Reader feedback

I'm always keen to hear from our readers and one of you have commented on an article we re-published yesterday that was published by the BBC.  I've received the following email from one of our readers - Rob L who, I believe correctly, has pointed out some inaccuracies in the article we re-published yesterday concerning changes to CGT:-

Hi Bill

The principle of this article is correct, but I think there are a few factual inaccuracies which let it down a bit.

1. The CGT rate for private investors selling a property is 18% (if basic rate income tax) or 28% (if higher rate) not 40%
2. Every individual has an annual tax free allowance for capital gains which is going up from £11,300 per person to £11,700 in April 2018.  This can be deducted from your capital gain before calculating tax liability when you sell.  If you bought (and sold) the property jointly as a couple you can each use your allowances
3. Companies pay capital gains at their corporation tax rate which is currently 19%
4. Although indexation relief is being removed if you successfully incorporate taking a property into a Limited Company then (assuming you are able to use Section 162 relief and don’t pay CGT on the transfer then at the point you incorporate you bring the property into the Company at its current market value, which means the future CGT liability will be lower.  Companies of course do not get a tax free CGT annual allowance.

Good intent in the article but suggest you get whoever wrote it for you to do a bit of fact checking otherwise it loses some credibility.

All the best,

Rob

Thanks Rob, We make every effort to ensure the data we use is valid and articles we occasionally re-publish are accurate.  I think on this occasion we were guilty of trusting the source.  I am always keen to hear from readers, so thanks to Rob for taking the trouble to write on this occasion!

Captial gains tax hike for BTL comapnies hidden in the budget

The BBC reports that there is a Capital Gains Tax measure buried in the small print of the Budget which is likely to hit companies that own buy to let properties.

Individuals who own more than one property - for buy to let or other purposes - pay 40 per cent CGT on the total the property appreciated when they come to sell it. Companies, on the other hand, have been allowed to deduct the amount of that price rise that was due to inflation. 

The BBC gives the example that if a flat was purchased for £100,000 for the purposes of letting out, and was 10 years later sold at £200,000, the individual who owned it would have to pay £40,000 CGT - that is, of course, 40 per cent of the £100,000 profit.

However, if a company purchased the same property for £100,000 and inflation had been at three per cent for that 10-year period, inflation would have accounted for £34,000 of that price rise.  

Then the company would only pay 40 per cent CGT on the rest of the rise - so it would be 40 per cent on the remaining £66,000 price rise. Therefore in that case the CGT would be £26,400 rather than £40,000.

However, the BBC reports that it now appears that from January 2018 that discrepancy will be eliminated. 

The change will only affect price rises from January of next year, so companies will not pay extra on the gains they have already made.

The BBC says property is not the only asset this new tax hike affects, but comes on top of a series of measures in recent years which can be seen as attacks on buy to let.

In the past 18 months, many individual buy to let landlords have incorporated, setting up companies owning their investment properties in a bid to reduce the liability of mortgage interest tax relief, which is being phased out for landlords.

The 2017 Autumn Budget as it happens.......

Morning folks,


I hope you are well.

So we all await with baited breath the deliverance of this years Autumn Budget from Mr Hammond and there is no doubt he has had plenty to consider from representatives from the UK housing market. So what did he come up with?

Not a great deal is the answer but here are the highlights:

Stamp duty

From today, the government will abolish stamp duty for all first-time buyers for homes worth up to £300,000 in the UK, or £500,000 in London.

Housing

The Chancellor says that over the next five years the government will provide a £44bn capital investment to boost the housing market.

ADVERTISING

inRead invented by Teads

He says that by the mid-2020s there should be 300,000 homes being built every year – the highest level since the 1970s.

Hammond also announced plans to allow councils to charge a 100pc premium on council tax on empty properties.

In Oxfordshire there is a commitment to building 100,000 new homes by 2021

Review of the housing market was very short and sweet but of particular note to first time buyers and with immediate effect. Good news indeed..... In theory!

I think we were all hoping to see a little bit more from the chancellor that helps first time buyers get on the ladder NOW. Commitment to building new properties is all well and good but this is very much tomorrow's vision. Key to short term solutions is enticing investors back into our market. The chancellor has chosen to ignore calls to provide private landlords with some type of tax break/ relief or to remove the 3% surcharge on 2nd homes which would encourage investors to buy new property and make them less likely to increase rents.

An opportunity missed I would say!

What do Oxford’s landlords, and tenants need from the budget this week?

As usual there is no shortage of sensational headlines about the importance of the budget for the Government, and for key Departments including Health, Work & Pensions and Defence.  However, for Oxford’s tenants it is the headlines about house building that are the most important, and Oxford’s embattled private landlords it will hope that the budget doesn’t pile further pressure and expense on them.

