Peterborough Landlords and Second Homeowners Will Probably Save Money from the Proposed New Capital Gains Tax changes

If the proposals were adopted in full, some Peterborough landlords would pay £8,000 less Capital Gains Tax than they would currently

The government borrowed £394bn this financial year (April ‘20 to April ‘21). This figure does not include the cost of November lockdowns and support measures, which means the final bill will probably be over half a trillion pounds. Ultimately these billions will need to be paid back to cover the cost of Coronavirus.

The Office of Tax Simplification (OTS) published a report for tax reform and, as was predicted by many in the press, the Government Dept suggested the Chancellor contemplate readjusting current Capital Gains Taxation (CGT) rates with a person’s own Income Tax rates. This would mean increasing the rate of CGT for selling a buy to let property from 28% to 40% for high-rate taxpayers and 45% for additional rate taxpayers. To add salt to the wound, the OTS is suggesting cutting the £12,300 annual CGT allowance.

This has led to many Peterborough buy-to-let landlords contacting me in the last few weeks, wondering if this is the time to exit the Peterborough buy to let property market, especially as they have been hit by growing levels of rental legislation and higher taxes.

With tax bills about to go through the roof, is this the time to leave the Peterborough buy to let property market?

Yet, like all things, the devil is in the detail as Peterborough 2nd homeowners and Peterborough landlords may well finish up having lower CGT tax bills with these new taxation proposals, even though the CGT restructurings are being introduced to raise the much-needed cash for the Government.

Apart from the suggested cut of the annual CGT allowance and increase in the CGT percentage rates, the OTS report also proposed reintroducing rebasing and indexation. In layman’s terms, the OTS are suggesting all gains made before 2000 would not be taxable (rebasing) and any capital gains would be calibrated to account for inflation.

So, what would that actually look like for a Peterborough landlord? Let us assume we have a Peterborough landlord who bought a Peterborough buy to let property in 2000.

Under the current CGT rules

  1. The average value of a Peterborough property in 2000 was £74,100
  2. Today, that same Peterborough property has increased in value to £223,200
  3. Meaning a profit of £149,100
  4. As our Peterborough landlord is a high-rate taxpayer (earning £60,000 a year), their CGT bill after the annual allowance would be £38,304

Under the new proposed CGT rules

Under the new proposals, the CGT payable (assuming the CGT rate of 40% and a lower annual allowance of £5,000), the same Peterborough landlord would only pay £30,165 – a saving of over £8,000.

And the savings don’t stop there. Remember, under the new OTS proposals, all capital gains made before 2000 would also be tax-free.

However, let us not forget the responsibility of the OTS is to report on tax simplification opportunities, not to set Government taxation policy. None of us have a crystal ball on what Rishi Sunak will do with CGT on buy to let property or second homes. Although, as time has always taught us with investments, often the worse thing to do is to make impulsive decisions on what MAY happen.

You have to remember, CGT only gets charged when you sell or transfer your investments, and most people use their rental investments to provide their income. If you did sell up, the best 90-day building society accounts are obtaining 0.8% pa, the stock market is a rollercoaster (good luck with that) and Government 10-year bonds are paying a princely 0.324% pa … where else are you going to invest to get the income Peterborough property investments provide?

Property is an asset you can touch, feel and ultimately understand. Maybe, this is the time (if you haven’t already) to take portfolio advice on your Peterborough buy to let investments? Many Peterborough landlords do so, whether they use our agency, another Peterborough agency or you manage your property yourself. The service is free of charge, we don’t need to meet face to face as we can do it over Zoom and it’s all without obligation. I promise to tell you what you need to hear – not what you want to hear … what do you have to lose?

Each Peterborough landlord could be hit by a £23,829 bill

…and the 5 ways on how all Peterborough landlords can escape the worst of the coronavirus downturn on their Peterborough rental property.

