Five tax rules landlords need to know

Landlord tax rules have seen some significant changes over the last few years. From stamp duty to capital gains tax, there are a number of different rules and reliefs that apply at every stage of the property life cycle.

As landlords it’s incredibly important to keep on top of your tax issues, so here we take a look at some of the major aspects of landlord tax and make sure that you’re up to date.

Stamp duty on second properties
From April 2016, stamp duty land tax (SDLT) on second properties, including rental properties, was increased to include an additional 3% surcharge over and above standard rates.

Anyone purchasing a rental property now pays 3% SDLT for the first £125,000; 5% instead of 2% on the portion between £125,001 and £250,000, and 8% on any amount above £250,001 – increasing the amount of up-front cash landlords need to buy a new property.

Tax on rental income
Until recently, landlords could deduct all finance costs from their rental income and profits were taxed at their marginal rate. However, starting from April 2017 and phased in over a four-year period, tax relief for finance costs is being restricted to a basic rate tax credit.

How these rules will impact you as a landlord will depend on your individual circumstances. However, there are a range of strategies to mitigate the affects of these changes, from resizing your portfolio to moving properties into a limited company – this is where seeking professional advice can be so invaluable.

Wear and tear allowance
Landlords with furnished properties can take advantage of a ‘wear and tear’ allowance to reflect the fact that furnishings need to be replaced regularly. Until recently, the allowance was set at 10% of gross rent but, following a change to the rules, landlords can only deduct the cost of new items against their rental income now.

Insurance premium tax
Landlords can expect to pay 12% insurance premium tax on any insurance they arrange associated with their rental property. While there is no legal requirement for landlords to take out insurance, mortgage lenders usually require specialist building insurance to cover the costs of rebuilding or repairing the structure of the rental property if it is damaged or destroyed by events like fire, storm, flood or vandalism.

Capital gains tax
Landlords are subject to capital gains tax on property sales. The size of the gain is usually the difference between the amount paid for the property and the amount achieved when the property is sold. Landlords can deduct costs associated with buying, selling and improving their property to reduce the gain so it’s important to keep receipts for all these items.

This article is only a brief overview of some taxes that may be applicable to landlords and should not be considered as an exact guide. Before investing in property or looking to restructure an existing portfolio, individuals should always seek expert advice from a qualified tax specialist. If you’re a landlord and would like to discuss your buying options, contact us today.

British first-time buyers struggle with mortgage jargon

Buying your first home. What an exciting time in your life! It’s the start of a new chapter, but it doesn’t come without its struggles. Getting a mortgage can be hard enough, but add in the technical jargon and it can become the first-time buyers Mount Everest. 

Data released by Aldermore highlights the fact that many first-time buyers don’t understand mortgage terminology, and could be missing out on schemes that are designed to help them.

But what terms do people struggle with and what do they actually mean?
Slightly over half of respondents weren’t aware of the ‘Help to Buy equity loan’ – this is where the government lends you up to 20% of the cost of your newly built home, interest free for the first five years, so you’ll only need a 5% deposit and a 75% mortgage to make up the rest!

Just under half didn’t understand what a ‘lifetime ISA’ was and slightly over one third didn’t know what a ‘Help-to-Buy ISA’ was. These ISAs allow first-time buyers to get a 25% government bonus on their savings for a first home, each with different rules which is why seeking professional advice is worthwhile.

35% of respondents also didn’t understand ‘shared ownership’ – where first-time buyers own a share on their home and pay rent at a reduced rate on the remaining share.

These figures suggest that many first-time-buyers could be missing out on various benefits and pathways that these schemes can provide for those wishing to enter the property market, which is why obtaining professional advice can be invaluable.

Your adviser will be able to help you understand these terms and explain the benefits of the different schemes.

If you or your loved ones want to discuss the options available to you, or talk through any of the schemes in more detail, contact us today.

Are Holiday Homes a Good Investment?

