Residential sales in UK up by almost 5%

Residential sales recorded in the UK increased by almost 5% between May and June 2016, according to the latest estimated figures to be published.

The residential transaction count was 94,550 and while this is up 4.9% month on month, it is 10.2% lower compared with the same month last year.

The large increase in transactions for March 2016 followed by the substantial reduction in April is likely to be associated with the introduction of the higher rates on additional properties in April 2016, according to HMRC which publishes the figures.

However, whilst April and May 2016 are lower than the corresponding months in 2015, it should be noted that the total for March to May 2016 is still substantially higher than the corresponding period last year, it pointed out.

The additional property rates were announced in the Autumn Statement 2015 for England, Wales and Northern Ireland, and in the Scottish Government’s draft 2016/2017 budget for Scotland.

Non-tax factors may have played a role as well, for example the Bank of England’s plans to curb buy to let mortgages resulting in a rush to purchase before April 2016, and the European Union referendum affecting transactions in recent months.

The residential count includes properties paying the main and additional rates. For June 2016 the number of non-adjusted residential transactions was about 21.2% higher compared with May 2016. The number of non-adjusted residential transactions was 11.1% lower than in June 2015.

According to Doug Crawford, chief executive officer of My Home Move, June’s figures show a market returning to health after a very quiet April and May which was due to investors doing business earlier in the year to avoid the stamp duty changes.

“While the number of property transactions remain below the levels seen a year earlier, a 4.9% increase between May and June is very encouraging. My Home Move’s own data suggests that the number of completions in June 2016 was actually 2.7% higher than in June 2015,” he said.

“The June increase shows that the property market mostly shook off the uncertainty from the Brexit referendum at the end of the month. This reflects our experience as most purchases went ahead without any issues. The big question now is what the impact will be for the rest of the year,” he explained.

“While this is less clear, our view is that the fundamentals of the property market are strong enough that there will not be a significant impact. There have been anecdotal reports of a slight slowdown in July from the estate agents we work with, but it is impossible to tell how much of this is actually Brexit related and how much is down to a normal summer slowdown. The picture will only start to be clearer in September after the holiday season,” he said.

Source: Property Wire

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Buy-to-let lending critera – and the Brexit

Brexit has sent shock waves throughout British industry, but even before Britain voted to leave the EU, tougher buy-to-let mortgage lending criteria had been announced.

Anne Wilson, senior tax manager of the tax department at Pierce Chartered Accountants, pointed out that that the rules will require lenders to carry out stricter stress tests on prospective borrowers or those wishing to re-mortgage to ensure that they have sufficient capital to cover repayments if interest rates increase to 5.5%.

In the future, there will also be changes to the way that tax relief for interest payments on the purchase of residential lettings will be given in the tax computation. This will affect individuals, partnerships and limited liability partnerships which let out residential properties. At present there are no proposals for this restriction to apply to furnished holiday lettings nor to companies with residential lettings.

Wilson explained that currently, rental profits are reduced by any loan interest paid and therefore a top rate taxpayer could receive tax relief at 45% on their finance costs. However, under new legislation the loan finance costs will be relieved by way of a reduction of the tax liability, rather than a reduction in the rental profits, and is restricted to relief at the basic rate of income tax.

Those with substantial rents and interest costs, thus with low net profits, who are currently basic rate taxpayers, could see their income pushed into the higher rate band as the interest costs will be added back to the rental income.

For example, an individual whose only income is rents of £50,000 and interest costs of £20,000 would have net income of £30,000, and so within the basic rate tax band. Under the new rules the same individual would be a higher rate taxpayer because their income would be £50,000 with a deduction for interest relief given at the basic rate only.

As a result of the way in which the net rent will be calculated those whose income is close to the £50,000 threshold for the withdrawal of child benefit, and those with income near £100,000 for the withdrawal of personal allowance could be adversely affected even though their income has not actually increased.

To ‘soften the blow’ these measures will be phased in gradually over four years and will apply to 25% of the interest costs in the 2017/2018 tax year, 50% in the 2018/2019 tax year and 75% in the 2019/2020 tax year before being implemented in full in the year to April 2021.

‘If you have a relatively modest portfolio of properties which are let out as residential lettings, it maybe that you will simply have to accept that your income tax liability in respect of those lettings may increase in future as taking any steps to mitigate the interest restriction could be costly. Sharing income with family members or family trusts may be worth considering but capital gains tax issues will need to be addressed,’ she explained.

She added that those with a substantial portfolio of residential lets may wish to consider incorporating their business, however, there could be a substantial capital gains tax liability if they incorporate their property portfolio because moving the properties into a company could trigger capital gains tax.

