David Boyd, Managing Director, PAD4U Letting Agents Manchester writes:

In my post before the budget I urged landlords not to panic at the talk of 40% Capital Gains Tax (CGT) and a reduction in the tax free buffer from £10,000 to £2,000.  I expected that the propaganda before the budget would try to paint the worst case scenario for CGT, so that come the day all of us would breath a sigh of relief when the news wasn’t so bad.  Which is pretty much what happened.

CGT was raised for higher rate tax payers from 18% to 28%, (remember even if you are a lower rate tax payer, the capital gain will be added to your income to determine whether you will pay the higher rate CGT).  This is not a small rise and as I pointed out in my previous post it is in practice a retrospective tax as any gains you have already made will be taxed at the new rate should you dispose of an asset.  The £10,000 free tax band has remained thankfully, taking the some of the pain away from the 10% increase.

I fundamentally disagree with any increase in capital gains tax, because I believe that all Governments have let us down with protecting our pensions forcing each individual to look after their own pension provision and many have rightly chosen to do that through property, as it is an asset class they understand rather than derivatives or bonds or the like.

The Liberals argue that income tax and CGT have become disconnected allowing rich individuals to pay less tax than those on the lower  income tax band.  However, what hasn’t been discussed is the discrepancy in tax between the various type of pensionable asset classes.  There are many tax efficient vehicles for people to invest for their pensions such as ISA or SIPPs.  These vehicles allow investors to avoid any CGT on whatever assets they hold within those vehicles.   However, whilst you may hold all sorts of assets from shares, bonds, fine wine, fine art, stamps, commercial property, etc.,  it is not possible to hold residential property in either an ISA or a SIPP. 

If it is the Governments policy to create parity in the tax of income and capital gains tax then they must allow residential property to be place into SIPPs, so that Buy-to-Let investors are not singled out as the only group of investors who for the provision of their pension arrangements will be paying full CGT, whilst all other investors will not pay any CGT whatsoever.

The rest of the Budget was pretty much inconsequential for Buy-to-Let investors. The removal of HIPs was good for the industry, but little else has changed.  Housing benefit restrictions are not likely to affect local Landlords and as PAD4U landlords we wait until Housing Benefit rents are paid directly to the landlord before recommending more readily.

Pattison Auctions who run national auctions around the country are having their third auction in the North West on the 3rd of June 2010 (Registration is at 6PM, auction starts at 6:30PM).  The auction will be held at Copesthorne Hotel, Salford Road, Salford Quays.   Auction Catalogues will be available soon to download (click here).

PAD4U have placed a number of investment properties within the auction on behalf of our customers free of charge.  Paul Robertson our Business Devleopment Manager will be in attendance.  If you are interested in increasing your portfolio or just want to see what is on the market why not come along!

David Boyd, Managing Director, PAD4U Letting Agents Manchester writes:

The welcome news that Home Information Packs are likely to be scrapped by the new coalition government in the upcoming emergency budget has been sidelined by the very unwelcome news of a doubling of Capital Gains Tax.

One of the Liberal Democrat’s Manifesto pledges to readjust Capital Gains Tax in line with income tax may see Capital Gains Tax as high as 40% with perhaps no adjustment for how long the asset has been held nor taking account for inflation during the period of the gain.  The increase is squarely aimed at wealthy individuals who pay less tax on monies earned from capital gains than say a low paid worker will on their salary.  This situation was created when Gordon Brown unexpectedly cut Capital Gains Tax to 18% which is lower than the 20% income tax band.

However, like many of the Liberals’ policies they have not been thoroughly thought through.  Perhaps even the most bullish Liberal Democrats could not have believed the turn of events that would see many of their policies actually being implemented in the real world.  To understand why such an abrupt turn of policy regarding Capital Gains Tax could be damaging and unfair to many hard working people, we have to look back in time.

The collapse of Equitable Life wasn’t the start of a collapse in confidence in pensions and pension providers, but it was perhaps the peak of discontent with the pension system and also with the Government who were championing private pension schemes whilst the more generous guaranteed salary schemes were  becoming a thing of the past.  When Equitable Life collapsed, millions were wiped off people’s pensions and to their utter shock  the same Government that recommended such pension plans and whose regulatory bodies such as the FSA  approved Equitable Life right up until it’s collapse… no compensation was offered to them.  It was as if millions of pounds had suddenly disappeared and those who had done the right thing and saved for their retirement, were cast adrift by the Government and their nest eggs destroyed through no fault of their own.  Compensation is still being sought and the new Government has at least indicated it will do something. However for many it will be too little, too late and they will have lived out their remaining years without the pension they had saved for.  Equitable Life wasn’t the only catastrophe to hit the pension industry, but it was perhaps the biggest. Pension mis-selling was rife and many other smaller pension providers were collapsing also.

