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Will Brexit affect tax schemes and tax relief?

It is no secret that Brexit is going to have a huge impact on the whole of the UK, especially when it comes to businesses that have some type of trading across the EU. One area that you might not instantly think about being impacted by Brexit are tax schemes and tax relief.

However, just like many things in the world of business, it looks like our imminent departure from the EU is going to have an impact on this too.

What is SEIS?
The first thing to look at is what SEIS actually is. SEIS is a UK based scheme backed by the government. It is there to help those businesses that may be seen as being high risk to raise funds and finance. The way that it does this is by encouraging key investors to invest in these businesses with their own money.

Of course, these business investors are going to know that there could be some risks to investing in another company. So, in order to make it a more tempting consideration, the government offers those investors the chance to claim SEIS relief.

This means that the investor can claim back tax relief on the money that they are investing. EIS relief can be claimed on up to £1m of investments, although this can rise to £2m in some circumstances.

Needless to say EIS has been a hit and since its creation investors have put in more than £10bn, which in turn has made its way to those smaller companies, those companies in financial difficulties or those who need a boost to get their businesses started in the first place.

What does Brexit mean for SEIS?
So, what does Brexit mean for this important form of business finance? The truth is, much like many things about Brexit, we simply don’t know what is going to happen until it actually happens. The amount of uncertainty around the idea of leaving the EU, well that is one of the most frustrating things about the entire situation.

There is a good chance that Brexit will have an impact on SEIS, but we simply don’t know whether this impact will be dramatic and far-reaching.

What we do know is that there is always going to be a need for this form of funding. There are always going to be small and medium enterprises that are looking for financial support, all in the form of SEIS and the investors that are a part of this scheme.

The hope for those in the UK is that Brexit will mean that these possible investors will look closer to home to invest in their money, rather than perhaps putting it abroad. This would be a definite positive. However, there is also a chance that some of these key investors will take their business entirely abroad and they won’t be in the UK to pass on their investments.

Time will tell what is going to happen with SEIS and the effects of Brexit. So, come November and December, it is simply going to be a case of watching this space.

Source: London Loves Business

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Products for first time landlords reaches record high

The choice of products available to first time landlords has reached a record high, according to research.

The number of deals available to first time landlords has risen to 1,405 today, up from 645 five years ago. The past 12 months alone has seen 137 products enter the market.

This is in spite of the introduction of stricter lending criteria by the Prudential Regulation Authority, the phasing out of tax relief on mortgage interest payments by April 2020 and increased stamp duty on second homes.

Rachel Springall, finance expert at Moneyfacts, said: “Entering the buy-to-let market hasn’t been without its hurdles, and almost two years since the PRA introduced rules expected to tighten lending, the move doesn’t seem to have shaken up lenders attitudes to attract first-time landlords.

“In fact, the number of deals available to these individuals has now boomed to a record high.”

But Ms Springall added that while the increased choice was a positive for prospective landlords, those currently invested in property were feeling the strain.

Data from the Office of National Statistics showed London private rental prices rose by 0.9 per cent in the 12 months to May 2019, the highest annual growth seen in almost two years.

Ms Springall said: “This rise may well be linked to the staggered loss of mortgage interest tax relief, which in turn has seen landlords seeking out other ways to boost their income.”

In July 2014, an average two-year fixed rate stood at 4.01 per cent, while the average five year fixed rate was 4.68 per cent.This compared with July 2019, when the average rates are 2.97 per cent and 3.52 per cent, respectively.

Ms Springall warned, however, that borrowers must ensure they weigh-up the true cost of any deal before they commit.

“Choosing the lowest two-year rate in the market from Barclays Mortgage at 1.46 per cent would cost £20,901 in repayments after the first two years, which includes its £1,795 product fee,” she said.

“However, if they opted for a deal with a lower fee, such as the mortgage from Post Office Money priced at 1.48 per cent with a £1,495 product fee, they would have saved £255, as the repayment would be £20,646 over two years.”

By Jennifer Turton

Source: FT Adviser

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Finally, some positive tax relief news for landlords! Could this help buy-to-let rebound?

For UK landlords, the taxman has morphed into the bogeyman in recent years, hiking stamp duty and reducing the tax breaks available for buy-to-let owners as part of the government’s uphill battle to make homes available for first-time buyers and thus soothe the housing crisis.

First HM Revenues and Customs came for the Wear and Tear Allowance that it switched out in favour of Replacement Relief in the 2016/17 tax year. Then the following year it introduced a phased reduction in mortgage interest tax relief on rental mortgages before the benefit is totally eradicated in 2020/21. And more recently in late 2018, the government launched plans to also eradicate tax breaks on capital gains when certain properties are sold. This will affect people who once lived in a now-rented-out property and will reduce returns when the home in question is sold.

Fun in the sun? In a turn up for the books, though, news emerged from the corridors of power this week to finally put a smile on the face of many buy-to-let investors.

In a Westminster debate discussing steps to help regenerate dilapidated seaside resorts, a House of Lords committee suggested that, along with measures like improving transport links, boosting digital connectivity and reviewing flood defence investment, government should consider introducing tax breaks for landlords in these areas.

More specifically peers recommended “the introduction of stronger incentives for private landlords to improve the quality and design of their properties,” measures that “might include tax relief for making improvements to properties.”