With the second lockdown starting on the 5th November 2020, does this mean Peterborough landlords can wave goodbye to their Peterborough buy-to-let investment and see it go up in smoke on the bonfire of buy-to-let dreams, like a Guy Fawkes puppet?

With many Peterborough tenants at risk of losing their jobs after the furlough scheme ends next March and as the reverberations of the coronavirus recession hit this winter, what does this all mean for Peterborough landlords and what can they do to mitigate the risks?

Since the spring, most Peterborough tenants and buy-to-let landlords have been protected from the coronavirus crisis thanks to the banks with their mortgage payment holidays and job support schemes.

Before the second lockdown was announced on the 31st October, it was expected, that as the furlough and mortgage payment holidays were due to finish on Halloween, there would be some serious fallout from those schemes finishing. One silver lining from the lockdown (if you can call it that) is that mortgage payment holidays and furlough have been extended, yet does all that just kick the can down the road?

The question is, what can Peterborough landlords do to mitigate the financial risk on their Peterborough buy-to-let investment?

  1. Help Your Peterborough Tenants Get the Financial Support They Are Entitled To 

Billions of pounds are being spent by the Government to help those people whose income has been hit by coronavirus. The better Peterborough letting agents and self-managing landlords are supporting, guiding and helping those Peterborough tenants in financial difficulty to gain a better understanding of the Universal Credit (UC) processes, systems and payment levels, to enable their tenants to pay the rent and ultimately indirectly, help their Peterborough landlord. Also, if you are a Peterborough tenant, and that support isn’t given when you ask, don’t forget Peterborough City Council do hold special cash reserves for discretionary housing payments, which can be utilised to close the gap in rent between what UC pays and your current rental commitments. Also, the Government’s Money Advice Service and Citizens Advice are a good online resource for you to find out what you are entitled to.

2. Adopting, Adapting & Improving Your Peterborough Buy-to-Let Property

Demand for gardens or office space means Peterborough landlords will need to think outside the box. Those Peterborough homes with tenants sharing (e.g. HMO’s and shared houses) might need to price their pre-coronavirus 4 bed sharing house to say maybe a 3 bed sharing house plus a work/office room and, if you haven’t already, installing a top of the range, fast and dependable internet connection could be the thing that swings it. Outdoor space and gardens are really high on Peterborough housebound tenant’s wish lists, in fact I have come across some Peterborough tenants demanding that new rental properties have a landscaped garden or those that bought a dog or cat for company during the first lockdown, are looking for their Peterborough landlords to relax their ‘no pets policy’.

3. Hold On to Your Good Peterborough Tenants

Those Peterborough buy-to-let landlords with decent tenants, who find themselves in financial dire straits should consider attempting to keep them, even if their own monetary circumstances mean they have to decrease their rent somewhat over the short term. Now of course, I would expect tenants need to prove their circumstances, yet if their plight was real, surely it would be a wise choice to reduce the rent by perhaps £50 a month and support your tenants? You know they are taking great care of your Peterborough rental property and rather than risk the issue of advertising your empty buy-to-let property  – particularly when there is no assurance you will achieve your existing rent and ultimately risk drawn-out void periods with no rent coming in at all. What I would suggest therefore,  in such circumstances, is that you create a new Assured Shorthold Tenancy agreement with a longer term with your existing tenant at a lower rent – a temporary measure but with peace of mind for both parties which can then be reviewed once that tenancy is up for renewal

4. Carry out Firmer Checks on Your Prospective Peterborough Tenants 

Many private Peterborough landlords and a few slipshod Peterborough letting agents tenant checks are somewhat lacking in their depth. Trust me, there is tenant referencing … and then there is ‘proper’ forensic tenant referencing. As certain parts of the British economy have been hit harder than others, Peterborough landlords must consider when choosing their new tenants, the type of work they do or who their employer may be, to enable them to decide on their future capacity to meet their rental commitments

5. Rent Guarantee Insurance for Your Peterborough Rental 

There are still insurance companies offering landlord rent guarantee insurance if your tenants become unable to pay the rent. Many insurance firms removed these insurance products in the first lockdown, yet some have returned to the insurance market although insurance premiums have gone up in price. Remember to check the small print of the insurance, although you will get a lower insurance premium if you can show stringent tenant referencing (as per the previous point). 