But what has this got to do with Capital Gains Tax?  The answer is after the collapse in confidence in the pension industry and regulatory bodies and Governments all of whom could no longer be trusted with our retirement planning , property investment became not just for the very wealthy, but virtually for anyone who had any hope of not relying on state benefits for their retirement.  In many people’s mind property was something tangible.  It couldn’t turn into nothing and disappear such as their pensions had with Equitable Life.  Little wonder that a cultural change had taken place.  People felt they had nowhere to turn for the retirement planning but to invest in tangible assets such as property and take control of their own pension provision.   And this is the crucial point that the Liberals have misunderstood.  Property is no longer the domain of the supper rich or upper classes; landlords are butchers, hair-dressers, tele-sales staff, all ordinary people trying to take control of their retirement planning.  Of course there are very wealthy landlords with hundreds of properties, but they are very much the exception.  PAD4U manages hundreds of properties, but our average landlord only has 1 or 2 properties.

Perhaps Gordon Brown had realised the above and given he had failed to provide for peoples’ pensions, that the state pension had failed, that the financial regulatory system had failed to protect people, he decided to reduce Capital Gains Tax to 18% in recognition of the fact people had no choice but to take control of their own pension planning.  Whether this decision was right or wrong is debatable, however, actions have consequences and people have a right to plan their lives based on what the Government has decided without expecting a complete U-turn within a few years.  The argument that it was 40% before so it can be 40% again is a particular naive one. A lot has changed since then.

It is perhaps this last point which makes me so angry about the changes being proposed.   Capital Gains Tax increases are in effect retrospective.  Compare this to the proposed increase in VAT of 2.5%.  Firstly it is a small rise (still an unwelcome one), but we have the ability to alter our behaviour in response to this tax increase.  We can spend less perhaps or put off larger purchases until absolutely necessary, etc.   Now let me propose something different.  Say my policy was to  double the VAT rate and not only that, I will charge the extra VAT not only on the purchases you make in the future, but also the purchases you’ve made in the past:  say that new television or new washing machine you bought last year? This is effectively what would happen if the proposed doubling of Capital Gains Tax was to go ahead.

When I write this I think back to the Conservative poster showing Gordon Brown and saying something along the lines of ‘…I’ve wiped billions off your pensions please let me do it again…’.  The irony and sad truth of the matter is that it looks like our new Government is likely to do exactly the same thing.   Having forced people to take control of their own pension plans due the previous Government washing their hands of this responsibility.  By doubling the tax on Capital Gains, they will wipe out ordinary people’s pensions yet again.

Of course this is the worst case scenario and I hope that either the rise will be more measured or taper relief/indexation for inflation will at least be implemented in tandem with the planned increase.  My advice, however, is not to panic. We await the details of the actual increase as there is a lot of pressure on the Chancellor and I expect that a more measured policy than that proposed by the Liberal Democrats will be implemented in the end.   Also, the long term investor should look beyond a 5 year Government term wherever possible.  I will watch with interest what is actually implemented and report back to you with my thoughts and advice.

In this week’s Budget, Chancellor Alistair Darling announced that stamp duty of 1% on properties worth between £125,000 and £250,000 would be removed for the next two years for first-time buyers.  But is this enough to revitalise the property market?

Probably not.  It will encourage some first time buyers on the property ladder in those regions where properties on the first rug of the ladder are over £125,000.  However, the greatest impediment to first time buyers is not stamp duty, but the difficulty in securing a reasonable mortgage without a huge deposit.  The banks total aversion to any risk whatsoever is not acceptable when it is the tax payer who has funded their recovery.  Until the banks lend money at reasonable rates and loan to value ratios, activity will be subdued.

However, at least this is a positive step.  This Government’s track record in the property market has been dismal:

HIPS (Home Information Packs) have proved to be pretty useless to the point where they are rarely ever requested or seen by anyone other than the person carrying out the HIP. Solicitors usually carry out the searches again because those in the HIP are outdated (doubling the cost).  So the HIP normally stays in a filing cabinet or on hard disk not seen or used by anybody.

Selective Licensing effectively puts another tax on being a Landlord, a bundle of documentation that a landlord who uses a professional management agent has already adhered to and yet needs to pay £400+ to the council to check over?  Councils of course have leapt on the opportunity and great swathes of Manchester now reside in Selective Licensing areas creating plenty of jobs in the council which has no benefit to anyone.  Yet why has the Government not yet announced the simple provision that all Letting Agents/Estate Agents must be licensed by ARLA/NAEA, thus alleviating most of the difficulties highlighted by the media at a cost of around £0.00?