Don’t break out the bubbly yet Clearly these are just suggestions and remain a long way off from being signed off by the Treasury. And what’s more, these proposed changes would only benefit those investors whose properties are (or would be) located on the coast, individuals who comprise a very small slice of the overall pie.

This news is a much-needed step in the right direction for the sector, though, given that recent tax changes have solely served to penalise landlords. The committee’s findings were certainly celebrated by the Residential Landlords Association, which “welcome[d] the recognition this report gives to supporting landlords to invest in raising the standard of housing for their tenants” and which added that “we call on the government to accept this proposal.”

Let’s hypothesise for a moment and imagine that those recommended tax breaks do indeed come into force. Can it be argued that they would make buy-to-let investment in holiday resorts that much better on balance, given the raft of adverse tax changes I mentioned at the top of the piece? Certainly not, I would say. In fact, irrespective of this week’s news, legislative changes in the months and indeed years ahead are likely to remain mostly detrimental to landlords as the government takes action to solve the housing shortage. This is why I’m giving buy-to-let a wide berth and will continue to do so.

Source: Investing

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Don’t blame Brexit for the collapse of buy-to-let

You can blame Brexit for an awful lot of things. The slowing UK economy. The slump in sterling. The relative underperformance of UK stocks and shares. Current political rancour and mistrust. The fact that British politicians are ignoring a host of other pressing problems, from knife crime to the productivity puzzle.

What you cannot honestly blame Brexit for is the collapse of buy-to-let. It will have played a small part in knocking sentiment, but the real damage has come from another quarter. Although, once again, politicians have their fingers all over this one.

Tax attack
Buy-to-let was doomed from the moment Chancellor George Osborne was persuaded that amateur landlords were squeezing first-time buyers off the property ladder, and something had to be done about it. Personally, I have always had some sympathy with that point of view. While I was tempted by buy-to-let, I could also see it was unfair that young home-buyers were being outbid by older investors who had no intention of living in the property themselves.

Instead, they wanted to rent it back to those same first-time buyers, effectively profiting at their expense. Having said that, I never bought into the idea of “greedy landlords”. As in every sector, there’s good and bad. In a well-balanced housing market, there’s a place for both, it’s just high prices and supply shortages made the competition unfair.

The Treasury then unleashed an astonishingly vicious tax attack on buy-to-let, slapping on a 3% stamp duty surcharge, reducing wear and tear allowances, and gradually phasing out higher rate tax relief. That effectively taxed landlords on turnover rather than profits.

Worse, this punished smaller investors, while those who were large enough to set up limited companies escaped the worst. People looking to buy one or two properties to top up their retirement income found their sums no longer added up. Brexit be blowed, blame the Treasury.

London falling
Yes, Brexit has hit the wider London property market, with prices down 0.7% in the last year. But the Treasury inflicted most of the damage by slapping extra taxes on foreign buyers (although again, I have some sympathy with its motivations). High prices and low yields were also to blame.

I reckon it’s still possible to make money out of buy-to-let, especially if you can take advantage of current uncertainty and pick up a bargain property. However, I think that the effort involved continues to outweigh the potential rewards.

Why bother?
As I’ve written before, buy-to-let investors have the effort of finding and buying a property, doing it up, finding tenants, collecting rent, complying with all sorts of obligations and, well, I won’t go on. Why go to all that bother? If you invest in stocks and shares, you don’t have to.

Better still, if you use your tax-free ISA allowance you can ignore the Treasury because all your income and capital gains are free of tax. You also have a buying opportunity today as volatility returns. Blame the global bear market for that, not Brexit. Blame who you like, but take advantage of it.

Source: Yahoo Finance UK

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Buy to let more profitable than two years ago

Tax relief on mortgage interest for buy to let investors is currently being phased down to the basic rate, with the changes predicted to leave some landlords struggling to earn as much from properties.

However, a sharp reduction in mortgage rates over the past couple of years means most landlords are now taking larger profits, even taking account of the erosion of tax benefits, according to Pantheon Macroeconomics.

The economists found the average two-year fixed-rate at 75% loan to value (LTV) on a buy-to-let mortgage fell to 2.37% in May, from 3.21% in May 2016.

Samuel Tombs, chief UK economist at Pantheon, said: “A buy-to-let investor refinancing a two-year fixed mortgage that they obtained in May 2016 will save £1,400 per year in interest payments, assuming that they have purchased a property of average value.

“After the tax reforms and the fall in mortgage rates, virtually all buy-to-let investors are better off.”

However, the market could take a turn if the Bank of England raises interest rates and mortgage costs increase.

Tombs added: “We do not expect the market to be hit suddenly by a wave of fire-sales by landlords this year.

“That could change as and when mortgage rates jump.”

Landlord sales could dampen house price growth

The economist noted that if only a small number of buy-to-let investors decide to put properties on the market, the balance between supply and demand could weigh on house prices – and this could be another prompt for selling.

It comes after the Royal Institution of Chartered Surveyors (RICS) last week noted a larger increase in supply versus demand, through the number of new estate agent sale instructions and new buyer enquiries.

Tombs added: “Many BTL investors purchased properties to benefit from capital appreciation, as well as to enjoy a steady income stream.

“The recent slowdown in house price growth might persuade them to liquidate their investments even though borrowing costs have fallen.”

The reduction of tax relief will most hurt landlords with high incomes and high ratios of interest payments to rental income, according to Pantheon.

Tombs predicts multi-unit investors are most likely to sell up, as their income could exceed the higher rate threshold.

Source: Your Money