Is Buy to Let Fading Away?

[Melboy]

I speak to a lot of LA's in the course of my business dealings and the consensus of opinion is that BTL buyer's are distinctly very thin on the ground right now and has nothing to do with the Covid epidemic either. Has the Government stripped the the BTL landlord through the bone with all the new legislation in place and the removal of many tax advantages?

   Which brings me neatly onto my last 2 weeks of work and preparation of one of my rental properties.

   After 6 years my very nice tenants moved out to pastures new leaving me a very clean house to take back and the garden has been upgraded with landscaping and looked after by them.  So it was time for me to start the upgrades on this property starting with the boiler replacement. This wonderful 1985 boiler ( 😀)  had served it's purpose for all these years with just a new gas valve and thermocouple 5 years ago. Regularly serviced and maintained by my Son for the past 11 years who kept it running like a Singer sewing machine but sadly it was time to call it a day with it and get a new "A" rated boiler installed. This was completed in two days with a very neat job by the Lad. (46). Next was to replace all the radiator TRV's which had seized solid shut and upgrade washing machine points to the 21st Century and a few other minor plumbing jobs.

      Next in was the Sparky in to upgrade and certify the consumer fuse board and certificate the house as safe. Certificates last for 5 years and are now compulsory from April for new tenancies.  New EPC was completed next last Thursday for £50 which was more than acceptable to me. We spent more time talking about the current property market than it took him to carry out the inspection. 😅  

New and expensive cooker and washing machine and fridge freezer installed. Upgrade ceiling lights to LED in the kitchen and bathroom. They really are good aren't they.  Lots of decorating done by me and the good Lady Wife whilst everything else was going on and finally we turned the bombsite into a very smart and very presentable 3 bed rented property with a day of thorough deep cleaning Thursday and Friday morning.

New Tenant moves in this morning. Unusually this person renting from me is actually working in the Lettings business and EA business but is a known person to me.

A busy 2 weeks for this Landlord.

[Richlist]

Sounds like you've done a comprehensive refurb' there Melboy. It's great when you finish it , you always get a great sense of achievement don't you.

As regards your first point .......I think the adverse changes over the last few years have had a negative impact on BTL but much smaller than I was expecting. I suspect many of the new landlords are still learning about the changes e.g. the phased in changes to mortgage interest. The market does seem quieter at the moment and I believe that is due to Covid and the changes to notice periods & court action etc. I've had a property for sale for a few weeks and had hardly any enquiries from investors......It's mostly been FTBs. Most investors are looking to buy under market value of something that they can add value or refurb. Most investors aren't interested in a property where the work has already been done. But again, as we have said many times, in this current low interest rate period, BTL can still offer a better return than banks of building societies.....you just have to work a little harder to get that return. Given the ongoing housing problems in the UK, I don't believe any Government will introduce such draconian measures that will result in a mass exodus of investors. The private rented sector provides enormous numbers of available housing which could never be replaced by the Gov'. The next important date is Rishi Sunaks budget in March.......keep your fingers crossed that our industry isn't to badly affected.

[Grampa]

Very satisfying turning around a rental ready for letting isnt is Melboy. I just compleated a week ago on my 2nd property within the last 6 months but my first for my new Ltd company which on the face of it needed minimal work. It is  a modernish large 2 bed 80's ex council flat with parking and its own enclosed courtyard and the freeholder is the local council. I was planning to move away from Leasehold but the S/C are only £160 per year (for building insurance) and £10 pa GR. 

A damp smell in the tired shower room (no window) needed to be addressed which I thought was the non-working extractor but I decided to bite the bullet and fit a bath with overhead shower which was just as well because the shower tray trap was leaking (for a long time) which had no access point without taking apart and was sodden with rotten woodwork when we got access to it. Also fitted mains powered smoke alarm and heat alarm and electric cert booked for friday. So an extra 1k-1.5k spent but see it as an long term investment. 