If you’re looking to generate a second income, buying a holiday home could be the perfect investment option for you. Not only will you own a holiday cottage for yourself and your family to escape to, you could make a healthy profit by renting it out to others.

If you’ve never managed a property before, you’re probably unsure on the practicalities of it all and how much money you could earn. Here we answer some common holiday home investment questions and offer advice on how you can maximise your income.

Why do so many homeowners choose to let out their homes?

The UK is becoming an increasingly popular place to holiday. Recent Visit Britain statistics show that spend on UK staycations was over £23 billion in 2017, which was 3% more than the previous year. Here at Sykes, we saw bookings increase by 24% in 2017 and this trend looks set to continue.

With changing tax rules on buy-to-let properties putting investors off the long-term let market, short-term holiday lets are becoming an increasingly attractive option.

If the thought of running a holiday let business feels like too much like hard work, you don’t have to do it all yourself. Many reputable holiday letting companies have teams of experts on hand and will provide assistance with everything from the advertising and marketing of your property to managing guest changeovers and any general maintenance that may be required.

What are the best options for raising capital for a holiday let?

Many people choose to use a mortgage to help with the purchase of a holiday let. Holiday let mortgages differ from standard residential mortgages or that of a long-term rental property.

Some holiday let owners raise the necessary funds by releasing capital from either their current mortgage or their pension. Currently, you can release up to 25% of your pension tax-free once you’re over 55.

If you’re unsure on the best option for you or would just like some advice, contact one of our property specialists who will help or point you in the right direction.

What types of mortgages are available for holiday lets?

When you buy a holiday let, you’ll need a specific mortgage aimed at those offering short-term lets to holidaymakers. There are fewer providers offering this type of mortgage than those that offer standard mortgages and there can often be restrictions on, such as the maximum loan-to-value (LTV) a provider will offer.

There are also some tax benefits with holiday let mortgages. For example, you can currently offset the interest on your mortgage against the rental income you make. So, if your property made £12,000 in one year and the interest on your mortgage for that year was £9,000, you would only be liable to pay tax on the £3,000, according to your own tax rate.

What Return on Investment (ROI) could you expect from a holiday let?

If you’re wondering how good of an investment holiday lets can be, we’ve crunched the numbers based on our actual booking data to help you find the answer.

On average, our owners earn around £18,000 annually through bookings, but what you could earn will depend on a variety of factors, such as your property’s location, what type of guests you accommodate, property features, number of rooms and your pricing strategy.

Best locations for a holiday let business

If you’re open to choosing a property based on its earning potential rather than having your heart set on a specific location, here are some top tips to help.

In our in-depth review of the UK holiday let market, the Sykes Staycation Index 2018, we found that coastal properties and those in National Parks earn 10% more than other properties in the same region, and that some regions earned more than others.

Our data from 2017 revealed that Dorset was the top-earning location in the UK, with four-bedroom properties making an average of £43,000 in gross income a year, while the Lake District came second, with four-bedroom properties earning an average of £28,000 annually.

If you’re always on the lookout for the latest trends, there are some destinations in the UK that are becoming increasingly popular. Our data suggests that some of the fastest growing regions at the moment are on the South Coast, in the Midlands and in southern Scotland.

When you’re choosing the location of your holiday let, think carefully about who you are trying to attract – for example, do you want to attract families in Cornwall or outdoor lovers in the Lakes? However, if you’re planning on visiting your holiday home with family and friends too, don’t forget to factor in your journey time to the property as well. Likewise, if you plan on managing changeovers and maintenance to reduce costs, you’ll need to be able to travel to and from the property easily.

The rise in UK staycationers

Figures from Visit Britain in its Great Britain Tourism Survey show that 2017 was a great year for the staycation market. The number of overnight trips taken in the UK in 2017 was 120.7 million and overall spend was up by 3%.

In its Travel Trends Report 2018, ABTA also revealed that 72% of British holidaymakers took a break in the UK in 2017 with the UK predicted to be the most popular holiday destination with Brits in 2018.