‘However, if you have a large property portfolio that you devote a substantial amount of time to managing, it may be possible to claim capital gains tax roll-over relief on incorporation of a business to mitigate the capital gains tax liability arising. If you have no gains in your property portfolio it may be possible to transfer the properties into a company without triggering capital gains tax,’ she explained.

But there is likely to be a substantial stamp duty liability on the property transfers to a company, unless specific reliefs are available, and she advises that incorporation of a property business should not be undertaken without specialist advice.

Source: Property Wire

Landlords in UK urged to stay calm in face of EU exit vote

Residential landlords in the UK are being urged not to read too much into the decision by the country to leave the European Union, having gone through a turbulent period recently.

Buy-to-let landlords are now paying a 3% surcharge in stamp duty on each additional property they buy to add to their portfolios and are also facing further tax changes. Now there are concerns that Brexit could affect their businesses.

However, according to Richard Lambert, chief executive officer of the National Landlords Association (NLA), while leaving the EU is completely unknown territory, jumping to conclusions isn’t going to help anyone.

‘We welcome governor Mark Carney’s steadying words and his reassurance that the Bank of England and the Treasury have extensive contingency plans in place to ensure the country’s financial stability,’ said Lambert.

‘Any knee-jerk reaction will have a real impact on our members’ mortgages, tenants’ rents and overall confidence in the market. So we would urge the policy as regards to interest rates should be, to continue the Prime Minister’s analogy, one of steady as she goes,’ he added.

In a joint statement, David Cox, managing director of Association of Residential Letting Agents (ARLA) and Mark Hayward, managing director of National Association of Estate Agents (NAEA), said that in the short term the market can weather the uncertainty.

‘The outcome of the EU referendum will create a period of uncertainty among home owners, buyers, investors, landlords and developers. We can expect international investors to look a lot harder at the UK as a market and this will have a consequential impact upon the house building sector as investment may be stalled,’ the statement said.

‘In the short term we believe that both prices, and rents, will remain stable, but we cannot be certain about the next quarter as political instability, and market unrest, could lead through into prices in the housing market,’ it pointed out.

‘We believe that the UK housing market is resilient, as is the supply chain that drives it.  But as we indicated in our Brexit report last month, the bigger impact may well be in the skills necessary to drive UK housing development, and this is now a major concern for UK buyers and renters,’ it added.

Source: Property Wire

Brexit has pros and cons for the property market

The decision to leave the European Union could adversely affect the construction of new homes as many workers are from other countries, it is suggested, but red tape will be reduced.

It seems that overall Brexit has potentially mixed effects for the home building industry. One the one hand many workers are from other EU countries, but on the plus side, builders would be free from red tape regarded as holding up construction.

According to Brian Berry, chief executive of the Federation of Master Builders, the UK construction industry has been heavily reliant on migrant workers from Europe for decades.

‘It is now the Government’s responsibility to ensure that the free-flowing tap of migrant workers from Europe is not turned off. If ministers want to meet their house building and infrastructure objectives, they have to ensure the new system of immigration is responsive to the needs of industry,’ he said.

He believes at the same time more must be put into training British people in the skills necessary for the construction industry and that should be done by investing in apprenticeship training.

‘We need to train more construction apprentices so we are not overly reliant on migrant workers from Europe or further afield. That’s why it’s so important the Government gets the funding framework right for apprenticeships,’ he explained.

‘When you consider that this whole policy area is currently in flux, and then you add Brexit into the mix, it’s no exaggeration to say that a few wrong moves by the government could result in the skills crisis becoming a skills catastrophe. It’s only through close collaboration between the government and industry that we’ll be able to overcome these challenges,’ he added.

John Elliott, managing director of Millwood Designer Homes, believes that Brexit could be good for the house building industry. ‘I am excited to get on with the New World and see the back of EU laws which have been detrimental to us for over 40 years,’ he said.

‘One of the UK’s biggest assets is our home grown housing market and this will now be much better off out of EU regulation. For many years, the EU Habitats Directive has had an unnecessary impact on house building,’ he explained.

‘The mere hint of great crested newts or slow worms on a site, which unlike in Northern Europe where they are rare and given special protection, are prolific in the South East of England can delay building for months as they have to be translocated and caught and taken somewhere else for release,’ he pointed out.

Jan Crosby, head of housing at KPMG UK, acknowledged that any labour constraints brought in could reduce the availability of foreign workers on construction sites, currently a relatively large source of labour for the industry.

But added; ‘Our exit from the EU will stop the continual flow of red tape and see our housing market grow and flourish without unnecessary constraints placed on building much needed new homes; working towards creating a better future for Britain’.

Source: Property Wire

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