[Grampa]

43 minutes ago, Richlist said:

Sounds like you've done a comprehensive refurb' there Melboy. It's great when you finish it , you always get a great sense of achievement don't you.

As regards your first point .......I think the adverse changes over the last few years have had a negative impact on BTL but much smaller than I was expecting. I suspect many of the new landlords are still learning about the changes e.g. the phased in changes to mortgage interest. The market does seem quieter at the moment and I believe that is due to Covid and the changes to notice periods & court action etc. I've had a property for sale for a few weeks and had hardly any enquiries from investors......It's mostly been FTBs. Most investors are looking to buy under market value of something that they can add value or refurb. Most investors aren't interested in a property where the work has already been done. But again, as we have said many times, in this current low interest rate period, BTL can still offer a better return than banks of building societies.....you just have to work a little harder to get that return. Given the ongoing housing problems in the UK, I don't believe any Government will introduce such draconian measures that will result in a mass exodus of investors. The private rented sector provides enormous numbers of available housing which could never be replaced by the Gov'. The next important date is Rishi Sunaks budget in March.......keep your fingers crossed that our industry isn't to badly affected.

Totally agree RL, as you say its still a good return you just have to be more diligent when picking your tenant. However, I have found landlords are questioning fees a lot more recently and see a small number wanting to now self manage as they dont see the fees charged value for money. I would say with all the law changes, penaties and hoops you have to jump through you need a managing agent more than ever. 

[Carryon Regardless]

1 hour ago, Grampa said:

I would say with all the law changes, penaties and hoops you have to jump through you need a managing agent more than ever. 

Totally agree with that.

The difficulty is finding an A that is as knowledgeable and as up to date as you Grampa. If the A gets it wrong the LL suffers the fallout.

Tbh I used to be able to quote legislation, nowadays I don't know where I stand with it.

On RL's point of the Govt not being able to supply housing if the private sector reduces supply. My view is that the houses will still be there, put that together with the local authorities imposing greater penalties on mt stock and those houses will be lived in by someone. It won't cause any more of a housing crisis than we have, the properties will merely change hands at what ever market value dictates.

To digress a little, High St's are now full of mt shops, more so due to covid. Surely many are destined to become solely residential instead of just flats above. Lost council tax yes but what's the option?

By imposing ever increasing  responsibilities on us the private industry will either provide an ever increasing improvement in housing or reduce our involvement. Either way the state wins. Any reduction of BTL ownership at worst (or best for those ftb's) will cause a fall in values .

As yet I only see a very gentle kick back from the private rental industry. what are the NLA doing to protect? I don't see a sympathy for us that will slow the onslaught of politicians using us as an easy target.

 

 

[Richlist]

The next kick up the backside might well be what the media have been printing over the last few weeks.....a big increase in CGT. Currently CGT is 18% & 28%.......could be increased in line with income tax rates to 20% & 40%.

If they introduce that in March my CGT bill for the sale of one small flat will rise from around £21000 + to £27000 +.......OUCH......and it has to be paid within 28days of sale completion.

[Carryon Regardless]

I've been meaning to research some.

It used to be that reinvesting a capital return would defer the CGT payable. An incentive to continue investing ones dosh and aid the economy. reasonably so in my view.

If that can still be done it was would seem that the CGT is paid and an attempt to reclaim it in what ever period may be allowed for later, post the investment in another venture. Not good for cash flow even if that is allowed.

Of course if not allowed it then means our CGT is paid as it is realised, closer to income tax really.

Either way it reduces incentive to carry the CGT forward and that must have a negative impact on income tax. Less personal annual profit, less use of contractors, less purchasing of raw materials.......

A short term win for whichever parliament enjoys the windfall.

[Carryon Regardless]

Shows how lazy I've become,

pay CGT and never see it again. Reinvesting is no longer a benefit toward CGT deferral.

https://finance.zacks.com/tax-benefits-reinvesting-capital-gains-9608.html

This essentially refers to share CGT, but I'm assuming there is no difference.

