‘I’ll still make a mint in prop­erty’

The Daily Telegraph - Your Money - - FRONT PAGE -

In­creased taxes have killed buy-to-let, some say. Oth­ers still swear by it. Olivia Rudgard re­ports

While many buy-to-let land­lords are in de­spair over a new tax due to be in­tro­duced in less than three months, large land­lords see it as an op­por­tu­nity – and some are even ex­pand­ing to take ad­van­tage.

Ex­perts pre­dict that as the tax changes come into force, the buyto-let mar­ket may in­volve fewer small “ac­ci­den­tal land­lords”, who are more likely to be put off by the changes, and more pro­fes­sional land­lords who will be able to cap­i­talise by buy­ing prop­er­ties sold off by in­di­vid­u­als.

Pro­fes­sional land­lords are in a bet­ter po­si­tion than their smaller coun­ter­parts be­cause many of them own their prop­er­ties via lim­ited com­pa­nies, or can af­ford to set up a com­pany quickly.

They are also el­i­gi­ble for some tax re­liefs that ama­teur land­lords can­not use. How­ever, they are cur­rently very much in the mi­nor­ity. A sur­vey last year by Shel­ter, the hous­ing char­ity, found that 92pc of land­lords let fewer than five prop­er­ties and just 4pc de­scribed it as their full-time job. Only 12pc were reg­is­tered as a busi­ness.

This is chang­ing, though. Ac­cord­ing to Mort­gages for Busi­ness, a bro­ker, 69pc of new buy-to-let pur­chases made in the fi­nal quar­ter of last year were made by land­lords with lim­ited com­pa­nies.

In­come from prop­er­ties held by lim­ited com­pa­nies is not af­fected by the tax changes be­ing in­tro­duced on April 6 and is also taxed at just 20pc – a rate that will fall to 17pc by April 2020.

Mean­while, land­lords who own prop­er­ties in their own names and pay the higher rate of tax (40pc) will lose the abil­ity to deduct their mort­gage costs from their rental in­come be­fore cal­cu­lat­ing their tax bill.

How­ever, mov­ing prop­er­ties into a lim­ited com­pany can be ex­pen­sive. Own­ers must pay stamp duty – via the com­pany – when the prop­erty is trans­ferred.

There is also a cap­i­tal-gains tax charge if the prop­erty has

JUST LIKE THE DUKES OF WEST­MIN­STER...

While Paul Roth­well has some way to go be­fore he joins the wealth­i­est ty­coons in the world, prop­erty has stayed no­tably re­silient over the past cen­tury – and longer.

The Dukes of West­min­ster made their for­tune over

the three cen­turies since the fam­ily in­her­ited 500 acres of land north of the Thames in 1677. They de­vel­oped much of cen­tral Lon­don, in­clud­ing Bel­gravia and May­fair, and now own houses, ho­tels and shop­ping cen­tres in Tokyo, Hong Kong and Cal­i­for­nia.

In 1899, the Duke of West­min­ster be­came the rich­est per­son to die in the sec­ond half of the 19th cen­tury. His de­scen­dant Hugh Grosvenor, 25, is the rich­est per­son in the world un­der 30, with a £9bn

for­tune. gained in value, al­though this can be mit­i­gated by pro­fes­sional land­lords if they can prove that the port­fo­lio amounts to a “busi­ness” as op­posed to an “in­vest­ment”.

They must also tell their mort­gage lender that the own­er­ship of the prop­erty is chang­ing and switch their mort­gage to a com­mer­cial one – an­other po­ten­tially costly move. But these costs are not put­ting off large land­lords, who have the cash to set up a com­pany and the time – and some­times the staff – to or­gan­ise it.

Many of them are also di­ver­si­fy­ing into com­mer­cial and mixe­duse prop­erty. Paul Roth­well, 34, has built up a £33m prop­erty for­tune af­ter start­ing with just £15,000 13 years ago. His com­pany, Em­pire Prop­erty Con­cepts, based in Don­caster, now em­ploys 12 staff.