In Oxford, whilst prices achieved for sold houses has continued to rise (with most recent data confirming a 6% rise in achieved prices over the last 12 months when compared to the prior year), the total number of transactions (the number of houses successfully sold having been put on the market) has fallen by 17% to just 2,702.  It is this statistic that should worry everyone.  I believe that the fall in the number of transactions is in part due to lower levels of house purchase by private landlords, which in turn means that future supply of new rental properties is not growing to keep pace with demand.

Regular readers of my column will know that I have identified a growing level of demand in Oxford for small family homes for rent.  As ‘first-time’ tenants start to plan their families and out-grow their homes, they have a requirement for 3-bedroom properties in areas with nursery places, good transport links and easy access to supermarkets and other shops.  In Oxford, this is currently under-supplied in the rental sector, with many suitable properties instead targeting multiple tenants rather than families.

Without such provision, and with 3 bed properties remaining prohibitively expensive to buy, these young families will either need to look outside of Oxford or look for affordable new build within Oxford.

Over the last 12 months in Oxford just 82 new build properties were sold, that’s just 3% of total transaction in the same period.  Of those new build, 51 were larger detached properties and just 12 the terraced or semi-detached homes which tenants with young families are most likely to target.

This double-whammy - a lack of new investment by Oxford’s private landlords and a dearth of suitable new build - will create a pinch-point for Oxford’s private renters at a time when demand for rental properties has never been higher.  The lack of supply is clearly responsible for house prices remaining buoyant at a time when total transactions have fallen so dramatically.  Oxford is a supply-constrained market, and as a result as landlord costs increase they are likely to result in higher rents.

Following the introduction of a stamp duty surcharge for owners of multiple properties, and the restriction on landlords’ ability to off-set the costs of borrowing when calculating their income tax, the Government has no fewer than 15 ongoing consultations in parliament which could further affect the private rented sector, but not help to deliver more new homes that Oxford so desperately needs.  Instead, they will make landlord compliance more difficult, increase the costs that landlords’ have to bear and, further discourage good ethical landlords from investing further in Oxford at a time when their investment is most needed.

Will your property survive the energy test??

For landlords that are not aware it is now less than six months until the new Minimum Energy Efficiency Standards are introduced in April 2018, I have considered the possible effects on landlords and the private rented sector and some of the suggested methods to improve property that will fall under the minimum requirements.

The 2015 Energy Efficiency Regulations set out new minimum energy efficiency standards for England and Wales. These regulations will make it unlawful for landlords to grant a new lease for properties that have an energy performance certificate (EPC) rating below E, from 1 April 2018, unless the property is registered as an exemption. According to research around one in five landlords (21%) will expect to spend between £1,000 and £4,000 on energy efficiency improvements in their properties over the next five years, but in reality improving the energy efficiency of a property to meet the new legislation does not need to incur such high costs. For landlords who are worried about the potential costs of upgrading properties, financial support may also be available through the Energy Company Obligation if tenants meet certain qualifying criteria.

Here we list some of the markets top tips to improve your EPC ratings:

1.       Don’t underestimate the importance of insulation in making a property more energy efficient. If the property was built before or around 1920, it most likely has solid walls. Solid wall insulation can be installed from either the inside or the outside. If the property was built after 1920 it’s likely to have cavity walls. These have a double external wall with a small gap between which can be filled with insulation.

2.       Don’t just think of improving energy efficiency as something for meeting regulations, it’s a commercial decision too. Given most tenants are responsible for paying energy bills, some may be willing to pay more for properties that are energy efficient, so make sure you’re making the most of this as a selling point.

3.       Without properly insulated windows, the property could be losing up to 10% of its heat. Double glazed windows make a big difference when it comes to lowering energy bills as well as reducing condensation and noise. Instead of double glazing you could install secondary glazing which involves fitting a pane of plastic or glass inside the existing window recess to create an insulating layer of air. Though not as effective as double glazing, secondary glazing still saves a significant amount of energy and allows you to maintain good appeal by keeping original features such as sash windows.

4.       EPC ratings look only at permanent improvements to the fabric of the building so think about long-term upgrades that will help to reduce heat and energy use. Simple things for example draught excluders will help keep heat in, but for the EPC you need to find permanent ways to fill the gaps to stop heat escaping through windows, doors, letterboxes and even keyholes. 

For those looking to bring their properties completely up to date, consider renewable technologies such as solar panels with an at-home battery to store electricity for use even when the sun goes down. Be aware these will contribute to your rating only if they’re helping to heat the house, rather than providing electricity for other uses. Whilst some of the above mentioned suggestions will reduce costs for landlords to a certain degree it should not discourage landlords from investing in long term solutions for their properties.

In the last few years energy efficiency for rented property has really started to take centre stage, with more and more tenants enquiring as to the properties energy performance prior to making commitment. It is now more important than ever that landlords embrace the changes that will be needed to ensure their properties meet the minimum standards necessary. In an already competitive market the changes you make to the properties EPC rating could be the difference between success or long term failure.

