Budget 2016…no wonder the Slap George game has so many ‘hits’!
Have you ever experienced the feeling of being singled out for negative treatment? If you can identify with that, then you may be thinking, what have I done to pee-off the Chancellor of the Exchequer? Whilst it could have been worse, it could also have been a whole lot better as well…so let’s get into a huddle together and try to make sense of what is going on with the Chancellor’s policy decisions that affect us as property investors. But, if that doesn’t work, we can always get it off our chests by having a bit of fun with the Slap George online game instead!
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Resources mentioned
Just a little bit of fun to release the stress…the slap George game
The Budget Speech in full, setting out the policy changes
Today’s must do’s
Understand how the collective landscape has shifted for BTL investors and make adjustments accordingly. It could be time to incorporate, pay down debt, sell some properties or seek higher rental returns…or all of the above!
Idle away a minute or two playing the Slap George game…OK, so that won’t really help with your property business but at least you will feel a bit better for a while 🙂
Please continue to send in your thoughts and ideas for content and themes that would fit into the 'New Beginnings' brief that I outlined for my upcoming YPN column: podcast@thepropertyvoice.net
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Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com in case you would like to get yourself a copy to accompany this series
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Transcription of the show
Hello and welcome to another edition of The Property Voice Podcast, my name is Richard Brown and as always it is a pleasure to have you join me again on the show today.
This week, my thoughts have been dominated by three main subjects. Getting a few deals completed before the end of March, which prompted last week’s episode on valuations. Then a forum post got me thinking about the ‘hold forever and refinance to release tax-free cash strategy’, which I will elaborate on next week. However, the most obvious issue of the past week has to have been the latest Budget of course.
Have you ever experienced being singled out for negative treatment, such as bullying, or just felt that some was out to persecute you? If you can identify with that feeling, then you may be thinking, what have I done to pee-off the Chancellor of the Exchequer?
Whilst it could have been worse, it could also have been a whole lot better as well…so let’s get into a huddle together and try to make sense of what is going on with the Chancellor’s policy decisions that affect us as property investors. But, if that doesn’t work, we can always get it off our chests by having a bit of fun with the Slap George online game instead!
Property Chatter
To be honest with you, I don’t usually listen live to a Budget speech, I tend for follow the summary of the key points and then read up on the speech and the commentaries shortly after. However, this time I decided to plug in my headphones and have a listen in as the Chancellor delivered his 40-minute speech.
I have to be honest and did actually laugh out loud when he said:
“The former pension minister, the Liberal Democrat Steve Webb said I was trying to abolish the lump sum. Instead we are going to keep the lump sum and abolish the Liberal Democrats.”
But then I realised that politics if often just the slapstick humour from a Punch & Judy show that is often used to mask some serious issues that affect people’s lives. As an aside, if you fancy letting off a bit of steam, then why not play the online Slap George game, which had nearly 33 million ‘hits’ at the time of recording today’s show.
A little more seriously and less virtual reality though…let’s take a look at the substance of the Budget rather than the show.
If you are brand new to property investing, or at an early stage, then by adopting a certain approach and structure from the outset, you could be forgiven for wondering what all the fuss was about come 2020…or at least I hope you are. I say hope, as things can change, a point I will come back to in a few minutes.
However, if you are already fairly established, or even at a fairly mature stage in your property investment journey – and in particular with Buy-to-Let – you may be feeling ever so slightly persecuted of late.
Since July last year, the Chancellor has introduced a range of tax changes that directly impact on buy-to-let investors in particular.
There is the mortgage interest relief restriction, which has been spun as being not retrospective as it is being phased in gradually over the next few years…more theatre there as it affects all existing mortgaged properties regardless. This has a radical impact on property investors investing in their personal names. This is because it:
- Changes the basis of how profits and therefore our total gross income is calculated, such to exclude the interest costs on our mortgages
- Pushes some into higher tax brackets as a result of this change
- Reduces the profitability of higher and highest rate tax payers from buy-to-let
Then we have the withdrawal of the 10% fair wear and tear allowance, which in all honesty is fair (if not wearing), as it replaces an arbitrary offset allowance against profit, regardless of the actual expenditure, with the ability to offset real costs of replacement instead.
