Praefectus Property Finance

Hello All,

An interesting piece from Julius Baer.

your.juliusbaer.com

HMRC warns landlords against hybrid business model tax avoidance schemes
HMRC has raised concerns about a scheme used by individual landlords to avoid paying tax on their property income.

Sometimes referred to as a ‘hybrid business model’, the arrangements seek to avoid tax by allowing individual or joint property landlords to transfer their properties to a limited liability partnership (LLP) with a corporate member.

According to HMRC, the aim of this is to bypass interest relief restrictions, reduce the tax payable on profits and capital gains, while also lowering inheritance tax.

Individual landlords using this scheme set up a limited company and create an LLP alongside this, with the limited company considered the corporate member.

The landlord then transfers their properties to the LLP, with members then allocating the LLP profits to themselves on a discretionary basis, so that they remain basic rate taxpayers.

The remaining profits are allocated to the corporate member.

The corporate member then claims a deduction for finance costs (such as mortgage interest) relating to the properties.

HMRC — which stated that this scheme doesn’t work and “strongly advises” landlords to withdraw from it and settle their tax affairs — said that if landlords think they are already involved in this arrangement and want to get out, HMRC can help.

It also announced that all scheme promoters need to comply with disclosure of tax avoidance schemes (DOTAS) legislation and ensure all marketed arrangements are declared to HMRC.

Those that fail to do so within five days of the scheme being made available or implemented risk a £600-per-day fine, which could escalate to a penalty of up to £1m if the original fine is not seen as a sufficient deterrent.

Property Accountant is key !!

House prices fall at fastest rate in 14 years: RICS

House prices fell at their fastest rate in 14 years in August, according to the latest research by the Royal Institute of Chartered Surveyors (RICS).

Both buyer demand and sales also slumped, with experts warning that things are unlikely to improve any time soon.

RICS says falling property prices combined with high mortgage rates and immense tenant demand is creating an imbalance in the lettings market.

Tenant demand continues to outweigh landlord instructions causing shortage of available rental properties.

The survey indicator for house prices nationally, in terms of net balance, continued to fall from -55 in July, to -68, marking the most negative reading since 2009.

New buyer enquiries declined slightly from -45% to -47% – the lowest level since the Covid-19 pandemic – while new sale instructions also fell, from -17% in July to -26% in August.

Over the year, RICS says the trend in home sales is anticipated to flatten out, shown by the net balance moving from -25% in July to -5% in August.

In the lettings market, conditions remain more positive than the sales market, with a net balance of +47 of survey respondents noting a rise in tenant demand (+59 in July).

However, new landlord instructions fell slightly with a reading of -20 (-19 in July).

Given this mismatch between demand and supply, a net balance of +60% of contributors foresee rental prices being driven higher over the coming three months.

RICS chief economist Simon Rubinsohn says: “The latest round of feedback from RICS members continues to point to a sluggish housing market with little sign of any relief in prospect.

“Buyer enquiries remain under pressure against a backdrop of economic uncertainty and the high cost of mortgage finance.

“Meanwhile, prices are continuing to slip albeit that the relatively modest fall to date needs to be seen in the context of the substantial rise recorded during the pandemic period.

“Critically, affordability metrics remain stretched in many parts of the country.

“The other side of the softer demand in the sales market is the continuing strength of rental demand.

“The yawning gap with rental supply is clearly visible in the RICS Rent Expectations indicator which remains close to an all-time high.

“Anecdotal comments from contributors that landlords are leaving the sector suggests the challenging environment for tenants is unlikely to improve any time soon”.

Interactive investor head of investment Victoria Scholar says: “The UK RICS August house price balance fell to -68, below estimates for -56.

“This represents the biggest fall in house prices in the UK in 14 years as the percentage of surveyors see a much greater number of falls in house prices versus rises.

“Following similarly gloomy housing market figures from Nationwide and Halifax, today’s data highlights the dampening impact of 14 consecutive rate hikes from the Bank of England is having on property prices.

“Sellers are less willing to list their properties since asking prices are coming down, and buyers are struggling with mortgage affordability.

“Both factors are contributing to rising rents and falling real estate prices.”

The Mortgage Lender’s chief commercial officer Steve Griffiths says: “Mortgage approvals continue to fall as inflation remains high, albeit down from its peak, applying continued pressure on household finances and impacting affordability.

“The tough credit market looks set to continue with the Bank of England indicating that there could be further hikes to come impacting buyer demand.

“With supply outstripping demand, there is an opportunity for those buyers that are able to press ahead.

“We are also starting to see some rate reductions in the market, and for buyers, flexibility and ensuring they are speaking to a broker is critical to making sure they are aware of all options and capitalising on the best rates available to them.”

Daniel Cooper
14th September 2023

Nationwide Building Society has reduced the interest rate on its green additional borrowing products to 0%.

The new 0% green additional borrowing products, which will be available from Thursday 1st June, will enable up to 5,000 households with a Nationwide mortgage to borrow £5,000-£15,000 up to a maximum of 90% LTV across the two or five-year product term.

Nationwide hopes that by removing interest on its green additional borrowing products, it can incentivise members to make green home improvements. For example, if a member borrowed the maximum £15,000 over a five-year term, the monthly payment on the existing green additional borrowing product at a rate of 3.89% would be £275.50. For those taking out the new version, the payment would reduce by £25.50 per month to £250, meaning the member would save £1,530 over the full term of the deal.

The new green additional borrowing home loan will be made available via brokers.

All of the loan must be used to fund non-structural, energy-efficient home improvements, such as solar panels, air source heat pump, window upgrades, boiler upgrades, cavity wall insulation, loft insulation or an electric car charging point. Members can use any local or national contractor or supplier for the work.

Well done Gents !!! On Apple Friday Feeling playlist.

Foie Gras & Flank with Balsamic Brussels. OMG.

When you need a solicitor:

Find a property solicitor.
Not a solicitor that does a bit of property

When you need an accountant:

Find a property accountant.
Not an accountant that does a bit of property.

It makes transactions so much easier and understandable.

I have these people in my world.

Have a good day peeps.

Kind regards

Paul

The Bank of England (BoE) could hike interest rates to 3% or 4% by the end of this year, some have predicted.

Speaking on BBC Radio 4, former MPC member Andrew Sentance says the "BoE is falling behind and it might need to hike rates between 3% and 4% by the end of the year".

Mortgage Interest rate. Have you assessed yours.

This is for information purposes only and does not constitute advice.
YOUR PROPERTY IS AT RISK IF YOU ARE UNABLE TO MAINTAIN PAYMENTS ON ANY MORTGAGE OR LOAN SECURED AGAINST IT.

Landlords are you aware ?

In 2025 Government proposal is for an EPC of a C on rental properties.

Until then it is as below.

Domestic private rented property: minimum energy efficiency standard - landlord guidance Guidance for landlords of domestic private rented property on how to comply with the 2018 ‘Minimum Level of Energy Efficiency’ standard (EPC band E).

If you need to find out who owns a property your interested in……..

A little tip, but can save you a lot of effort and time. Only £3 Pounds.

Have a good weekend peeps.

eservices.landregistry.gov.uk

An interesting read… Beware peeps.

Who You Gonna Call? Not Ghost Brokers as LV= UNCOVERS 66% MORE GHOST BROKER FRAUD | LV= LV= General Insurance (LV= GI) is urging consumers to brush up on their knowledge of insurance related fraud. The call comes as LV= GI has seen online insurance fraud rise considerably, uncovering 66%1 more ghost brokers in last two years and stopping the fraudsters in their tracks. In addition, new...