Buy To Let Investors

The 2007 Budget has as usual given with one hand and taken with the other. This year it will apply to property investors, whilst a reduction of the main rate of corporation tax is a good thing the changes of capital allowances is not to all property investors. This is to be replaces with allowances for fixtures integral to buildings upto 10% but eh full report points to the fact that these could be removed or restricted for assets including land and buildings.

It is also undecided if energy efficiency allowances will be continued, confirmation is still needed.

Allowances are to be paid giving 100% for expenses incurred on or after 11th April 2007 on renovation or conversion of business premises in poorer areas that have been vacant for at least a year.

Changes to the stamp duty will mean that landlords buying zero carbon homes will be exempt upto a price of £300,000. Above that the first £15,000 of SDLT will have relief and is operative from lst October 2007 to 30th September 2012.

Consideration must be taken when starting business as a buy to let investor, as to whether the business should become a company or remain in the landlords name.

The landlord’s personal circumstances need to be taken into account and also how long the property will be kept, when would cash from the property be required, the tax savings and what would fit into the tax and wealth planning.

Generally if a large portfolio is required a company is probably the better option. If a small portfolio is intended then personal ownership is likely to be the best way forward.

If it was decided to become a company after property had been bought stamp duty and capital gains tax would have to be paid on the current value and so therefore this move would have to have careful consideration.

Possibly people think that the advantages of becoming a company is the lower corporation tax but the recent budget has raised this from lst April 2007 to 20% for 2007/8, 21% for 2008/9, 22% for 2009/10. This applies to companies whose annual taxable profits do not exceed £300,000.

Also in favour is the fact that tax free withdrawals may be made from equity to purchase further property. This can be repaid over time without personal tax liability.

Planning of Inheritance tax is easier if shares are in a company rather than family members.

The number of tenants waiting residential properties showed a rise in the quarter to January 2007.

Surveys showed that the strengthening economy and employment during the last six months and some tenants coming from the enlarged EU were the cause of this rise.

The RICS say that there are few signs that the buy to let market is booming and that it is calmer now than the end of 2001 to 2004.

This is the eleventh consecutive quarter that the tenant demand for property is higher than availability.

Residential gross yields showed a drop for the second consecutive quarter but this is to be expected with house prices rising and rent rises slowing.

This likely to cap short term investors as the interest seems still to be rising.