 

[Richlist]

Correct......there are very few opportunities to escape CGT. You certainly can't defer it, offset it, not pay it or reinvest to escape it.

If you do find a loophole I'd probably pay you a very handsome fee for passing it onto me.

The only escape from CGT liability that I have ever been able to find is :-.........There are a few countries around the world that if you move there and become a resident for tax purposes then they do not levy a CGT charge on any worldwide income. Unfortunately the list of countries would not normally attract anyone to move there permanantly.

[Phkarentel]

4 minutes ago, Richlist said:

Correct......there are very few opportunities to escape CGT. You certainly can't defer it, offset it, not pay it or reinvest to escape it.

If you do find a loophole I'd probably pay you a very handsome fee for passing it onto me.

The only escape from CGT liability that I have ever been able to find is :-.........There are a few countries around the world that if you move there and become a resident for tax purposes then they do not levy a CGT charge on any worldwide income. Unfortunately the list of countries would not normally attract anyone to move there permanantly.

then they do not levy a CGT charge on any worldwide income. 

You mean the uk won't levy the CGT charge? 

If so any idea what countries 

[Richlist]

You'll need to do your own homework not rely on me. It's a few years ago when I looked into this so the list and the requirements may have changed. 

 

[Carryon Regardless]

As an unrealistic suggestion, and this assumes post sale the solicitor pays revenue into your account rather than paying the tax on your behalf as with stamp duty. But as they aren't an accountant to calculate such I would imagine it's the tax payers responsibility.

Withdraw cash, if we're able to do such.

B*gger off to Ecuador.

You will be made bankrupt in your absence, any remaining assets would be confiscated. 

 

[Richlist]

The solicitor will always pay the sale proceeds ( less estate agents fees, solicitor fees and expenses) into your bank account. It's the sellers job to pay the CGT. I'll be completing the sale of my flat around May this year and will be required to calculate & pay the CGT within 28 days.

Of course, May is short!y after the start of the tax year and I won't know what my other  income will total until April 2022. Nevertheless I will be expected to estimate any CGT due within the 28 day limit. If I overpay or underpay it will get balanced out when I submit my self assessment return at the end of the tax year.

You could of course run off with all the money although it's not recommended......I don't know how much effort HMRC would take to peruse you. But, you probably wouldn't ever be ab!e to come back. 

[Melboy]

The dreaded CGT!   Especially for us long time rental property holders. The property I have just refurbed and being occupied by my new tenant, they are looking to buy within 9 months exactly in the road and area of my property.            Needless to say the question was asked "Would you be willing to sell your property to me at a later date" by my new tenant. I probably would do so but with the Chancellors budget in March it does look very likely that the allowance per person for CGT is going to be reduced from £12,300 to £5,000.  Just a very strong rumour at present though.  I definitely would not sell if that does happen.

                             I am in the same position as Richlist in as much I would pay a very large sum of money to HMRC in CGT and this is a key factor in stopping me from selling, that and zero interest rates on any investment funds from that property sale.

     Actually I have caught up on landlords paperwork required for new tenancies and that has been a very good thing for me because although I had a working knowledge of the legal paperwork requirements I have not had a change of tenants in any of my properties for a few years and I was a bit rusty to say the least.

[Richlist]

If, as you say, the tax free CGT allowance is reduced from £12300 to £5000 per person......and assuming no other changes the effect will be:-

Any reduction in CGT allowance is most likely to be charged at 28%. So £12300 minus £5000 = £7300 @ 28% = £2044 additional tax per person. Joint ownership properties = an extra £4088 to pay.  OUCH !!!!

[Melboy]

Precisely RL   On You.Gov. they provide you with a CGT online form that you fill in and it calculates how much CGT you will be liable to pay HMRC after all your financial considerations are taken into account. 

