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September Property Newsletter

Rents have grown at the fastest rate in 16 years

 New research published by the online real estate portal, Rightmove, has revealed that rental prices have grown at their fastest yearly rate in over 16 years.

The average asking rents outside of London have leapt to £1,126 per month by the end of June, having risen 11.8% year-on-year and 3.5% since the end of March. The most drastic increases were found in Manchester (+23%), Chatham (+21%), Liverpool (+19%) and Weymouth (+19%).

Rents in London have also hit a new record of £2,257, having risen 15.8% year-on-year. These figures show that rents have increased by about 19% since the start of the pandemic in 2020.

These increases are an outcome of a shortage of available housing and an increase in demand. According to the findings, available properties have dropped by 26% while demand is up by 6% in the past year alone.

Although these figures look dim, Rightmove is optimistic about the future, predicting that the number of available listings will steadily increase for the remainder of the year. There have also been legislative actions by some councils to deter holiday lets and increase the number of homes available to rent.

Sharp increase in HMRC fines issued to landlords and freelancers

The number of fines issued by HMRC to freelancers and landlords spiked last year in a supposed attempt to close a £32bn tax gap.

September Property Newsletter Friend & Grant Accountants

September Property Newsletter Friend & Grant Accountants

According to The Telegraph, HMRC civil servants were put under pressure to bring in as much money as possible, resulting in 90,000 penalties being issued in the 2021/22 tax year – up from 49,700 from the previous year.

According to experts, HMRC are cracking down on mistakes to make up for the tax gap and pandemic schemes such as the furlough scheme.

Several fines were issued for careless mistakes on self-assessment returns filed during the lockdown. Some fines were also issued as a result of incorrect calculations due to not having physical receipts.

Many landlords opted to complete their return themselves rather than use an accountant during the last tax year. If you know a landlord who has done this and has run into problems please get them to call us.

Bank of England raises interest rates to 1.75%

 As you may have heard, the Bank of England raised interest rates for the 5th time this year to 1.75% from 1.25%. This is the highest jump in 27 years. Let’s take a look at what this means for homeowners.

Although this comes at a time of rising energy bills and overall cost of living, it’s important to remember that interest rates have been at an historic low recently. There is still affordable lending available compared to what lenders were offering 10 years ago.

Property landlords have traditionally been seen as one of the groups that benefit from inflation. This is because, as prices rise, the value of their property increases along with it.

Rents have also increased dramatically over the past few years, and they’re now averaging more than £1,000 per month.

It may be worthwhile to shop around and see if you can get a better mortgage offer – there are several good deals on the market.

Just keep in mind that the more of your mortgage that you currently have paid off, the better deal you should be able to find. However, if you’re on a fixed rate mortgage and decide to switch to a different rate, you may have an early repayment charge payable.

Want to look into your options? Feel free to contact us if you’d like to discuss this further. We’re here to help!

The latest news on house prices

 Despite recent increases of the base rate, UK house prices have been rising at an alarming rate. In fact, the average UK house now costs £369,968.

September Property Newsletter Friend & Grant Accountants

September Property Newsletter Friend & Grant Accountants

The size of the home has a huge impact on the rate of growth. According to Halifax, the price for a detached home increased by 15.1% year-on-year, whereas flats increased by just 7.7%.

This can be good news for existing homeowners who are seeing the value of their property increase, but it’s certainly bad news for potential first-time buyers.

The question is, how long can this continue? With house prices now at record highs, some experts are predicting a crash in the near future. So if you’re thinking about selling up, it might be worth doing it sooner rather than later. Another option would be to consider a buy-to-let, as rents have also soared in recent years.

Similar to the weather, it’s difficult to predict how the property market will change going forward. However, reports from Halifax have stated that house prices fell by 0.1% in July 2022 – their first drop in over a year. We’ll keep you updated on any developments.

Should HMO or buy-to-let landlords set up a limited company?

We have previously written about incorporating a property business in our blog entitled Thought about creating your own Property Investment Company? – Friend and Grant

There are several considerations to take into account when deciding whether or not to set up a limited company for your HMO or buy-to-let business. Some key factors to consider are the level of personal liability you’re willing to accept, the tax implications, compliance requirements, mortgage relief and cost.

The benefits of setting up a limited company

If you’re operating as an unincorporated property investor, you’ll be personally liable for any debts or losses incurred by the business. This means that your personal assets, such as your home, could be at risk if the business fails. A limited company offers limited liability protection, which means that you’re only liable for the debts of the company up to the amount you have invested.

The introduction of Clause 24 is another motivator to set up a limited company. This restriction was implemented in 2017 to reduce the amount of mortgage interest that can be claimed as a cost against residential property letting. It was introduced gradually, and as of 2021, the interest costs are now disallowed and replaced with the Finance Cost Allowance. For higher rate taxpayers this has a major impact. However, this does not apply to limited companies. Companies will continue to claim 100% of interest.

If you do set up a company for the reason of Clause 24, it’s important to recognise that it could be beneficial to set up a separate company for each property investment if the individual property investment is substantial. This will simplify your taxes, allow you to sell shares at 0.5% Stamp Duty (instead of selling the property) and make Inheritance Tax Planning simpler. In addition, Capital Gains Tax will be 8% lower on selling shares and based on the net asset value of the company (allowing the offset of borrowing). If you are buying a number of smaller properties then this model probably won’t work due to operational costs of having a company (accountancy fees, software fees etc…). In this situation we would probably recommend grouping your properties together in one or two companies.

Another tax advantage of setting up a company is that you’ll no longer have to pay income tax on your profits. However, you will have to pay corporation tax which is currently at 19% but is set to increase to 25% from 2023. Therefore, if you’re in the 40% tax band, a company could significantly reduce your bill.

Single property companies are also better if you want to shop around for borrowing as the lender can take a charge over the property and debenture over the company.

The drawbacks of setting up a limited company

 Some drawbacks of setting up a limited company as an HMO or buy-to-let landlord include:

  • Limited mortgage deals: There are not many mortgage providers that lend to companies, so your choice will be restricted.
  • Disclosure: Companies have to publicly disclose details about their business, including the registered address, date of incorporation and current officers. This may deter some landlords.
  • Transferring properties into the company: If you already own a property and wish to transfer it to a limited company, you need to go through the standard sale and purchase procedures. All standard taxes will be payable which could make this option very costly.
  • Cost: whilst it isn’t a lot, company accounts are in general more costly to prepare than accounts for an individual or a partnership. Having multiple companies can greatly increase the cost, so whilst there are financing advantages of having a single company for each property you do need to take care.

If you have one property, then it may be better for you to continue as an unincorporated property investor. However, if you’re near the tax threshold of £50,000 or plan to expand your portfolio, then it’s worth considering setting up a limited company. Speak to us about incorporation.

The content in this article is correct as at 12th September 2022. See terms and conditions.

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