A version of this article was first published in the October 2020 edition of the London Landlord Accreditation Scheme (LLAS & ATLAS) Newsletter
The fate of any business is always tied to the fate of its customers. Landlords are no different.
With the scaling back of government support now delayed but looming large on the horizon, and UK redundancies rising at record rates, Landlords cannot afford to be complacent.
And with many landlords still facing a bumper double tax bill in January, extra forward planning is prudent.
Meanwhile, whilst the economic backdrop remains concerning, other factors have been driving more activity than you might have expected in the housing market. Factors such as:
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- Homeowners looking for a better work-life balance,
- renters moving out of the city and purchasing their first home in the country on help to buy schemes,
- and a time-limited stamp duty holiday galvanising transactions.
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Unlike what you would expect to see in a typical recession then, 2020 seems likely to deliver house price growth as demand outpaces supply.
And yet, more landlords are looking to sell than to buy.[i]
Why is this?
Yes, Tax is a big issue, for those who deferred their July payment on Account, January is likely to see landlords facing the largest outflow of money to the revenue in a single month in their history as a landlord.
This is of course compounded by Section 24, with balancing payments this coming January catching up for tax accrued in the year where just 25% of mortgage interest can be offset against tax bills. Of course, we’ve still got balancing payments to make for this tax year – now that all mortgage interest counts as ‘profit’ – but not until January 2022.
Despite this, landlords flocking to ‘tax-structures’ has not been the main driver of portfolio adjustments over the last 12 months.
It would be nice to think that this is because most landlords have already sorted out their affairs, and even nicer to think that perhaps landlords have picked up on the messages we’ve been doing our best to communicate since the business launched.
Portfolio landlords can and should see themselves as running a professional business, and by doing so, both in law and in deed, they can maximise the commercial benefits and continue to compete and prosper in a market which is becoming increasingly volatile for the ‘accidental landlord’ or those merely holding property as investments in personal names with no added protection.
But if not selling up for Tax reasons, then why?
The top reason for landlords adjusting their portfolio in the last 12 months according to the Q3 update from NRLA are cost based reasons.
Changes in regulation was #2 in Q2, ahead of tax reasons, but has now fallen to #3, behind tax reasons.
It does seem that some landlords are looking at the overall market landscape, and weighing everything up – deciding that they want out.
In fact, according to the NRLAs Landlord Confidence Index, Landlord confidence is dropping like a stone, with 55.6% less or much less confident in Q3 2020 than in Q2 2020, and only 6% feeling more confident. This is a compounding on the Q2 2020 report where 50.3% of landlords were less or much less confident than in Q1 2020.
Reading between the lines, running your property portfolio as a business is more important than ever.
As a result, we expect to see the 3-year trend in consolidation of property towards a smaller number of successful portfolio landlords and property business owners[ii] continue in 2020.
And whilst it might not be the top reason for making portfolio adjustments, ‘Changes in Tax Structure’ does come in at number 2. It’s clear many landlords are still making decisions on how they structure and manage their portfolio moving forwards.
From personal experience, we’re still regularly meeting landlords impacted by the changes that have not yet acted – or taken actions that they now regret.
Which raises an important point.
It can be difficult for landlords to know what to do and who to trust. As a business, we were very quick to absorb the legislation and work with our clients on the best way to move forward. Since then more and more advisors have come on the scene and we’ve found landlords are finding a lot of noise and sometimes misconceptions in the market.
We also know that those landlords who are still making decisions are looking to do more research before engaging with advisors. This is one of the reasons why we launched our free video vault over the summer, so that landlords can find out more about their options online and in their own time. Landlords can sign up for the new LT4L Video Vault at here.
Despite the name Less Tax 4 Landlords, when people come to us for tax advice, we often have to turn it around. There can be a big difference in the mindset of an individual investor and that of a business. Businesses talk about business advice and business structures, mitigating taxes in so far as is legally possible and in line with prevailing policy, and about reducing the burden on the business of a legitimate business expense. Individuals sometimes just want to ‘doge’ the tax and we have to explain that’s not what proper business and tax planning is about.
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[i] https://www.nrla.org.uk/research/landlord-confidence-index
[ii] EHS, Gov.Scot, Stats Wales & Hamptons International
(https://www.hamptons.co.uk/research/articles/2020/lettings-index-january-2020.pdf/)
If you would like to find out if we can help you benefit financially from running a professional property business, take our free initial assessment here.
