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A bunfight followed by a fast? Why the buy-to-let tax hike should not be feared

The frustrations vented over the looming buy-to-let tax hike has sadly been all too predictable.

In the latest twist to what have been daily headlines, the Royal Institution of Chartered Surveyors say buy-to-let landlords are “piling into” the UK market in advance of the tax rise.

The RICS said December was “unusually high” – sparking fears it could lead to a slump in the market following a bunfight in the first quarter of this year to secure properties.

The gloomy forecast is just one of a number of headlines which, while they are not the death knell for buy-to-let, seem to think there are at least a few nails being hammered onto its coffin.

Some reports suggest as many as 200,000 landlords are primed to leave the market. That’s one in ten of current landlords. Given that they own on average 2.5 homes, the idea is this should bring around half a million properties on to the market.

Further research by the National Landlords Association suggests the change the chancellor’s changes to tax relief will increase rents by between by as much as £113 a month. The biggest impact will supposedly be seen in London.

But there are some sensible views out there.

Azad Zangana, senior economist at Schroders, sums it up well by saying: “In a rising market, those using property as an investment will not worry about such a small additional cost.”

This view is underlined by interest rates all set to remain low for the foreseeable, as underlined by Mark Carney.

I would go further to say that while there is no doubt the new tax hike laws represent a challenge it is not a challenge which is unsurmountable.

It is not a challenge that will see off serious property investors. Moreover it is not a challenge which should deter buy-to-let entrepreneurs from moving into or continuing to focus on the world of buy-to-let.

London is often wheeled out as an example of where George Osborne’s but-to-let tax rise will hit more.

But London is not a good example. The market in the capital has been off-the-scale for years. We are talking about a city where a first-time buyer home is upwards of £400,000. The average rent for a studio is £2,300 in central London.

The trick will be to look north, and to areas like Manchester. Manchester has enjoyed £8.2bn of investment in the last ten years. It has also topped CBRE’s regional property league and attracted investors like myself. The attraction is hard to ignore – there a number of homes ready to be bought for under the £125,000 limit for stamp duty.

Manchester has a phenomenal job growth as a result of the 300 or so companies housed in Media City. It provides investors with a strong cash flow.

Half of the properties I and my property buying partner Simon Paul purchased in Manchester last year were below £40,000, the others were at least 30% below market value. This means George’s stamp-duty rise would not have been an issue.

But in property investment, we know that there can be a certain amount of luck, but more importantly, it requires research, the boldness to act on that research and the confidence to trust your vision. That is the further challenge – and I would hope it is one buy-to-let entrepreneur’s will take up. The key is not to get angry, but to get smart.

The tax hike gauntlet can certainly be taken up in other ways and the new measures can be mitigated against.

Companies that own fifteen or more properties, it looks like, will be exempt from the new stamp duty laws. So there is a value in volume, and running this as a business, which it should be anyway.

So will there be 500,000 buy-to-let properties on the market in the coming months? Will landlords flee the market? I find that hard to believe.

Not even the tax law changes will compromise that cash-flow. Yes, London is an exception. Landlords might pull out of properties in the capital, but one home in London can buy six in the UK’s Northern Powerhouse. Which is precisely what they’ll be doing – avoiding stamp duty and making more profit in the process.

They should take confidence in opportunities in cities like Manchester or indeed Birmingham, which has overtaken London as one of the top 10 European cities to invest in.

The real trick for investors is to take what they are doing more seriously. Fortune will favour the brave, particularly the brave who back up decisions with solid research and strategies.

*Marco Robinson is a bestselling author & award winning entrepreneur.

Marco won the People's Choice I-Property Best Real Estate Investor, 2015 and is the author of the forthcoming book The Financial Freedom Guarantee.

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    Azad Zangana, senior economist at Schroders, sums it up well by saying: “In a rising market, those using property as an investment will not worry about such a small additional cost.”

    Indeed the extra 3% SDLT is a problem that can be built into the sums without resulting in anything too dramatic, but it seems that was has been overlooked here is the devastating impact of Clause 24. That is the real killer, not the extra stamp duty. If anyone comes into the market without fully understanding what this tax on turnover means then they may well get well and truly burnt.