How to maximise your income

When you’ve bought your holiday home, there are ways to boost the income you get from it. For example, we noticed some clear trends in 2017 that could help you generate more revenue.

Our customers are clearly looking for a little luxury as properties with hot tubs, on average, earn 51% more than those that don’t. And holidaymakers want to stay connected while they are away – last year we saw properties with Wi-Fi earning up to 20% more than those without it.

Home comforts are also attractive to travellers in the UK. For example, Brits love their pets and offering pet-friendly facilities could boost your earnings by up to 10% a year, while installing a welcoming log burner could increase your income by a similar amount.

Britain’s later life lending boom!

The number of over-65 homeowners has increased by 52% over the last 20 years as homeowners are ageing at a faster rate than the UK population.

According to the latest report from the Intermediary Mortgage Lenders Association, the need to serve a growing population of older homeowners is producing a new generation of mortgage products.

The report has showed that homeowners over 55 now hold a staggering 69% of the UK’s housing equity and the increase in later life lending products is starting to reflect this.

Some of these new products, which offer features such as no maximum age limit or repayment on an interest only basis, are leading to a ‘softening’ of the traditional divide between later life and mainstream financial products.

With the ageing population and a number of later life lending options becoming available, it will come as no surprise to you that lifetime mortgage lending has increased by 29% every year since 2014.

If you think you could benefit from Britain’s later life lending boom, or to simply discuss what options are available to you, contact one of our advisers today.

First-time buyers reach 10 year high

In recent times it appears to be harder than ever to get that first step onto the property ladder. In the last 30 years house prices have increased a staggering 554%, so it may come as a surprise that first-time buyer mortgage figures have hit their highest level in a decade, according to data by Yorkshire Building Society.

The building society collected its data until October 2018, with November and December projected within the analysis.

The firm estimates that 367,038 first-time buyers secured mortgages in 2018, up drastically from the financial crisis in 2008 where just 192,300 first-time buyers were able to get their foot on the property ladder.

The data also revealed that in most regions in the UK, first-time buyer numbers have risen progressively over the last 10 years, despite property prices growing faster than wages. First-time buyers now represent a whopping 50% of all homes bought with a mortgage.

This steady increase could be in part thanks to government initiatives such the removal or reduction of stamp duty for first time buyers depending on their circumstances, the Help-to-Buy equity loan scheme and Help-to-Buy Isas that can boost your savings by £3,000, as well as an increased appetite from lenders to offer 95% loan-to-value mortgages and lower rates.

The strong competition amongst the lenders makes it important to seek specialist advice to ensure you get the best deal for yourself, and they can also help you decide which of the government’s help-to-buy schemes could benefit you.

If you or your loved ones are thinking about getting onto the property ladder or want to discuss your buying options, contact on of our advisers today.

Tenants deposit cap confirmed

Landlords and tenants can have difficult relationships. Landlord’s are primarily responsible for ensuring that their rental properties are fit to live in, whilst tenants may have their own expectations for the property and what their monthly rent is expected to cover.

The dynamic of this relationship has recently changed too as the government has confirmed that deposits on a rented home will be limited to five weeks rent as opposed to six. The move has been announced as part of the Tenant Fees Bill and is a further step by Communities Secretary, James Brokenshire, towards lowering fees for tenants.

The deposits are used to cover the risk of damage or unpaid rent but what does this really mean for tenants and landlords alike?

For tenants this is seemingly good news. The upfront cost of moving into a new rented property will be lower which should allow more people to start renting.

However, with less financial security less likely to cover unpaid rent and damages, landlords could be more cautious about who they are letting their properties out to. This could make it more difficult for those with pets or poor credit ratings to find a suitable home, so there are benefits and negatives for both groups.

Other amendments to the Tenants Fees Bill include protecting tenants from unfair fees by limiting the type of default fees that can be charged by landlords and property agents. This change means that during the tenancy landlords and agents will only be able to charge fees to replace lost keys or for late rent.