6. The Nuclear Option – Eviction

Peterborough landlords need to be conscious that, should their tenancy run into trouble, the Government have changed the rules when it comes to eviction during the coronavirus pandemic. Going into the first lockdown, there was already a backlog in the courts and now, just before going into the second lockdown, bailiffs have been instructed not to enter rental properties in high risk Tier-2 and Tier-3 Covid-19 areas.

Eviction really does have to be the very last option. Negotiation or arbitration will nearly always deliver quicker and improved outcomes for both parties. Peterborough landlords who do come to mutually agreeable arrangements with their tenants by briefly reducing the rent, or allowing payment holidays with legally enforceable pay back schedules should ensure they get the agreed terms in writing and run by a solicitor or their agent (feel free to drop me a note if you need advice).

However, if eviction is required, it doesn’t mean the tenant gets off ‘scot free’. Evicted tenants, depending on their circumstances, will either be placed temporarily into an inexpensive B&B, asked to move in with family or given one of the local authorities temporary accommodation properties, with the goal to then move them into long term council accommodation (as the chances of obtaining private rented accommodation would be slim with agent’s heightened reference checks – more of that at the end).

The Potential Cost of Evicting a Problem Peterborough Tenant

The average rent for a Peterborough property currently stands at £692 per calendar month.

Thankfully, evictions are very rare. Last year before lockdown, tenants from 201.4 rental properties were evicted each working day in the UK … but if yours was one of those, that is still a potentially large cost.

Working on the basis that most evictions from the first rent not being paid, through to eviction, refurbishment of the kitchen, bathroom, carpets and décor (because often these do need sorting/replacing) were taking on average between eight to nine months before coronavirus hit, (plus the mortgage payments), this means a Peterborough landlord could be hit by a £23,829 bill, broken down as follows:

Missing rent (8½ months)£5,882
New kitchen£3,629
Bathroom£2,020
Carpets£2,405
Redecorate£1,834
Agents fees£618
Legal fees & court fees£3,500
Mortgage payments£3,941
Total£23,829

What that would be now is anyone’s guess – yet it could be a lot more.

This is why it is so important to get the best tenant from day one. Many Peterborough tenants, who know they wouldn’t pass the references of letting agents, are attracted to those private landlords who don’t use a letting agency, as they know their referencing checks are not as strict and may be a softer touch. That’s not to say going with a letting agent is a guarantee you won’t need to evict; it just means the chances are much, much smaller. Like anything in life – it’s a choice. Whether you are a Peterborough landlord who uses a letting agent or not and feels their reference checks are not to the standard or level you might hope or if you want a chat

The 7,321 ‘Trapped Landlords’ of Peterborough

Going into lockdown in March, the Government proclaimed a ban on tenant evictions, pledging that no tenant in a private rented home, who had lost their wages due to Covid-19 would be kicked out of their private rented home until the late summer. Fast forward to August and the press were being briefed as late as Wednesday 19th August that this freeze in evictions in England and Wales would cease on the 23rd August. That was until just after 4pm Friday 21st August when Mr Jenrick, the Housing Minister, announced that the eviction ban would be extended for a further four weeks and also buy to let landlords must now give their tenants six months notice to gain possession.

Cue crocodile tears for all the 7,321 Peterborough landlords

Not so ‘snappy’ with piping your eye there. I know many Peterborough landlords became landlords between 2000 and 2009 because they preferred bricks and mortar to investing in the stock market or gilts/bonds market. All they were looking for was a small pension income to top up their meagre state pension. Not all Peterborough landlords are akin to the 21st Century Rising Damp version of Leonard Rossiter with his ‘Rigsby-esqe’ or even ‘Rachmanism’ wicked landlord ways. Official estimates suggest there are 1.8m to 2.1m landlords in the UK, the vast majority doing the right thing by their tenants, many of whom have helped their Peterborough tenants in financial trouble during Covid-19 by acquiescing to short-term rent reductions or rent-payment holidays.

