Property tax | Property Venture

Expat property investor implications of the UK’s Budget

With the biggest contraction in the economy for 300 years (-10%) the Office for Budget Responsibility (OBR) nevertheless predicts a swift recovery from November. The economy – as measured by GDP – is set to rise by 4% this year, up 7.3% in 2022 and increasing by c.1.6% in the following 3 years. The economy is expected to be back to pre-Covid levels by the middle of 2022.

This bounce back is encouraging news as it supports investor confidence and provides the bedrock for the property market.

Expat Property Investors – what things of note?

Stamp Duty Land Tax (SDLT)

We have all been holding our breath for this one. The SDLT holiday extension is happening as widely trailed, providing an additional 3 months with the nil rate band of SDLT on purchases up to £500,000 to the end of June and a further 3 months on purchases up to £250,000 from July to September 2021. The 3% investor additional SDLT continues as normal during this period.

The intention is to maintain confidence in the housing market following the coronavirus (Covid-19) pandemic.

From the 1^st of October the ‘old’ stepped system kicks back in with SDLT charges starting at £125,000 threshold.

However the non-resident 2% SDLT surcharge – of which little is announced – is still due to go ahead. More here.

Capital Gains tax (CGT)

No increase was mentioned in this budget – although it was widely expected there would be – but the limits have been frozen along with personal tax allowances which will be increased to £12,570 in April 2021 but held at this level until 2026.

Corporation tax

Corporation Tax is being increased substantially from 19% to 25% from 2023. This is relevant for those of you holding properties in a Limited Company or thinking of doing so. Although smaller companies with profits of up to £50,000 will continue to pay the lower 19% rate, capturing an estimated 70% of companies.

Construction Industry boost?

A new term has been introduced, that of ‘Super Deduction’, whereby companies investing in new plant and machinery can reduce their tax bill by 130% of the cost of the qualifying investment value. This temporary first year deduction replaces previous reliefs and allowances. This will stimulate business investment and help the construction industry.

Mortgage Guarantee scheme for First timebuyers

The Government announced its First Time Buyer mortgage guarantee scheme which enables them to buy with a 5% deposit and 95% mortgage loan. The Government underwrites the risk of the higher loan-to-value. This has brought the big high street brands on board with this scheme.

The Help-to-Buy scheme is being phased out. This ‘Mortgage Guarantee’ is a better deal for First Time Buyers because they aren’t restricted to new builds (which Help-to-Buy did) it applies to resale properties too. Given there is usually a premium attached to new builds and more so with Help-to-Buy new builds, which have a captive market, they are likely to be buying at keener prices all round.

It may be that many First Time Buyers can afford the monthly mortgage payment but just haven’t been able to get the deposit together, particularly in the South East.

Although the incentive for developers to build new housing is diminished, given Help-to-Buy gave developers and builders confidence to build because they had a ready market of First Time Buyers, so may not increase housing supply, it keeps the property market liquid.

The Government’s Levelling up agenda

The government has announced 8 ‘Freeport’ sites across the country. This means there will be tax incentives for businesses to base themselves in these designated areas. For example purchasers of land and buildings situated inside Freeport tax sites located in England will be able to claim relief from Stamp Duty Land Tax, subject to a ‘control period’ of up to 3 years (until 30 September 2026) and the land being acquired and used in a ‘qualifying manner’.

The 8 designated Freeport locations are:

East midlands airport
Felixstowe & Harwich
The Humber
Liverpool City region
Plymouth
The Solent
Thames
Teesside

What’s more the government announced a new economic campus beyond Westminster, in Darlington for parts or the Treasury, MHCLG and Department for International Trade.

These present opportunities for investors if you include inward investment and infrastructure improvements as part of your investment criteria.

If you would like help finding the right property for you then please get in contact.

My business focuses on helping time-strapped expats and busy business people who don’t have the local presence, or capacity, to acquire the ‘right’ properties for them. Property Venture® is an award-winning, Boutique property consultancy that finds the right investment properties for clients.

Disclaimer: Property Venture® is not a tax adviser but has outlined information in layman’s terms to enable top line comparisons, nor is it offering advice.