Landlords will still be able to claim back costs for damage through the tenancy deposit at the end of the tenancy. If you want to discuss your options contact one of our advisers today.

HELP! I’m self-employed

There has been a rapid rise in self employment over recent years, in fact the number of self employed workers has increased from 3.3 million in 2001 to 4.8 million in 2017, according to the Office for National Statistics. They now account for a substantial 15% of the British work force. 

But amongst those who are self-employed, there is a common belief that being your own boss can hinder your chances of getting a mortgage. According to research by Aldermore almost a third of self-employed homeowners believe the mortgage process is biased against them.

Does the way I take my earnings mean I can’t get a mortgage? Will lenders treat me differently? These are questions you may often find yourself asking if you’re your own boss. A good mortgage broker will be able to help answer all of your questions, but let’s start by debunking a common myth…

Myth busting
Self-employed mortgages do not have their own mortgage category. If you’re your own boss you are able to access the same products and the same rates as everyone else providing you meet the correct criteria. Great! But the problem is that your earnings are more complex and you must be able to prove them.

Ultimately, when applying for a mortgage, you will be assessed on how much you are earning, how likely is it you will sustain that level of earnings, how you take your earnings, how long you’ve been trading for, your accounts history and a number of other things. Then the lender will make a judgement – so you can appreciate how complicated and slow the application process can be.

So, should I use a broker?
Overall the application process can be a lengthy, complicated and time-consuming process which is why seeking advice from a mortgage broker can be so valuable.

Because calculating income and eligibility has so many variables, for self employed workers it’s important you ensure you apply with a lender that most favourably views your circumstances. So, whether you have many years’ experience of being your own boss or just a short amount of time – seeking professional advice through a broker can make the whole process easier and more beneficial.

A mortgage broker will be able to point you in the direction of a lender that is not only willing to lend but also those most likely to provide you with the best deal all while saving you the time and hassle.

Life Cover when living with a serious medical condition

There are around 66 million people living in the UK and we Brits are largely underprepared in case the worst should happen. Many of us may have been, or could in the future be diagnosed with a serious medical condition and we all have unique circumstances that mean we need different types of cover.

Amongst those of us who have been diagnosed with a serious medical condition there is a common belief that we are unable to get protection. Because of this it’s not so surprising to hear that only 15 million adults have a life insurance policy in case the worst were to happen, according to Legal and General.

To put it into perspective, one in two of us will develop some form of cancer at some point in our lifetime according to Cancer Research UK, and around 27% of people within England alone are claimed to be obese, according to the latest Health Survey for England Report.

A report by the Exeter has found that two thirds of cancer sufferers do not have a single protection product in place. The ‘An Unhealthy Situation’ report, which surveyed 2,000 people across the UK, also found a similar situation for people with type 2 diabetes, those with high BMI and those with heart conditions.

With these conditions it’s arguably even more important to ensure you’re protected for your unique circumstances. It can provide you with peace of mind as well as financial stability for your family.

With this in mind, more providers, like the Exeter, are making protection more accessible to everyone, even if you have a serious medical condition. In some cases, insurers will be able to cover people living with medical conditions such as:

  • Cancer
  • Type 1 diabetes
  • A BMI above 48
  • Complex heart conditions
  • Multiple conditions

The Exeter’s ‘Real Life’ product is a specialist life cover product for we Brits with complex medical histories and disclosures. It gives many of us access to valuable protection that we may not have previously been able to access.

There are a range of serious medical conditions that we can all develop in our lifetime and with the diagnosis of conditions like diabetes and cancer on the rise, it is incredibly important to make sure we’re suitably protected for our own individual needs. This is why seeking expert advice is invaluable.

So, if you’re living with a serious medical condition and want to find out what level of cover is available to you, contact one of our advisers today.

Stamp duty: How much will you pay?

Stamp duty. Two words that strike fear into the minds of every home buyer. But do you really know how it’s calculated and ultimately how much you’ll pay?