Housing Benefits.  The decision to pay rent to tenants rather than the landlord or managing agents is perhaps one of the most ill thought out decisions.  Even those tenants that prefer for the landlord to be paid directly, because they openly admit “they are not great at managing money” have this request refused based on some political correctness.  The result?  Agents and landlords alike are reticent to take on Housing Benefit tenants.  The other decision regarding housing benefit of allowing the tenants to get  what is effectively a monetary kick-back for renting a property (for example a property that is up for rent at £495, the tenant is rewarded with a £550 rent allowance, the tenant is allowed to keep £55 per month) without thought to what a tax payer would think of this give-away of their money is another indication the Government is out of touch with public opinion.   The reality should be that the landlord is rewarded for taking on the additional risk and wear and tear that comes with a Housing Benefit tenant.

Of course the tsunami that was the Credit Crunch pretty much covered up the damage that the above policies were causing. However, it is worth remembering that these were doing damage to the property market before the credit crunch and will probably slow recovery to some degree.

We hope going forward that Governments and Councils reappraise their approach to bashing landlords with ill thought out legislation and hopefully engage landlords and talk to all parties before rushing out poorly implemented initiatives in future.

The Government plans to require HMO accomodation to have planning permission after April 6, 2010.

If you are planning to convert an existing property to HMO then you will have to pay £335.00 and wait eight weeks (at a minimum) to receive planning permission before you can legally rent the property.  This is in addition to requiring a HMO license (if the property has 5 or more occupants and 3 stories) which costs in the region of £500 or more.

If you want to let what has been a family house or flat to three or more unrelated people such as students/nurses, etc., you will need planning permission.  If your property is already let you will lose the right to let out to sharers again without obtaining planning permission.

The justification for such draconian measures seems to be related to certain areas being “overwhelmed” with HMO property.  Those areas the Government feels are too overcrowded with HMO properties will be denied planning permission.

In our opinion this smacks of the nanny state and social engineering.  There are reasons why certain areas have more HMO properties, perhaps because they are close to universities or hospitals and have the required infrastructures to support students/nurses.  Trying to move these people in to other areas where such infrastructure is not in place needs careful thought.  Social “cleansing” – moving certain groups of people into different areas could be a step too far for the state involvement.

RLA members have reacted angrily to the new proposals and are asking landlords to write to their local MPs to complain about the new legislation.  Let us know your thoughts.

David Boyd, Managing Director, PAD4U Letting Agents Manchester writes:

Double Dip is an unpleasant term that is doing the rounds at the moment and we’re not talking about Nachos.  The term has been whispered around the City for sometime, but it’s now turning into a shouting match.   But why?  A number of reasons, firstly, Quantitative Easing has been stopped, the Bank of England is no longer effectively printing money which has until now assisted the banks in repairing their balance sheets and allowed some semblance of lending in the mortgage markets.  Secondly, the UK’s debt continues to grow at a pace that the City feels uncomfortable with especially in light of the difficulties that Greece and thus the Euro have suffered as confidence drops in their ability to pay back these huge debts.  The UK balance sheet is in just a precarious state the response so far from the markets has been more muted, perhaps in the belief that a Conservative government would cut the deficit, however with the polls now undecided about which party if any will win outright at the next election, the markets are uncertain and uncertainity is never welcome in the City.

The consequence for landlords in the main is a tightening in lending from the banks, who are ever more concerned about their balance sheets than lending the monies that have been gifted through Quantitative Easing and the various state backed guarantees that tax payers have the burden of.  When mortgages are granted the terms can be eye watering, there is little that the landlord can do, whilst the Government is placing pressure for lending in the residential market there is no such push for buy-to-let mortgages.  Landlords will have to work harder to finance their portfolios.  If you are looking for assistance with buy-to-let mortgages our mortgage brokers can offer free independent advice, please email property@pad4u.com.

The outlook however is not all doom and gloom, the difficulties within the market are throwing up opportunities for savvy investors to capitalize on.  Interest rates are likely to stay low for some time.  Also, the rental market we believe is likely to remain strong throughout the crisis even is pressure remains on rents to stay competitive for the time being.  In additional I’m not certain we’ve heard the last clangs from the printing presses as they produce new money!

Alaine Bradbury, Estates Manager, PAD4U Letting Agents Manchester writes:

All Estate & Letting Agents in Hastings have been banned from having sea front boards by Hastings council, but locals on the whole support agents views.

Today on Radio Sussex’s Breakfast show presenter Neil Pringle highlighted to listeners the fact that Hastings council are banning estate agents boards. The first person to call commented that twice his homes had sold through leads generated by his agents having boards up!

In fact its reported that listeners were more pro agents having the right tools to serve them and supported the view of the agents.

It is understood that boards still play an important role finding around 1 in 6 of agents buyers and tenants in the Hastings area.

We at PAD4U continually monitor where are tenants are found so that we concentrate on advertising in the right areas, boards, internet, passing foot fall and visits to our office, shop cards and door to door leaflets are but a few ways that we advertise our to let homes.