Also, many Peterborough landlords have mortgages (in fact, if we added all the UK buy to let landlord’s mortgages, they would add up to £216.65 billion). The Government and the Bank of England have applied political influence on the mortgage companies to be a little more flexible and sympathetic on landlord’s mortgage interest payments, yet the mortgage interest is still adding up. The issue is, some tenants are in arrears with their rent, meaning landlords aren’t receiving their rent, which means many buy to let mortgages aren’t being paid either.

So, how many tenants are in arrears? The National Residential Landlords Association stated that just 3% of landlords recently surveyed reported tenants are in arrears. This was backed up recently when Goodlord stated …

3.72% of tenancies in the UK are in arrears, although interestingly ours stands at 1.2%

These are only slightly above the pre-Covid arrears levels, yet still a strain for the landlords involved. Also, the two-month notice period of the section 21 Notice has been extended to six months, meaning it will be March before any tenants are made to leave, even if the notice was issued now.

So, does this leave Peterborough landlords trapped?

With regard to the arrears, only 1 in 17 landlords rent their property through a limited company, meaning the rest (i.e. the vast majority) rent their property as a person, thus giving themselves unlimited personal liability should their rental portfolio fail (i.e. the mortgage company could make a claim on the landlords own assets, including their main residence, if the property was repossessed and the shortfall wasn’t made up). Also, if the building society’s and Banks turn against the Government advice and are too lenient with landlords with buy to let mortgages, there could be situations where the rental properties are repossessed, meaning the tenant will be made homeless.

I am particularly concerned about the fate of the 2,057 self-managing Peterborough landlords (i.e. they don’t use an agent)

They should seriously consider taking out rent guarantee insurance to protect themselves against any potential defaulting tenants (so many don’t). Reasonably priced rent guarantee insurance products, even on existing tenancies are still available to landlords via agents, even in these Covid-19 times (whether you are a client of mine or not do not hesitate to pick up the phone and have a chat or send me an email). Whilst the policies aren’t inexpensive – they do give you peace of mind with the rental payments.

One thing that this does also remind me of is the 2008 Credit Crunch. There were an awful lot of Peterborough homeowners who were unable to sell their home in 2008/9, so they converted their Peterborough property into a buy to let investment. There are going to be an awful lot of Peterborough landlords who will also want to sell in the next six to nine months, yet are unable to do so until the middle of next year without having to take a hit on the value of their home. For those Peterborough landlords that can relate to that, maybe we should chat to consider your options so you can mitigate any losses?

It seems Peterborough landlords have been used to saving the Government from a PR disaster of homeless tenants on the streets at Christmas, the least we should do in the country is stop disparaging landlords and lift them up from their pariah status.

Peterborough landlords are housing 33,908 Peterborough people in private rented accommodation…

… and so it is my opinion that the contributions made by these Peterborough landlords should be recognised. My fear is always of a danger of a widening schism between the landlords and tenants. Truth be told, both need each other, and I hope the Government extend help to landlords as they have with tenants, otherwise the Government won’t have any homes to house the British people if all the landlords decide to sell up. It is especially important that the supply of private properties doesn’t drop in Peterborough going forward when you consider…

Peterborough needs an additional 5,499 private rental homes by 2029

In the meantime, the Government have bigger fish to fry sorting out the economy as a whole, so if you are a self-managing landlord or even a landlord with another agent in Peterborough, feel free to pick up the phone or make contact with me and we can discuss your options without any obligation. There is no need to feel trapped, there are options for you and it is better to consider them now – set the foundations and motions going in the right direction promptly before it becomes a bigger issue in the future.