    C24 is extremely badly thought out and will result in rents rising and/ or tenants being phased out as the tax is phased in. Landlords may choose to sell up or upgrade their tenants to those that can afford the higher rents. Many of those that can't afford higher rents will throw themselves at Councils across the land, who are already dealing with the worst situation of temporary accommodation that we've ever had.

    Marco Robinson

    Clause 24 is ambiguous and not in law yet or confirmed, however you must be prepared as Investor and landlord to change your strategy. With every law there is an equal if not bigger opportunity to force your hand that actually make you more money.

    The two strategies that will fly are;

    1. HMO's (House of Multiple Occupants) Why? Because the most popular rental in the UK is shared accommodation, put a shower and sink in each room, very inexpensively and double your rents at least. Financial Freedom is all about Cash-flow.

    2. Use Companies to purchase property. Why? Any reduced mortgage tax relief will be mitigated by the expenses you can claim as a Business owner. There are going to be more loans made available to companies if these new laws come into effect, as lenders will lose way more profit because less individuals will be buying. Companies can apply for Bridging loans, we have 5 bridge lenders within a year already...

    In one year I bought 107 properties, created assets of nearly £6 Million pounds and borrowed £3.5 Million. My profit margin is 50% of my turnover as

     
    Marco Robinson

    I sell my properties as Lease Options...

    Look out of the Box.

    And for your information you can see my company accounts at Companies House uner;

    Wealth Creation (UK) Ltd.

    Many Thanks for your comments John

     
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    Hi John

    You are totally right the stamp duty hike is nothing compared to clause 24 that is the hidden nasty that is getting overlooked due to is ambiguity.

    Killer is the right word the figures if you are a portfolio landlord are eyewatering

  • Marco Robinson

    Clause 24 is ambiguous and not in law yet or confirmed, however you must be prepared as Investor and landlord to change your strategy. With every law there is an equal if not bigger opportunity to force your hand that actually make you more money.

    The two strategies that will fly are;

    1. HMO's (House of Multiple Occupants) Why? Because the most popular rental in the UK is shared accommodation, put a shower and sink in each room, very inexpensively and double your rents at least. Financial Freedom is all about Cash-flow.

    2. Use Companies to purchase property. Why? Any reduced mortgage tax relief will be mitigated by the expenses you can claim as a Business owner. There are going to be more loans made available to companies if these new laws come into effect, as lenders will lose way more profit because less individuals will be buying. Companies can apply for Bridging loans, we have 5 bridge lenders within a year already...

    In one year I bought 107 properties, created assets of nearly £6 Million pounds and borrowed £3.5 Million. My profit margin is 50% of my turnover asI sell my properties as Lease Options...

    Look out of the Box.

    And for your information you can see my company accounts at Companies House under;

    Wealth Creation (UK) Ltd.

    Many Thanks for your comments Steven

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    Marco Clause 24 is most definitely law. It reached Royal Assent in November. For it not to happen it now needs additional legislation to overturn it, which will happen if the Judicial Review is successful.

    I too run HMOs and approximately half of my rooms are fully ensuite, a few more are semi ensuite. Some have their own Elfin kitchens. I agree that HMOs are a good investment though in some areas there is oversupply and in others there are Councils that make your life very difficult (e.g Milton Keynes). I am lucky that in my area the Private Sector Housing team are extremely helpful and cooperative.

    The problem for many landlords is that they already have portfolios that are made up either partly or wholly of family units and C24 will drive many of them into severe financial difficulty. Some will be bankrupted but alas, there are still loads that are not yet aware that C24 has come in and what it means to them. The Chancellor was very misleading when he announced it and David Gauke continues to be so.

    Please do pass on the message to any landlords you know that this Draconian and iniquitous measure in not only law but will cause serious tax implications to the majority of landlords that have mortgages.

