’. Now it must be remembered, I am not a tax
advisor, so you must take advice from a qualified person.
Those planning to purchase a B2L property will have to
factor these new rules into their calculations, and this could affect the
offers they are willing to make. However, I am not that concerned, as the
scaremonger reports fail to see the fact that two out of three B2L properties
that have been bought since 2007 have been purchased without the support of B2L
mortgage. With those two thirds of landlords paying cash for the purchase of
their rental properties, that means two thirds of landlords will be totally
unaffected by the changes.
So what of the future? The British love their 'Bricks and
Mortar', it’s an asset that they can touch and feel and has a 70 year track
record of capital growth that has out-stripped inflation. Buy-to-let will still
be attractive to Oakham investors and let me explain why. If you invested
£30,000 in Oakham property in September 1987, today it would be worth £132,797.
If you had invested the same £30,000 in to the London Stock Market (the FTSE
100 to be exact), it would be only be worth £85,879 today, whilst Inflation
would have taken the original £30,000 and pushed it up to £62,345.
It’s true some central London landlords relying solely on
the tax breaks rather than high yields may be forced out of the market, but
even those landlords could seek to recoup any losses by increasing rents. However,
those landlords may leave the market and this could constrict the availability
of rented houses even more than it is already, increasing rents and thus pushing
yields even higher for landlords and B2L investors still in the market... thus
attracting new landlords into the market because of those higher yields.
The reality is, there is too much demand and not enough
supply of homes for people to live in in the town. Official figures show the
population in Oakham is rising by 94 persons per year (i.e., demand rising), but
only 58 properties are being built each year (i.e., supply is low). This sets
up the Oakham (and UK) property market to continue to create strong and
steady returns, irrespective of any tax loophole being there (or not as the
case maybe).
To see the 3 interesting B2L properties currently for sale that I’ve got my
eye on, please read my post from earlier this week.
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