Oxford Homeowners Are Only Moving Every 18 Years (part 2)

In the credit crunch of 2008/9 the rate of home moving plunged to its then lowest level ever. In 2008 and 2009 the rate at which a typical house would change hands slumped to only once every 17.5 and 15.4 years respectively.

The biggest reason being that confidence was low and many homeowners didn’t want to sell their home as Oxford property prices plunged after the onset of the financial crisis. Between 2013 and 2015, the rate at which people moved increased in Oxford, yet last year, it dropped again to a new lowest level of once every 18 years, meaning as a City, there has been a 44.84% drop in moves by homeowners in Oxford, compared to 15 years ago.

So why aren’t Oxford homeowners moving as much as they did?

In last week’s article I talked about how ‘real’ incomes and savings have been dropping. Another issue is the long-term failure to build sufficient new-build homes of the right type. 

Back in the 1960’s and 1970’s, as a country, we were building on average 300,000 and 350,000 households a year. The Barker Review a few years ago said that for the UK to stand still and keep up with housing demand (inflated by a number of factors including: immigration, people living longer, marital divorce, a 50% increase in the number of households with a single person since the 1980’s) we needed to build 240,000 households a year. Over the last few years, we have only been building between 135,000 and 150,000 households a year. In Oxford just 1% of property sold is new build (just 7 properties sold per month on average over the last 12 months).

As the UK Population gets older, there is no getting away from the fact that a maturing population is less mobile.  Those retired people who want to move are finding there is no suitable smaller option available to them in the place they want to live.

So, what does this mean for Oxford homeowners and landlords?

Many of the older generation in Oxford are stuck in property that is simply too big for their needs. The fact is that, in Oxford, nearly five out of every ten (or 46.5 per cent) owned houses has two or more spare bedrooms; or to be more exact ...

12,470 of the 26,832 owned households in the Oxford

area have two or more spare bedrooms.

As young families struggle to move up the housing ladder, with those young families bursting at the seams in homes too small for them, we have a severe case of under-occupation amongst the older generation – retired people staying put in their bigger homes, with a profusion of spare bedrooms with a dearth of smaller alternative properties available to them.

Many commentators have suggested the Government should give tax breaks to allow the older generation to downsize, yet in a recent White Paper on housing published just weeks before the General Election, there was no reference to any detailed policies to inspire or support them to do so.

This means that there could be an opportunity for Oxford buy to let landlords to secure larger properties to rent out, as the demand for them will surely grow over the coming years. As for homeowners; well those in the lower and middle Oxford market will find it a balanced sellers/buyers market, but will find it a buyers’ market in the upper price bands.  Despite a 17% reduction in completed transactions, prices have risen 7% over the last 12 months, confirming a supply constrained market.

Oxford Home Owners Are Only Moving Every 18 Years (Part 1)

The average house price in Oxford is 12.87 times the average annual Oxford salary. This is higher than the last peak of 2008, when the ratio was 9.61. Several City commentators anticipated that in the ambiguity that trailed the Brexit vote, UK (and hence Oxford) property prices might drop like a stone. The point is - they haven’t!

Now it’s true the market for Oxford’s swankiest and poshest properties looks a little fragile (although they are selling if they are realistically priced) and overall, Oxford property price growth has slowed, but the lower to middle Oxford property market appears to remain quite strong.

Scratch under the surface though, and a different long-term picture is emerging away from what is happening to property prices. Oxford people are moving home less often than they once did. Data from the Office of National Statistics shows that the number of properties sold in 2016 is lower than it was in the Noughties and lower than I has been over the last 8 years.

We are mirroring the post credit crunch (2008 and 2009) low levels of property sales, and the torpor of the Oxford housing market following the Brexit vote has seen the number of property sales in Oxford and the surrounding local authority area level off.  It is too early to tell if this will be a new trend.

It was the 1980’s that saw the highest levels of people moving home. Nationally, everyone was moving on average every decade. Even though it was during the Labour administration of the late 1970’s where the right to buy one’s council house started, it was the Housing Act of 1980 that that really got council tenants moving, as Margaret Thatcher’s Tory government financially encouraged council tenants to buy their council-rented homes.

Looking at the property sales figures in the Oxford area since 2010/11, what has caused the reduced activity which has been mirrored nationally? The reasons behind this are complex, but a good place to start is the growth rate of real UK household disposable income, which has fallen from 5.01% a year in 2000 to 1.68% in 2016. Also, things have deteriorated since the country voted to leave the EU as consumer price inflation has risen to 2.7% per annum, meaning inflation has eaten away at the real value of wages.

With meagre real income growth, it has become more difficult for homeowners to accumulate the savings needed to climb up the housing ladder as nationally, the level of savings has also dropped from 4.26% of household income to -1.11% (i.e. people are eating into their savings).

Next week I will be discussing how these issues have led to a slump in the number of Oxford people moving home with house owners moving just once every 18 years.