More buy-to-let property investors are using limited companies
More buy-to-let investors are using limited companies to buy properties than ever before. According to the latest industry numbers, one in five homes in the private rented sector are now owned in a limited company structure to save tax. It is the highest proportion since records began in 2010.
The main reason for holding property within a limited company is tax efficiency. It is especially relevant as mortgage interest tax relief is phased down to basic rate tax relief, affecting higher rate taxpayers adversely in many cases.
Even Tony Blair, who owns 38 UK properties with a value of approximately £33 million, has set up a limited company to manage his family’s growing buy-to-let empire. According to the Daily Mail, Mr Blair owns 50% of the shares in the newly-formed Harcourt Ventures Ltd., though wife Cherie Blair is the only director.
Government’s affordable housing target could be in jeopardy in London
The number of new builds in London has fallen dramatically, with some developments reporting that they are at “a critical stage”. Land Registry data confirms a grim picture in prime central London:
- 44% of all new flat sales in London in 2016 took place in the first quarter, as buyers rushed to beat the new stamp duty regime
- By the end of 2016, completed sales of new build flats were 41% lower than in 2015
- Average sold prices fell by 8.7% to £1.9 million
High-priced, luxury properties have been the worst affected. Sales of new builds above a £5 million price tag fell by 57%. Sales of properties below £1 million fell by 38%, although much of this fall can be attributed to there being fewer properties valued below £1 million.
Nine Elms Battersea, a key development for the government’s affordable housing target, has revised down its projected investment return from 20% to around 8%. Consequently, developers have moved some of the proposed affordable housing to a later stage of the development, and are reassessing how many affordable homes they will be able to deliver on the project. Naomi Heaton, CEO and founder of LCP, commented: “With high-value sales to international buyers typically off-setting the cost of providing more modest housing and essential cash flow to reinvest into new development, the government may well struggle to deliver upon its affordable housing targets if this trend continues. Battersea Power Station has already reported financial viability issues in delivering its affordable housing targets.”
Landlords are warned: your tenants could be hiding significant damage
The Association of Independent Inventory Clerks (AIIC) has found that tenants are increasingly ‘playing the system’, and finding ways to avoid reasonable charges for the damage they cause.
- A survey conducted by YouGov found that a third of tenants wouldn’t tell their landlord if they caused significant damage to their property. Half of these tenants would hire someone to make the repair, and almost half would attempt the repair themselves. A small minority would leave the damage unrepaired, and try to hide it from the landlord.
- The AIIC quite rightly says that it is increasingly important to have proper property-checking and inventory management in place. Only then can you avoid the common property inventory mistakes that buy-to-let landlords make.
AIIC Chair Patricia Barber has warned landlords that they must have thorough processes for tenant referencing, taking and protecting deposits, and for carrying out an independently-compiled inventory. She says, “Tenant referencing increases the prospects of securing ‘good’ tenants in the first place, while an inventory provides you with the evidence you need to make a deduction from the tenant’s deposit.
“Issues that are left unattended for long periods could deteriorate and cost more in the long-run. So, reminding tenants of their responsibility to report problems could certainly save landlords money over the course of a tenancy.”
What you can learn from last week’s investment news:
Analysing this investment news flow, we can come to the following conclusions:
- Buy-to-let investors will always adapt strategies to reduce tax and increase profits. Tony Blair’s earnings are made highly tax-effectively (a political hotcake which we won’t discuss further here). However, whether you should set up a limited company to hold your property investments depends upon your personal circumstances. You should seek advice before doing so.
- The government’s target for affordable housing was always going to be stretched. Fewer affordable homes mean that there will be greater emphasis on the private rented sector to service demand, and this means greater opportunity for buy-to-let property investors.
- As a buy-to-let investor, you hope that your tenant will treat your property with respect. When significant damage is caused, it is important that you know about it, and determine how the repair is to be carried out. If you don’t know about the damage, however, it is repaired could cause more problems and a greater financial burden in the future. Make sure you keep on top of your tenant and your property.
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