BUY TO LOSE

EDP Norfolk - - Last Word In Property - Jon Hook, the le­gal ex­pert from Nor­wich Ac­coun­tancy Ser­vices 01603 630882 jon@nor­wichac­coun­tan­cy­ser­vices.co.uk www.nor­wichac­coun­tan­cy­ser­vices.co.uk

The ax­iom that ‘prop­er­ties al­ways go up in value’ (in the long run) and that the govern­ment will en­cour­age and in­cen­tivise you via the tax sys­tem ap­pears no longer to ap­ply af­ter the re­cent spate of leg­isla­tive changes.

The ‘triple whammy’ of op­pres­sive and dra­co­nian prop­erty tax law changes has left many land­lords con­sid­er­ing whether it is worth be­ing an in­vestor in res­i­den­tial prop­erty at all! As well as sell­ing up, 84% of ex­ist­ing land­lords – the high­est ever level – now say they have also stopped look­ing to buy new prop­er­ties in the com­ing year and The Na­tional Land­lords As­so­ci­a­tion has re­search show­ing that the pro­por­tion of ex­ist­ing land­lords who in­tend to sell prop­erty in the next year has more than dou­bled since July 2015 – ris­ing from 7% to 16%.

Ris­ing num­bers of land­lords are plan­ning to aban­don the buy-to-let mar­ket, prompt­ing fears that rents will spi­ral up as the num­ber of prop­er­ties avail­able to rent falls. Clearly this is ter­ri­ble news to those rent­ing and in tar­get­ing res­i­den­tial land­lords the govern­ment may have caused un­in­tended harm to some of the more vul­ner­a­ble and less eco­nom­i­cally ‘equipped’ in our so­ci­ety.

It started with the scrap­ping of the ‘wear and tear al­lowance’ for ful­ly­fur­nished res­i­den­tial prop­er­ties. From April last year, this al­lowance, a sim­ple and easy to ap­ply 10% al­lowance of the net rental in­come of fully fur­nished prop­er­ties, was repealed. Al­though re­placed by a ‘re­place­ment of do­mes­tic items’ al­lowance, it doesn’t in my opinion go far enough to com­pen­sate res­i­den­tial land­lords ad­e­quately over­all.

The sec­ond part of the ‘triple whammy’ is the 3% stamp duty sur­charge on buy-to-let prop­er­ties and sec­ond homes cour­tesy of Ge­orge Os­borne, the ex Chan­cel­lor, which came into force in April last year. Stamp duty is a dis­in­cen­tive to buy in it­self and this has driven an­other nail in the cof­fin of as­pi­ra­tion.

The fi­nal knock-out blow in this un­holy trin­ity is the re­stric­tion of mort­gage in­ter­est re­lief which com­menced in April this year and over the next four years ba­si­cally dis­al­lows all in­ter­est re­lief other than that at the ba­sic rate.

The prob­lem with illiq­uid as­sets like prop­er­ties is that they can­not nor­mally be bought and sold read­ily like shares or other fi­nan­cial in­stru­ments. It takes a long time to choose and buy a prop­erty. If the govern­ment wanted to dampen the am­bi­tions and in­cen­tives of land­lords they cer­tainly have achieved their aim maybe with con­se­quences to the peo­ple who can least af­ford it. It’s just a lose-lose.

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