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 23rd 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 2nd Lockdown on 5th 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.

City-Scaffolded-Building-UK

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 4th 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.

London, UK, housing market

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.

Compliant members of the PRS scheme and on the Advisory Board of the Association of International Property Professionals (AIPP) the business has been vetted, approved and voluntarily commits to Industry Regulation and the Professional Code of Conduct. We are known for our quality customer service and non-pressurised approach to sales. This is what our clients say

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

Tags: , , , ,

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.

Compliant members of the PRS scheme and on the Advisory Board of the Association of International Property Professionals (AIPP) the business has been vetted, approved and voluntarily commits to Industry Regulation and the Professional Code of Conduct. We are known for our quality customer service and non-pressurised approach to sales. This is what our clients say

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

Tags: , , ,