It made my eyes water I can tell you.  😅

[bil8999]

Hi to all

I too am a long term owner of property, the first was some 43years ago, paid £1550, well tell a lie, done some work for a guy, he didn't pay the bill of £1550, so gave me the property next door that he owned, i converted it to two flats and have had them both rented out since, approx £9500 per year, now, if i was to sell i think the property would make circa 150k, less allowance 24k, that leaves 126k taxed at 28%= 35k , give or take a few quid, that would leave me with 115k, in the bank making nothing in interest. How can anyone think of selling at this time.  At the tax rates charged i would not advise anyone to invest in a buy to let, i would simply invest in my principal property increasing its value, then move, bank the profit tax free, then start again. Thats until they add a tax.

[Richlist]

Q. Why would anyone think of selling at this time ?

A. I've been selling one property a year for the last 7 years in order to maximise my tax free allowance and minimise my tax bill. There is no way that CGT rates will ever be reduced they won't even remain the same......they will almost certainly increase. So, why wait, what are you waiting for, a miracle, a chancellor that takes pity on landlords ? It aint gonna happen. I can guarantee that the longer you wait to dispose of property the more tax you will pay. Let me know if youve heard differently.

 

Q. Invest in principle property, then move and start again ?

A. As we all spend rather more buying our own home than an investment property the elephant in the room is SDLT......especially in London & the South East where property prices are high. After April 1st.... buy at £600K = £20K in tax. Buy at £800K = 30K in tax. Buy at £1 million = £43750 in tax . That's a big chunk + agent + legal + moving costs etc. 

 

[Melboy]

24 minutes ago, Richlist said:

Q. Why would anyone think of selling at this time ?

 

 

 

 

 

In my case it is slightly age related and at what point do you cash in your chips and take the money?

At what point do you call it a day and declare that you have made your money through hard work and enterprise over many years and it's time to take it a bit easier now?

I am only looking to off load one property to give myself a bit of breathing space and of course take advantage of the tax year and even that may not happen if the Chancellor plays silly buggers with the tax rates to my disadvantage.

Reminds me of a story..... always remembered.

Many years ago I was buying a new build property and the developer turned up for a site visit to check on progress of the 6 houses he was building. He was at least 80 years old by my reckoning  ( I was about 27) and he drove a very untidy old school 1960's Austin Cambridge all the way from London to Wiltshire.

He had no intention of retiring.  😅

 

[bil8999]

So to answer the question, i think it is fading away.

As Melboy said, age related, i am 67 and still on the tools working full time, always said i would keep going until i hit seventy, perhaps its time to cash in the chips.

[Richlist]

I always promised myself that I would retire at 40......I didn't because I kept investing in businesses that required financial input. I did however manage to retire from full time employment at 53.

Highly recommended.

[Grampa]

1 hour ago, Richlist said:

I always promised myself that I would retire at 40......I didn't because I kept investing in businesses that required financial input. I did however manage to retire from full time employment at 53.

Highly recommended.

I would like to (and could) retire now but i would need to find something to occupy my time. I dont want to be one of those people who keel over 18 months after retiring through over eating and drinking. Trouble is you spend so much of your life working it can be a bit adjustment to just stop without planning for it.

[Carryon Regardless]

get a yacht Grampa, your free time will be well and truly consumed.

 

[Grampa]

Maybe if I lived in the Carbbean. Not enough sunshine here for me.

 

[Melboy]

It does seem that retirement in it's true sense for me is not an option. 😀 You have to do something in older age and there are only so many sunsets and glasses of wine you can drink and watch.  I think if you enjoy doing something then carry on doing it.    I do restrict my working day on hours worked and I tend now to bring more trades people in to the jobs that I once did myself.

Mindful of the fact that the Government will have my hard earnt money and savings off me either by death taxes or nursing home fees I have and am still undertaking that my properties are up to scratch with modernisation including my own residence.