With regard to in-country legislation, letting licences and taxation laws, then you must take appropriate legal or taxation advice during your purchase process, at which time your solicitor or advisor will discuss with you up-to-date legislation and costs

Tags: Budget, expat investors, Expats, overseas landlord, Property tax, tax

What percentage uplift do vaccines provide economies and housing markets?

Faced with severe economic downturns in 2020 (estimated at minus 3.5 percent) and still in the midst of exceptional uncertainty, the global economy is projected to grow 5.5 percent in 2021 and 4.2 percent in 2022.

Vaccines have given a fillip of 0.3 percentage point relative to the previous forecast, reflecting increased economic confidence. The strength of the recovery is projected to vary significantly across countries, depending on access to medical interventions, the effectiveness of policy support, exposure to cross-country viral spreading and the state of individual economies on entering the crisis e.g. low-income developing economies, entered the crisis with high debt that is set to rise further during the pandemic.

Property markets have surprised, particularly in the UK..

There was uncertainty with the housing market during the twelve week National Lockdown from 23^rd March 2020. Initially it went into hibernation – as buyers, sellers, renters and landlords were told to delay home moves if possible, not to initiate new viewings and follow through pipeline transactions virtually.

It is estimated there were 450,000 buyers and renters with plans on hold, of which 373,000 were property sales with a total value of £82bn (Zoopla estimates). Sales were running at a 10th of the normal level for the time of year, similar to usual sales volumes of a December.

By the 2^nd Lockdown on 5^th November the housing market remained open for Estate Agents, removal firms and conveyancers abiding by Covid-safety measures in England, but with greater levels of restrictions in Wales, Scotland and Northern Ireland.

At the same time the Pandemic caused transaction delays in England, prolonging Contract Exchange times from 96 to 124 days, a 29 per cent increase (Movewise).

This was followed by a mini housing boom, as a result of pent-up demand and the Chancellor’s stamp duty holiday. The extent to which government Bounce Back Loans (BBLs) were used for deposits on properties is unclear, but anecdotally it was happening and may have contributed in some way.

All of this combined to push prices up and create a property frenzy in some areas towards the end of 2020.

Fears are that the end of the stamp duty holiday, at the end of March 2021, will cause a sharp drop in transaction levels, which can typically lead to price falls. Already house price growth in the year to the end of January 2021 was 5.4 per cent, down from 6.0 per cent in December (Halifax) and new instructions to sell have decreased noticeably.

We are also now entering the 4^th and final year of ‘Section 24’ changes to the way landlords calculate their buy-to-let mortgage interest tax relief, which will be fully implemented and reported in 2020/21 Tax Year in Tax Returns filed by January 2022. This tax-relief withdrawal had already had a dampening effect on the property investment market but will be fully felt in this final year.

Whilst London has been harder hit than most of the rest of England, with a number of homeowners and renters migrating outwards, it may not continue a downward trajectory.

Kearney’s 2020 Global Cities Report ranks London as the No. 2 City, after New York, but London tops the rankings when it comes to the outlook based on long-term investments in governance and economics.

Whilst the rankings have been produced without fully taking into account the effects of the pandemic and prior to seeing any visible signs of the Brexit fallout, it provides a reference point. It also means London starts out in a really strong position, particularly rated for the cultural experience offered, the strength of Medical Universities, global service firms, its news agencies and the overall international travel experience.

Conclusion: property market uplift?

Whilst vaccines may have given a 0.3% upward fillip to world economies, how much might vaccines boost the housing market or otherwise?

It is difficult to strip out the myriad of interwoven drivers of house prices in the UK property market. Drivers such as: rising unemployment, – deteriorating after government support to industry is withdrawn, affordability levels, liquidity of the housing market as less stock comes to market post SDLT holiday is scheduled to end. These all hint at prices lowering. There are also more unknowns, such as the level and shape of the tax burden to be announced in the Chancellor’s March budget.

Yet house building rates still fall short of government targets, exacerbated by Covid, thus constricting supply of newer stock on the market.

The vaccine programmes boost morale and confidence, which can only help the country and economy get back on its feet – and this will have a positive knock-on effect on the housing market.

If you would like help finding the right property at the right price for you then please get in contact.

My business focuses on helping time-strapped expats and busy business people who don’t have the local presence, or capacity, to acquire the ‘right’ properties for them. Property Venture® is an award-winning, Boutique property consultancy that finds the right investment properties for clients.