Then, of course, we had the changes to Stamp Duty bombshell – where anyone that owns one property, including their own home, will be charged a 3% premium in stamp duty when buying another one. This was confirmed in this most recent Budget, along with the removal of a potential get of jail free card for large property investors. This of course will make buying investment property more expensive from April onwards.
So, nursing our wounds from these blows from Number 11, we went into this latest Budget with a feeling of in trepidation. How will he slap us around this time?
Well, there were no real speech-bomb comments, such as ‘levelling the playing field’ as was the case in the past. There were merely a few announcements, which if you weren’t really paying close attention, you could have missed.
I listened to the Budget, read the official Government document and made some notes of how these changes could impact us as property investors; you can also find the speech and it’s policy changes in the show notes link. Here they are:
- SDLT (Stamp Duty) on commercial premises will be reformed in a similar way that residential property was...the removal of the old ‘slab system’ will probably mean that lower value purchases will end up paying less in Stamp Duty. However, it was also confirmed that the 3% SDLT surcharge previously announced will take effect from 1st It also applies to large and corporate investors on residential property, despite a suggestion that this may not be the case when fully implemented previously.
- Whilst the headline tax cut personally was with Capital Gains Tax which was reduced to 10%/20% from 18%/28%, this excludes residential property, which will have an 8% surcharge...so property investors won't benefit from this CGT tax cut sadly
- Corporation tax will fall to 17% by 2020 instead of 18% - so investing through a company will become even more attractive as these corporate investors can still offset their interest costs in full. Of course, profits removed by way of dividends will still be taxed based on your personal income tax rate and this became less generous recently also.
So, what can we conclude from this latest set of changes then?
Firstly, that buy-to-let investment is very much seen as rich-pickings for extra taxation. An awful lot of people investing in BTL will end up paying more tax in one way or another, certainly if investing in their own name. Even those basic rate tax payers that do not sell a property to realise a capital gain may get pushed into a higher tax bracket and so could pay more tax then.
In some respects, we should not be surprised, as wealth redistribution policies tend to follow an economic crash. It just seems that this particular wealth redistribution policy seems to be targeted mostly at the middle, more so than the top, when we consider the changes overall and with a property investor perspective.
Second, the apparently great news about a capital gains tax reduction won’t be enjoyed by property investors cashing in their profits I’m afraid. This is a clear disincentive towards investing in residential property and continues the general trajectory of the Chancellor of late. In truth, we are not worse off by the change from where we were yesterday, it just makes investing in other asset classes for capital growth appear to be more tax-efficient now.
Other forms of property investment are being positively encouraged. In particular, new build development and conversions into residential property. The extension of permitted development rights and the reform of commercial property stamp duty are two policies that support this view for example. Therefore, the stated Government policy to build more homes is actively being encouraged and so property development becomes more appealing than property investment to some extent.
Finally, many of the changes directed toward BTL investors do not apply to investors through a limited company. This is clearly directing us to invest through a corporate vehicle instead of in our personal names.
That sounds very prudent right now and despite the fact that obtaining finance is currently not as straightforward or as cheap as when investing personally, no doubt once the tax changes are factored in, this could change. Also, the lending market will adapt to this trend and result in more choice and competition over times as well.
One word of cation here though…at present investing through a limited company is not caught up by the most recent tax raids on mortgage interest or capital gains for personal investors, but who is to say that won’t change in the future? We don’t really know, but do we really have a choice right now I wonder?
There we are then, the slightly lighter touch approach towards property investors, at least directly. Indirectly, however, there is more for us to feel aggrieved by I am sure. If it would make you feel any better then, just check out the show notes for link to the online game to give George a virtual slap!
So, tell me - what are your thoughts? Are you feeling persecuted, or are you adapting to the changing landscape? Drop me an email podcast@thepropertyvoice.net for a personal conversation, or why not drop a comment into The Property Voice Facebook page to start a wider discussion.
Right, that’s me for another week. Next week I plan to be a little controversial, as I attempt to lift the lid on the reality of what some have described as the optimum tax-free approach to funding our lifestyle through property investment…and maybe I will give George a quick slap whilst I am at it too!
The show notes with all the links mentioned can be found over at our website, www.thepropertyvoice.net
Finally, and as always, thank you for joining me on the show today and until next time on The Property Voice Podcast…it’s ciao ciao!