Landlords urged to look at finances as tax changes hit home

Landlords urged to look at finances as tax changes hit home

Landlords are being urged to look at their financial arrangements as tax changes hit home according to a leading property management firm. Apropos by D.J. Alexander, one of the UK’s largest family run property management companies, believes that many smaller landlords will, from April 2020, find the loss of tax relief on borrowings and the ending of capital gains lettings relief in almost all cases will be the last straw in maintaining profitability. Many of these so called “accidental landlords” (those who rent out a property that they either inherited or were unable to sell) will simply leave the market as they are no longer earning enough income from their property.

The combination of drastically reduced tax reliefs on borrowing coupled with a more punitive regime on exiting the market will make many landlords decide that enough is enough. This is despite an upturn in rental prices across the country. In England the annual rate of private housing rental prices has risen from 0.9% in September 2018 to 1.3% in August 2019. Over the same period prices rose from 1.0% to 1.2% in Wales; from 0.6% to 0.9% in Scotland; but fell from 2.0% to 1.9% in Northern Ireland.

There was a mixed picture across the English regions with the largest fall in the East Midlands which dropped from 2.9% to 1.9% over the last year and London recording the largest rise going from -0.2% to 0.8%.

David Alexander, joint managing director of apropos by D.J. Alexander Ltd, commented: “The improvement in rent price increases is welcome but comes at a time when many landlords feel the market is just no longer viable. The final phase of George Osbornes’ policy of decreasing tax relief on borrowing comes into force on April 6th.”

“For many landlords their net income may be 50-75% less over the last three years with lower returns to come in the coming year and the prospect of a smaller capital return when they exit. For those landlords in Scotland the situation is slightly worse as taxation is higher. Over the last three to four years it has become more expensive to buy a rented property, more expensive to run it, and less profitable to sell it.”

David continued: “Even with the uptick in rent prices we are still far from the best performing years. London peaked in June and July of 2012 when the annual price increase was 5.3%. Although London has experienced an increase in the last year of 1% it has not increased by more than 1% since August 2017 and between January 2018 to February 2019 was never above 0.2% and for eight months of this period was at 0.0% or below.”

“There is, therefore, some way to go before many landlords feel that the good times are here once more. All owners of investment property need to look at their finances, the way they operate, and the returns they are gaining and see if any elements can be improved.”

David concluded: “Improving rental price is good news but it must come with a warning that prices may yet fall as the market shifts. Property is not a static or fixed market and rental prices will rise and fall with demand, and investors and individuals must be prepared for all eventualities and respond accordingly. For the most entrepreneurial landlords this is a time of opportunity while for others this may be the time to exit the market.”