The busi­ness started when his fa­ther gave him money to buy a prop­erty in Not­ting­ham, when he was a 21-year-old stu­dent read­ing eco­nom­ics and fi­nan­cial services. He con­verted the base­ment into a bed­room and let the other rooms out to fel­low stu­dents.

His tim­ing was good: be­tween 2004 and 2007 prop­erty prices rose by 26pc over the UK as a whole and by 16pc in the East Mid­lands.

As a re­sult, three years later, when he came to grad­u­ate, he re­alised that the house had leapt in value from £88,000 to £140,000.

He was able to re­mort­gage and ex­tract £35,000, which he used to buy a two-bed­room semi-de­tached house in the South York­shire vil­lage of Thurn­scoe.

From there he built up the busi­ness in the same way as thou­sands of other land­lords – by re­mort­gag­ing a cur­rent prop­erty, ex­tract­ing the cash and us­ing it as a de­posit on a new one. He also owns “houses in

mul­ti­ple oc­cu­pa­tion” or

HMOs, as well as larger build­ings that he has con­verted into small stu­dio flats and let sep­a­rately.

A to­tal of 1,000 peo­ple live in his 750 prop­er­ties through­out the north of Eng­land and the Mid­lands, a num­ber that is grow­ing rapidly; last year he gained 300 new ten­ants.

On Mr Roth­well’s first prop­erty, the rent cov­ered the mort­gage twice over. This would be more dif­fi­cult to achieve now. But his yields are still high. The low­est he re­ceives is 6pc, on an in­di­vid­ual fam­ily home. HMOs yield much more, up to 15pc in some cases.

The most lu­cra­tive prop­er­ties are houses within a mile of a north­ern town cen­tre, such as Leeds or Don­caster.

He has stayed away from ex­pen­sive mar­kets such as Lon­don in favour of ar­eas where house prices are low rel­a­tive to rents.

Many of his prop­er­ties are owned in his own name, so he will be hit by the tax changes, but he said this was “not a catas­tro­phe – it’s some­thing to be man­aged”.

The com­pany is still ex­pand­ing. Mr Roth­well has bought of­fice build­ings and is buy­ing large dis­used build­ings and con­vert­ing them into apart­ments.

One re­cent ac­qui­si­tion is a 45,000 sq ft of­fice block in Barns­ley, which he plans to let to busi­nesses or, if that doesn’t work, con­vert into flats.

He has is­sued a “mini-bond” to al­low oth­ers to in­vest in his busi­ness and even­tu­ally wants to build and de­velop prop­erty him­self.

He said new land­lords should still be able to fol­low his lead, as long as they set up a com­pany and have the will to suc­ceed.

“There are al­ways ob­sta­cles, but if some­one re­ally wants to make some­thing hap­pen they’ll find a way,” he said.

“There are ob­vi­ous ways you can make it easier, like set­ting up as a lim­ited com­pany from the start.”

But Mr Roth­well did con­cede that new land­lords might be put off. Apart from the tax change, buy-to-let mort­gage reg­u­la­tion has tight­ened and land­lords will face tougher scru­tiny of their rental in­come and whether they would be able to af­ford a sig­nif­i­cant rise in in­ter­est rates.

And his method of re­mort­gag­ing to ex­pand, used by thou­sands of land­lords through­out the 2000s, has been all but killed off by higher stamp duty costs and tougher af­ford­abil­ity re­quire­ments.

De­spite the dip caused by the fi­nan­cial cri­sis, prices in many ar­eas have re­cov­ered and are far higher than they were in 2007, mean­ing land­lords need more money to get started.

In some ar­eas, such as Lon­don, prop­erty prices have grown dra­mat­i­cally and lost touch with rents, mean­ing yields are very low.

Build­ing his port­fo­lio: Paul Roth­well is still buy­ing up prop­erty

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