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Tags: Covid-19, economy, housing, Property tax, SDLT

Does Expat property Tax have to be taxing?

I have lots of property conversations with expats and there is always the thorny issue of what’s the best way to set up property investing tax-wise. So how to simplify a complex issue?

There are a few things worthy of consideration.

Should Investing be personal? Or via a Special Purpose Vehicle?

One of the challenging questions is how to set up your investing at the outset; buying personally or going down a Special Purpose Vehicle (SPV) route, which could be via a Limited Company (Ltd Co.) route or a Limited Liability Partnership (LLP) route.

Evidently everyone needs to have tailored advice for their personal situation, but are there any Rules-of-Thumb or principles that can be borne in mind?

Level of Borrowing

A key determinant is how you are going to finance the property purchase. If you plan to have a lot of borrowing, then it is worth giving serious consideration to buying via a SPV otherwise you could end up paying tax on ‘nominal’ income, given how the mortgage interest tax relief works for personal investments.

Prior to April 2017, landlords could deduct their entire mortgage interest costs as expenses against the rental income they earned. They would then pay tax at their personal tax rate on the remaining profits. Now though, mortgage costs are not treated as an expense, a 20% tax credit is used instead. This means higher-rate taxpayers are hit hardest and basic rate taxpayers could be drawn into the higher rate tax bracket unwittingly, by virtue of gross rental income being added to other forms of income.

Company structure

Limited Companies have a different tax structure, with Corporation Tax levied, currently at 19% for profits generated. And if you choose to take dividends as a way of extracting profits from the company, dividend tax is applicable in addition (current rates), but you can time your dividend payouts for maximum tax-efficiency, or leave the profits rolling up within the company to buy the next property. A Ltd Company can help with IHT planning as well. Stamp Duty Land Tax (SDLT) still applies though.

So there is a constant tension and balancing between mortgage interest deduction, Stamp Duty Land Tax and the various other tax rates.

There are some accessible things you can do if married. You can apportion ownership between spouses – via a Declaration of Trust and assigning Beneficial Interest. Bear in mind you can’t just shift income between spouses, unless it is matched by a commensurate capital holding, or aligned with beneficial interest.

You can also do 90:10 split in a LLP vehicle.

Property Price point

The solution might be different whether you are buying at an accessible price point in the Midlands and up North, or at a higher SDLT tax band in London or the South east.

Non-resident investors used to be able to sell property free of Capital Gains Tax but that is no longer the case.

Number of properties

If someone is just starting out with 1 or 2 properties vs a portfolio landlord with 4-5+ properties, it is important to have a view at the outset of how many properties you intend invest in. It is harder and more expensive to switch from a personal investment to a Limited Company, but it is possible to hold properties in a mix of ways.

Nature of buying – trading or investing?

Are you a property trader or investor?

If you buy a property to make value-added improvements and sell on for a profit, you’re a developer or a trader. So you are likely to be better off buying as a limited company, given you have more flexibility for taking profits. As an individual you are more likely to have your gains taxed as income.

If you are a buy-to-let landlord you fall more into the investor camp. Traditionally investors have operated as personal investors, but some could benefit from using a limited company since the 2017 tax changes.

Personal vs Ltd Company mortgages

It’s important to consider the whole picture, not just tax. Lending is approached differently for a company vs personal secured borrowing so you need to also consider ability to borrow. Whilst there are more lenders who offer mortgages to Corporate bodies now, there is still more limited choice than for personal lending and what there is for Ltd Companies, usually comes at a premium to personal lending.

Top Tip – You need to take care unless you are holding – or plan to hold – a lot of properties – that you don’t end up spending more on the investment structure than you actually stand to make

Based on content from a Webinar interview by Louise Reynolds with Churchill Tax advisers

If you would like help finding the right properties or tax help then please get in contact.

My business focuses on helping time-strapped expats who don’t have the local presence, or capacity, to acquire the targeted amount of properties for them. Property Venture® is an award-winning, Boutique property consultancy that finds the right investment properties for clients.

Our clients get regular updates on hot deals and the latest changes in the property market. Want these? Go here

Tags: expat investors, Expats, Property tax, UK investment