     
  • Peter David

    Removal of mortgage interest payments being a chargeable expense is going to be a massive fatal blow to the head which will instantly poleaxe any mortgaged portfolio. It is the most stunningly ridiculous, stupid and horrifying proposal that I have ever heard in my life. We will put tenants out in the streets in no time at all rather than face a massive and unserviceable tax bill for imaginary profits. For that is what they are. Beyond insane.

  • Marco Robinson

    Dear Peter, indeed, so you must change your strategies. I have outlined many strategies in many articles I have published and my new Book. But you MUST as stated start using Companies to buy and think about converting your Properties into HMO's. Ones you can't time to exit the market on those properties.

  • Peter David

    Using a company. Problem one - lender will now be lending to a company of unknown credit history risk etc. No no to that. Problem two. A trigger is pulled on immediate capital gains tax charge. So either way you are taxed to death in one poleaxe to the head. Trapped totally. We will have to the vast majority of our stock to reduce the leverage. Buy to let predicated on a gearing model, under these proposals, is financially impossible.

    Marco Robinson

    Dear Peter, actually what you are quoting is simply not true at all. I started a company just over a year ago from being abroad for 18 years with very little credit history. In a year this is what I have done:

    Turnover £1,248,129
    Pre tax profit £612,534
    Profit after tax £488,411
    Assets £5,867,582
    Not bad for ONE YEAR of operation is it? and just goes to show you ANYTHING is possible, and George Osborne's Tax Laws do not matter AT ALL!!!

    Now I bridged my fully tenanted buys. They do ask for personal guarantees which you have to give. However all my buys have been Appartment blocks bought with my award winning research tools. Massive amounts of research goes into what we do to calculate risk.

    Companies are EASY to set up and lots more loans are available to them. In fact I can recommend you to at least 5 bridging companies who would lend you money. Eve with a bridge loan they are positive cashflow and I have refinanced to normal banks three months later.

    To avoid capital gains tax you lease your existing properties to your company at whatever charge you want. I'm sorry Peter but there are many strategies available to you IF you learn from the right people.

     
  • Peter David

    "Have to sell"

  • Peter David

    So basically it feels pretty terminal :-(

    Marco Robinson

    Look up my company at companies house the you won't feel so terminal;

    Wealth Creation (UK) Ltd

     
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    Marco you obviously have no idea of the market in most of Wales!
    I made the decision to use BTL as an alternative to other pension planning. What right has any Govt let alone a Tory govt have to wreck our businesses!!! Why should I sell. Why should I spend thousands on incorporating my portfolio or using trusts? Why???
    By all means change the rules moving forward but to penalise highly geared landlords is just unbelievable. They are voted in to represent us not themselves. FIGHT don't change . Peter David it's good to hear someone else with some passion instead of people finding expensive ways to mitigate this extortion. People are raising rents now!! I have 43 highly geared houses in Wales (result of crash etc. Bought at wrong time etc) if I make £0 conventional profit when it's all in (God forbid!) I will be expected to pay c£17,000 tax from where??? FFS!

    Marco Robinson

    Dear Rhys, I feel your pain, trust me.

    Fighting I have always done, however we have to face realities. Realtirs are it might become law but there is still a chance it will be deferred. In one of the ones that have petitioned.

    I look at everything as a blessing in disguise because there is always a way , non expensive way to move forward.

    Converting to HMO's is not really expensive. It's a few hundred quid per room and can double your yield.

    Selling what you have and starting again afresh IF you are not negatively feared might be the way to go.

    Taking your pension out now to reduce your mortgages significantly would be a great step for you. And by the way you can withdraw your pension before 55 with a SSAS (small business self administration scheme).

    It's a shame and a disgrace the government do not disclose what I have just told you. But governments are all the same and really just want votes they r not really interested ethical governing for all as you know. Entrepreneurs create the jobs and wealth not governments.

     
  • Peter David

    If you had a btl property bought for £230,000 now valued at £680,000, transferring it to a company would generate a capital gains liability of many tens of thousands of pounds. How would you avoid that?

    Marco Robinson

    Dear David, you would sell it to the Company for £230,000 or slightly more to avoid that tax.

     
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