By far my favourite card game growing up was Pontoon.
On every hand there would come a point where you needed to stick or twist.
And right now I think many landlords are looking at their hand and asking themselves the simple question –
“do I want to be a landlord?”
More and more, we’re seeing the answer to that is no. The landlord sector has dropped from 2.88 million landlords in 2017 to 2.66 million in 2019 and it seems likely that trend is continuing. The latest English Private Landlord Survey (2021) showed that twice as many landlords (representing 29% of tenancies) are looking to sell their properties than are looking to increase their portfolio. [i]
And yet, rapid rental growth will see Great Britain’s tenants pay £63bn in rent this year according to Letting agency Hamptons. This represents a huge record high being “driven by a lack of homes on the market alongside investors passing on higher running costs to tenants.”(ii)
So on the one hand we have landlords leaving the market, and on the other we have rocketing rents, particularly in the capital where the average monthly rent in London has risen above £2,000 for the first time.
This is simply a result of our old friends supply and demand, with less than half of sold buy-to-let properties returning to the PRS according to a recent Propertymark report.(iii)
On the face of it, the many predictions of major market upheaval and increased tenant costs in the wake of the great finance tax-relief axe do seem to be coming true. However, it is too early, and far too complex to pin-point the market changes on one factor alone.
Here then are just a few of the areas likely to be weighing on the astute Landlord’s mind:
- Fear of property bubble
- Abolishment of Section 21
- Rising Interest Rates
- EPC Policy
- The rise of Build to Rent
That last point deserves a quick mention, as I fear it could be the stealth factor that landlords don’t consider until too late.
Whilst still a tiny percentage of the PRS, a record £1.6bn was invested into UK Build to Rent in Q1 2022.(iv) And contrary to where you might traditionally relate the BTR sector in recent years, family homes have become a key driver of growth in the sector. The proportion of people aged 35 to 44 choosing to live in BTR developments has also increased significantly, up to about 25 percent.(v)
With so much to stay on top of, how will the average portfolio landlord manage and compete moving forward?
Yes, Landlords with smaller portfolios may find it hard to absorb the bureaucracy and concentration risk of this changing market. In comparison a larger portfolio brings with it the advantage of the laws of probability, and an ability to more readily absorb shock across the entire business.
Just as Government are seeing the opportunity to professionalise and regulate the industry through greater transparency and tighter regulation, corporations and portfolio landlords are looking to fill the void they know is and will be left by accidental landlords leaving the market.
You may not have the same economy of scale as British Land or Grainger PLC, but that doesn’t mean you cannot enjoy the commercial benefits of building, running, and growing a professional property business.
We set up Less Tax 4 Landlords and the One Consultancy Group to help landlords do just that, supporting your business model with a business structure and services that can help magnify your success.
After all if you’re going to ‘stick’, you want the odds in your favour.
Far too many private landlords are paying an effective rate of 50% tax or higher on their ‘real’ profits. As interest rates rise, those profits are decreasing but the tax is not. At some point, taxation will quite literally make a profitable business, un-profitable. Talk about having the deck stacked against you!
Don’t let this happen to you. If you’re paying much more than 20% tax on your Property Profits then you are almost certainly paying more tax than necessary. The question then just becomes whether a business restructure makes commercial sense for you, and you can find this our by taking a quick intital assessment here.
Now if pontoon was my favourite childhood card game, it was playing poker that got me through university – and in the end I think the best card game of all time is a more fitting analogy here.
The government have raised BIG, and round the table we go, fold, fold, fold… and now the actions on you – you’re not sure what to do, but you can sense British Land behind you, and they’re ready to go all in.
You’re sitting there with the faintest bead of sweat upon your brow, knowing there are plenty of good reasons to fold.
And seeing how many before you have done just that, it is tempting…
But so is that pile of chips on the table.
The clock is running down, soon you have to decide.
Do you want to be a landlord?
If you do, don’t let tax be your undoing.
Take a Free Initial Assessment today.
Or take a look inside our Free Video Vault for more landlord resources.
Any information on this website is for general guidance only. The information may come from multiple sources and is based on our understanding of current taxation, legislation and HM Revenue & Customs practice as at the date stated, all of which are liable to change without notice. Business, Personal Estate, Financial and Tax planning are complicated subjects and no two clients circumstances are the same; the impact on your situation will depend upon your individual circumstances and you should always seek coordinated advice before taking action.