One of former Chancellor George Osborne’s most popular moves was the abolition of the ‘slab’ system of stamp duty land tax. Prior to the change in 2014 buyers paid stamp duty based on the price of the property, but it was applied to the whole value of the home.

This meant that if your property was just £1 above one of the thresholds you’d have to pay far greater levels of stamp duty compared with a house that was £1 cheaper and just below the threshold. But now home buyers pay a graduated rate so that the higher rates only apply to the amount over each threshold. Much better!

In England and Northern Ireland stamp duty is more commonly known as Stamp Duty Land Tax, In Wales it is referred to as Land Transaction Tax and in Scotland it is known as Land and Buildings Transaction Tax. Depending on the country in which you are purchasing a property, different rules and tax calculations will be applied.

England and Northern Ireland
Based on a traditional residential mortgage for the average English property value of £243,639, according to the latest UK House Price Index, your total for stamp duty would be £2,372.

Scotland
Based on a traditional residential mortgage for the average Scottish property value of £148,952, according to the latest UK House Price Index, your total for stamp duty would be £79.

Wales
Based on a traditional residential mortgage for the average Welsh property value of £156,495, according to the latest UK House Price Index, your total for stamp duty would be £0.

However, if you’re a first-time buyer in England and Northern Ireland purchasing a home for £300,000 or less you’ll be exempt from stamp duty altogether. You’ll be charged 5% on anything over £300,000 up to £500,000 – anything over £500,000 and you won’t be entitled to discounted rates. These discounted rates also don’t apply for first-time buyers in Wales whereas first-time buyers in Scotland are exempt up to £175,000.

Also, different stamp duty thresholds and different tax rules and calculations will apply to second properties, buy-to-let properties and other factors like whether it’s shared ownership.

If you want to calculate how much stamp duty you’d have to pay depending on your circumstances, use this handy tool https://bit.ly/2REZVBE for free!

If you’d like more information or to discuss your buying options contact one of our advisers today.

Is your protection right for you?

Many of us Brits aren’t protected at all should the worst happen to us or if we find ourselves unable to work for a period of time, in fact a staggering 81% of us have no income protection in place, according to the latest State of the Protection Nation report from Royal London.

Should something happen to you or your children that meant you were unable to work and earn an income, not having relevant protection in place could put you and your family under a lot of financial strain.

For those that are lucky enough to have savings and think they will provide the necessary safety net, it is always worth considering how long these will actually last, particularly for the two-fifths of us that have savings of less than £100, according to the Money Advice Service.

According to Legal and General 15 million adults have life insurance which is more than both critical illness and income protection combined, despite there being a much higher chance of being diagnosed with a critical illness or facing long-term absence from work.

Your chances of getting a critical illness also increases with age. According to Macmillan Cancer Support there is an estimated 2.5 million people living with cancer in the UK which highlights the risk of not having critical illness cover.

You might think the state would provide support but applying for benefits can be a complicated and lengthy process. After weeks or possibly months of no income, you might also be surprised at the amount you’d be expected to survive on.

For example, if you meet the criteria for Statutory Sick Pay from the state you can get a depressing £92.05 per week and the state provided Employment and Support Allowance in some cases can pay an even smaller amount. Both are significantly less than the UKs weekly average income which is why seeking specialist advice to ensure you are suitably protected is important.

You are also more likely to be off work with an injury or serious illness for a sustained amount of time than you are to die. According to Royal London, every year people in the UK suffer an injury or serious illness that means they can’t work for a month or more. Your employer might keep paying for you for a while but there may be a limit to how long that will last.

Planning for the inevitable is definitely crucial, but it’s also worth thinking about right now. Building a full protection solution that is tailored to your needs and your budget is incredibly important. Whether you need to prioritise critical illness cover and income protection over life insurance depends on your individual circumstances which is why expert advice is priceless.

If you think you need protection, or think you’re not currently suitably protected, contact one of our advisers today to talk through your options.

Payment Protection Insurance is optional. There are other providers of Payment Protection Insurance and other products designed to protect you against loss of income.