How The New Property Tax Law Will Affect Landlords

Private landlords have been under fire for some time now, and in the early days many were questioning their continued presence in the market. This has also acted as a deterrent to new arrivals in the sector as the hurdles to entry have started to become insurmountable. So, what has this done to the landscape of landlords, and the type of property they buy? Are AST’s still the most efficient and easiest way to rent your property, or are there alternatives out there?

Stamp Duty

Let us just recap the rule changes that have now started to bite. First, there is the removal of the tax relief that now sits, or will sit at just 20% when we get to 2020. That was preceded by the stamp duty surcharge levied on second homes of 3% over and above the normal stamp duty rates. This had a very immediate impact as opposed to the former move.

Non-Residential Capital Gains Tax

Then there is the introduction of Non-Residential Capital Gains Tax (NRCG) on all foreign investors in UK residential property that was introduced back in 2015. All of these measures were aimed at relieving the upward pressure on house prices and an attempt to alleviate the pressure on first-time buyers. In most cases, this has not worked as well as it was intended as first-time buyers still struggle to enter the market.

So with all of the above to contend with, many have had to reconsider their actions and consequently have opted to not invest. However, we are proposing that the market in letting has changed and there are many more ways to optimise your returns, and the old standard AST model is not the only game in town.

The Future of Rentals

Lately, the rental services provided by companies has come on leaps and bounds, and this has been fast-tracked by the influx of foreign investors who neither had the time nor the ability to manage and run their portfolios effectively. As a consequence, it is now possible to purchase your property and never again have to deal with any issues directly arising from the letting of the property. Your only role is to check that the money is placed in your account, every other aspect of the rental process is covered. Another point here is that this is also relatively cheap, as competition and the need for this type of rental product means that prices are kept low, typically 8% of the rental income. With all this in mind, it is time to offer what we believe is the future in rental properties, SkyLet™.

How Does it Work?

This is simple, we sign your property up and from there it’s up to us to let, and manage your property. We do this through corporate contacts, portals such as Airbnb and various other outlets. Once we have your property you no longer have to worry, that’s our job. We deal with handovers, cleaning (both the apartment and linen and towels), we arrange entry to the property using our smart lock system and we deal with any issues that may arise during the let.

On average, 6 nights rental on these terms would match an entire month’s rental on a standard let. On a property renting for £800 per month just 64 nights a year at £150 per night would attain the same yearly rate. With figures like that, you can now see how easy it is to reach the kind of returns you can only dream of. By renting your property using this method we believe you can comfortably double your returns in any given year by letting your property for just 4 months.   

Furnished Holiday Lets

Aside from this model another property sector that is also quite attractive and offers the investor beneficial tax incentives are FHL’s or Furnished Holiday Lets. Statistics show that a good holiday let will earn more in 6-8 weeks than the same home being rent out on a long term rental period would achieve in a year. To an investor this is now beginning to look very attractive, and although a holiday let will not be fully occupied all year it doesn’t take much to better the returns achieved through conventional models, plus you have the added advantage that wear and tear will be at a minimum with the property occupied for less time. Also as an owner, you can use the property yourself as a holiday home.

The tax angle is attractive too, holiday lets that are fully furnished are liable to mortgage interest relief, plus there are some added advantages in that there are capital allowances for furniture and fixtures too further lowering your costs. Add to this the fact that profits from a holiday let can count as earnings for pension purposes, and the additional CGT reliefs for traders, holiday lets begin to make a lot of financial sense. Again there are rules attached to these that in the most part are not too onerous and are easily achievable. This market offers the investor a very sensible alternative to standard AST’s and again shows that as markets mature there are ways to cover off the changes and still benefit from what is a great business, that still offers the careful investor market-beating returns.

To draw this to a close, the market is now a more efficient and better run sector, and as a consequence the operators in it are savvier, better organised, and less likely to get squeezed out by these latest rule changes. Again the methods above are just some of the ways we have found to better your returns in this market, and there are many other ways that involve clever financing, setting up a company et al, but for us, the ones we have suggested are simple and easily operated by us and do not complicate what can sometimes be a complex arena.

Further reading