Monthly Archives: January 2016

Who’d be a landlord?

Landlords – and prospective landlords – have had a tough time recently in respect of legislation changes. Below we’ve summarised the key changes you need to be aware of if you’re already a landlord or considering becoming one:

February 2016 – right to rent checks

This is an ongoing reform borne out of the government’s policy to tackle illegal immigration and deter individuals who do not have the right to stay in the UK from remaining here unlawfully. As part of this reform new legislation will come into force on 1 February 2016 which will impact landlords, anyone who sublets and anyone who takes in lodgers.

This is referred to by the government as the ‘right to rent checks’ and will apply to new tenancy agreements in the UK from 1 February 2016 onward, whether written or verbal.  These checks must be undertaken within 28 days before the start of the new tenancy agreement, and the records should be kept.  The aim of these checks is to ensure that the adult tenants have the right to rent these properties from an immigration perspective, namely, by verifying the perspective tenants’ right to stay in the UK.

Landlords, their appointed agents and those who sublet properties or take in lodgers may be liable for civil penalties of up to £3,000 per tenant, where those tenants are found not to have the right to rent properties in the UK due to their immigration status.  To assist, the Government has provided an online checking tool which can be used by landlords and others to conduct the right to rent checks:

April 2016 – Stamp Duty Land Tax (SDLT) on new buy-to-let properties

As we have previously highlighted, this legislation will come into from 6 April 2016.  The draft guidance states that an extra 3% stamp duty charge will apply to any purchaser(s) who owns more than one residential property at the end of the day of its purchase – irrespective of the intended use of the property.

April 2017 – removal of higher rate income tax relief on mortgage interest

Thousands of buy-to-let landlords will see their earnings hit after George Osborne cracked down on mortgage interest tax relief in the 2015 summer Budget.

The amount landlords can claim as relief will be set at the basic rate of tax – currently 20 per cent. Currently landlords can claim the tax relief at their highest rate of income tax, potentially up to 45%!

This change will be phased in over a four-year period from April 2017. Mortgage interest relief is estimated to cost £6.3billion a year, a Freedom for Information request revealed recently.

The Chancellor claims the move will ‘level the playing field for homebuyers and investors’. We anticipate the changes will only deter smaller investors in the buy-to-let market and put it into the hands of larger operators, which won’t necessarily be a good thing.


Should I stay or should I go now?

A number of clients have asked this week whether they should get out of the market based upon the scaremongering of RBS… i.e. the very bank that we the tax payers bailed out because it could not predict its own problems!  Okay, so that’s harsh but probably fair.

Within the investment world there is a Clash (see what I did there) of strategies – there is the traditional theory that value can be added through selecting the right shares and timing the market. This “active “approach strives to exploit inefficiencies in the stock markets. Research has shown that most active investment managers fail to add value for investors as they are concentrating on market forces that are neither controllable nor predictable.

The alternative is what we call “evidence based” investing, which is still a relatively new way of investing in the UK. We at Carpenter Rees believe that this is a smarter approach to investing and is built upon the following principles:-

  1. Determine the level of risk you wish (or need) to take.
  2. Diversify to deal with uncertainty – as we are all too aware, nothing is guaranteed and investments will fall as well as rise.   Markets (whether it be stock markets, gilts, property etc.) behave differently and move in different directions.  Therefore, you can reduce your risk by ensuring you do not have all your eggs in one basket.
  3. Manage the effects of inflation – inflation will erode the true value of your money, i.e. what cost you £50 twenty years ago would cost you approximately £100 in today’s money.
  4. Costs matter – keeping the costs of investment down ensure more of the investment profit stays in your pocket.
  5. Control your emotions as they have the power to destroy investment returns – selling close to the bottom and buying back in close to the top is a recipe for disaster.
  6. Rebalance regularly – Higher risk assets have historically provided greater returns over the longer term and as a result, if your portfolio is left unattended then the amount allocated to the more risky investments increases. Regular rebalancing, back to the original allocation, controls the risk and keeps your investment portfolio focused on your long term goals.

So if you want to time the markets, and it can be an exciting thing to do, you should ask yourself; if the experts can’t get it right consistently what chance have you got? Our job I guess is to make it all rather “plain vanilla” so that you can enjoy life and not worry too much.

So in answer to The Clash’s question, my view is that you should stay!

Second home stamp duty surcharge

HM Treasury has recently published details of how it will apply the new stamp duty land tax (SDLT) surcharge on second properties from 6 April 2016.

The draft guidance states that an extra 3% stamp duty charge applies where a purchaser(s) owns more than one residential property at the end of the day of its purchase – irrespective of the intended use of the property.

An exception applies to properties bought to replace the main residence, on the condition that the original main residence has been sold. However, if the new main residence is bought before the old one has been sold; the buyer must pay the charge but can claim a refund providing the old one is sold within 18 months.

It is not clear exactly what the definition of ‘main residence’ will be, or how closely it will mirror the principle private residence (PPR) for capital gains tax purposes. There is to be no right to elect which residence is the main residence for SDLT purposes, so HMRC will instead determine it by ‘taking into account ‘a group of ‘factors’.

Properties bought as furnished holiday lets will be treated in the same way as all other residential properties, in that the surcharge will apply if the property is purchased as an additional property.

Married couples and civil partners will be treated as a single unit, so that each couple may only own one main residence between them at any one time for the purposes of the SDLT surcharge. This could cause issues where the property is owned by one member of the couple, as the other member would incur the surcharge if they purchased another property.

HM Treasury has not yet decided how to deal with scenarios where two or more people who are neither married or in a civil partnership purchase property jointly (this could be cohabitee’s, parents and children, property partnerships etc.). If one of the people already owns a property but another does not, then either applying or not applying the surcharge seems unfair to one of the parties.  They are inviting suggestions on how to deal with this.

The proposed rules may also present some problems for trusts and their beneficiaries. Those who obtain a life interest or interest in possession (IIP) in a second property will be liable to the surcharge.

If you plan to make a future property purchase you therefore need to take this issue into consideration.

A Time for Reflection and Planning

December and January are often seen as a time for reflection and planning; a time to look back at the recent past and consider the near future. It’s also a time for the media’s perennial favourites: the review of the past year and outlook for the next.

The Investment Bank strategists fail miserably year after year in forecasting events over the coming 12 months.  As entertaining as these may be, this type of commentary is of little practical use in the real world and our suggestion is to take it with a pinch of salt.  As George Eliot noted in Middlemarch “Among all forms of mistake, prophesy is the most gratuitous.”

Sometimes it’s nice to look back—to reflect on what you have achieved and to use recent experiences to inform future decisions.  But as soothing as it might be to stand on the stern of a ship and gaze at its wake, it does nothing to help you reach your destination.

This is why we take care to review your investment portfolio and the philosophy that drives it, but never rest in our pursuit of ways to make improvements.  Our Investment Committee meets quarterly and its role is to ensure that we offer you suitable investment solutions in order to meet your goals.  We regularly review your goals with you and, where necessary, make adjustments to your financial plan to increase your chances of meeting them.

We believe in our philosophy of investing in a scientific manner rather than speculating.  It can be boring but it is an excellent framework for building an investment portfolio.  This has been our strategy for a number of years, and a process that run throughout 2015 and will continue to run through 2016 and beyond.  In our view, this is more valuable than the end-of-year press fodder that will be forgotten before long.