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About this blog

Adam Hosker the director of Buy to Let Specialist Mortgage Advice company Bespoke Finance discusses Finance matters relating to Landlords and Property Investors.

Entries in this blog

Adam Hosker

It's a common saying especially with salesmen that "Property prices double every 10 years".

 

This is not true for a few reasons:

  • there is no guarantee for capital appreciation.
  • you may buy at the peak.
  • regional anomalies.

 

Although it is true, that using house price data from 1975 to 2015 (attached spreadsheet) that on average house prices do double every 10-to-15 years.
If you buy at a peak and house prices fall, the data suggests it may be wise to gamble on history and hold on to the property until house prices restore in about 10-to-15 years.
The data does not show that if you buy at a peak, than in 10 years a new peak will be double the size of that peak.

 

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The problem is we are working on nationwide averages. Is it true that house prices double "up north"? or that London and the South East are skewing the nationwide statistics. Local issues may cause the value of a property to keep low despite a national increase.

 

In addition whilst we can use history as a guidance, capital appreciation is never guaranteed - past performance is not a guaranteed indicator of future growth.

 

Statistics may also mislead us on property types - perhaps a over saturation of Flats in a city will see those values flat line whilst houses in the area may rally.

 

The mantra of house prices double every 10 years is one adopted by long-term property investors that use leveraging. It is justification for their business model that even if house prices fall (and their equity is eaten away) in 10-15 years the value will be restored or greater. Whilst they in the meantime enjoy the rental yield.

 

A little-forgotten thing called Inflation will also eat into the value. Is the £1 today worth the same as £1 will be in 10-to-15 years time.  Foreign buyers will also have the exchange rate to deal with.

 

It comes down to WHERE, WHEN, WHICH, if you OVERPAID and LUCK.

 

Enjoy the data, timing is everything. One could even say if you bought in 1997, 1996 you could have tripled house prices!

 

CONCLUSION:

FACT!(ish)

 

TL;DR: Data shows the mantra is true but the data may not be that great for you specificly. Plus past performance is good for due diligence it is not a guaranteed indicator of future growth.

 

DOWNLOAD: house-price-increase.xls

 

Welcome! Please feel free to Register and Comment, tell me im wrong! or help me prove a point - we love a good property debate.

 

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Adam Hosker

What is Clause 24?

George Osborne unveiled a shock tax change in 2015 which will remove landlords’ ability to deduct the cost of their mortgage interest from their rental income when they calculate a profit on which to pay tax.

In effect, the Chancellor wants to tax landlords on their turnover rather than profit, meaning that tax will be payable on nonexistent income.

In addition the "wear & tear" allowance is to be removed, after 2016 investors can only deduct actual cost of replacing furnishings.

Clause 24 Start Date

To give landlords time to adjust HMRC will introduce these changes gradual from April 2017 over 4 years.

  • 2016 Wear and Tear allowance removed. Only actual costs for replacing furnishings can be deducted.
  • 2017, April Mortgage Interest Relief is being cut for Landlords
  • 2020, April the maximum relief will be restricted to the basic rate (regardless of tax bracket)

Who is effected?

  • Higher-rate taxpayer landlord whose mortgage interest is 75pc or more of their rental income, net of other expenses, will see all of their returns wiped out by 2020.
  • Basic-rate taxpayers will also be hit, because the change will push them into the higher-rate tax bracket.
  • Very wealthy landlords who do not need mortgages will be untouched.
  • Tenants may see landlords giving eviction notices. As they sell as the Chancellor makes there business into a monthly loss. Others may see rents rise as Landlords look to cover rising business tax overheads.

Clause 24 Example:

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Clause 24 Calculator

The Telegraph and accountancy firm Smith & Williamson created the following Clause 24 Calculator for Landlords or use the RLA Tax Calculator.

View Calculator

How to avoid Clause 24?

We can not give tax advice, so talk to your accountant, we have seen accountants recommendations. You can take use these as discussion points with your accountant:

  • Keep Already Owned Properties in personal name. After SDLT, Capital Gains Tax and Higher Interest Rates - you may be paying more to "avoid" the tax.
  • OR Big Landlords can move already owned properties into company. Regardless of SDLT and other tax's over the long period investment, it may be wise to cut losses now rather than wait and transfer later.
  • Buy New Properties In Limited Company. Limited company's will continue to pay tax only on profits, they can "retain profits" in the company instead of paying out to you, corporation tax is lower for than individuals. New dividend tax allowance will be increased.
  • Change from Joint Tenants (50/50 ownership) to Tenants in common (99%/1% ownership). To spread the Tax, decreasing one persons taxable income and increasing another persons.
  • Beneficial Interest Company Trusts - To avoid refinancing when putting properties into a company.
  • Incorporation Relief - If your property business is a business (learning from Ramsay vs HMRC (2012)). You may qualify for "Incorporation releif". Which means the tax can be deferred until the new shares in the new company are sold

If you take any of the above to your accountant as a basis of a discussion, find a route to lower your tax liabilities if possible and discuss with your mortgage broker on how to implement your accountants recommendations.

How are Landlords fighting back?

Landlords have launched a self funded (donate here) legal campaign, that has initially reached £50,000 in funds and a "pre-action protocol letter" to the government .

Founded by Steve Bolton & Chris Cooper this has evolved in a Judicial Review of Clause 24 and spawned the nick name "Alice in Wonderland Tax Grab".