Corporation hike from 19% to 25% will only effect large portfolio landlords

The recent increase in corporation tax from 19% to 25% in the UK is expected to affect only the largest buy-to-let landlords. This change will reduce post-tax income for landlords who hold properties in limited company structures. However, for many landlords, investing through a limited company remains a tax-efficient option. They can still offset 100% of their mortgage interest payments against their tax bill, which is no longer available for personal buy-to-let properties. Rental income is taxed at the corporation tax rate, making it attractive to higher and top-rate taxpayers.

The corporation tax increase will primarily impact limited company landlords with larger property portfolios or those generating significant profits. The increase is stepped and tapered, with businesses earning less than £50,000 in annual profits continuing to pay 19% tax. The rate gradually rises to 25% for those with profits exceeding £250,000.

The buy-to-let sector has seen a rise in portfolio landlords who derive most of their income from rental properties. The number of part-time landlords has decreased, and multiple property holdings have surpassed single property ownership. However, the proportion of landlords earning more than £50,000 annually from their portfolio is relatively small, and those earning over £250,000 are likely to be extremely rare.

Most landlords holding properties through limited company structures are unlikely to change their ownership arrangements due to the corporation tax change. Those considering transferring properties to a limited company or making new investments through a company wrapper should seek advice from a tax adviser to understand how limited company lets can benefit their buy-to-let business in the current challenging times.

How long should you hold your property to make money or avoid making a loss?

According to research by Middleton Advisors, homebuyers in the UK should aim to keep their property for at least nine years to avoid making a loss on their investment. However, Londoners have the potential to see a return on their investment in a shorter timeframe compared to other parts of the country. The higher turnover of homes in London and the greater volume of similar supply make the optimal ownership duration shorter. Flats and terraced properties in London tend to be owned for a shorter time compared to detached and semi-detached houses.

The data also suggests that those trading up the housing ladder in London are more vulnerable to the variability in house prices due to their younger age, higher debt, and shorter ownership periods. On average, UK homeowners keep their properties for much longer, with private-sector buyers retaining their properties for an average of 20.2 years and making money in the process.

The research highlights the risks associated with “flipping” properties, as there is a significant chance of loss on short-term holds. Buying a property in London for long-term ownership is considered more important than timing, as the right property choice can lead to better returns on investment. The research suggests that bear markets can present opportunities for buyers to acquire their dream home, and well-advised buyers may have a better chance of finding the perfect property in markets with fewer competing buyers.

Overall, the research emphasizes the importance of considering the specific market dynamics and property characteristics when determining the optimal duration of property ownership to maximize returns.

Sadiq Khan calls on a crack down on mega mansions being left empty

The Mayor of London, Sadiq Khan, and Westminster City Council are urging for stronger powers to address the issue of long-term empty properties in the capital. Analysis conducted by City Hall reveals that approximately £20 billion worth of property is currently vacant in London, with an estimated 30,000 long-term empty homes across the city. The highest concentration of empty properties is found in the Royal Borough of Kensington and Chelsea, where 1,600 empty homes would collectively be worth over £2.2 billion.

To tackle this problem, the Mayor is calling on the government to devolve the power to set higher rates of council tax on empty homes. This would include applying higher council tax rates to mega-mansions in areas like Westminster, where the current council tax does not act as a deterrent to property owners leaving their homes empty. The Mayor and Westminster City Council are also advocating for easier implementation of Empty Dwelling Management Orders, which would allow local councils to temporarily take over empty homes. However, the use of such orders has been restricted in recent years.

The case of a property in Knightsbridge is highlighted as an example, where a four-storey townhouse has been empty for almost a decade. There are approximately 1,100 empty homes in the City of Westminster, collectively valued at £1.7 billion at current market rates.

Sadiq Khan emphasizes the need to address the housing crisis in London and calls for measures to crack down on long-term empty homes. He believes that empowering local councils to set higher council tax rates and facilitating the temporary takeover of empty homes would be effective solutions. Westminster City Council echoes these sentiments, expressing concern about the rising number of declared vacant homes and the impact of property speculation on housing availability.

Leasehold reform backtracking

Labour has announced its intention to force a vote on ending the leasehold system in the UK, criticizing the government’s decision to backtrack on its pledge to abolish the system. Housing Secretary Michael Gove had previously indicated that plans to abolish leaseholds would be dropped, but he is expected to announce new measures next month to protect homeowners in leasehold properties. These measures may include a cap on ground rents, increased tenant powers to choose property management firms, and a ban on building owners passing on legal costs to leaseholders in disputes. However, despite promising to fundamentally reform the leasehold system, Gove is reportedly stopping short of scrapping it entirely.

Labour’s motion, calls on Gove to fulfill his promise by ending the sale of new private leasehold houses, introducing a workable system of commonhold to replace private leasehold flats, and implementing the Law Commission’s recommendations on enfranchisement, commonhold, and the right to manage. Shadow housing secretary Lisa Nandy called the lack of progress in ending leasehold a scandal and urged MPs from all parties to support the motion and bring justice to millions of families affected by the leasehold system.

In response, a spokesperson for the Department for Levelling Up, Housing and Communities reaffirmed the government’s commitment to bring forward leasehold reforms later in this Parliament. They emphasized the government’s determination to protect and empower leaseholders, making it easier and more affordable for them to challenge unreasonable costs, extend their lease, or purchase their freehold. The spokesperson also highlighted previous improvements made to the market, such as the end of ground rents for most new residential leases.

The North & South Divide in London is shrinking

Analysis of Land Registry and ONS data by estate agency Benham and Reeves reveals that South London’s housing market is outperforming the North in terms of sales volume and annual price growth. Despite historically higher property prices North of the Thames, the South has witnessed a busier property market in the past year, with a higher number of homes changing hands per borough on average. Southern boroughs experienced an average of 3,003 residential transactions over the 12 months to February, compared to 1,929 in the North. The southern borough of Wandsworth had the highest number of sales at 4,552.

While the North remains more expensive overall, the gap is narrowing as southern boroughs witness higher rates of house price growth. The average house price in the North is currently appx 560,000, compared to £520,00 in the South. South experiences a 9% increase in prices whilst North went down. However, Benham and Reeves suggest that the North’s dominance in house prices over the South may not be permanent.

The Director of Benham and Reeves, Marc von Grundherr, notes that while some boroughs struggle to maintain prices and demand, neighboring boroughs can experience significant growth. He highlights Barnet in the North as a popular area, driven by investment and growth in Colindale. Overall, London’s housing market remains fragmented, with different boroughs experiencing varying levels of demand and price performance.

Reinstate mortgage relief to landlord or loose another 110,000 landlords

The National Residential Landlords Association (NRLA) has called for the reinstatement of landlord tax breaks, specifically mortgage interest relief, to address the rental supply crisis. Mortgage interest relief allowed landlords to deduct their mortgage interest from rental income when filing taxes, but it was phased out between 2017 and 2021 and replaced with a less generous tax credits system offering 20% relief. The NRLA’s research, conducted by Capital Economics, suggests that if mortgage interest relief is fully reinstated, 110,000 fewer properties would be lost from the private rental market. The study also indicates that if interest rates rise significantly, up to 735,000 private rented properties could be lost across the UK by 2027. The NRLA argues that tax hikes on landlords, combined with rising interest rates, have worsened the supply crisis and calls for a reversal of these policies to alleviate the situation.