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Peter Merrick

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Incorporation means you have to pay 20% tax on profits plus 37.5% tax on dividends if you are a higher rate tax payer, not to mention all the extra obligations that come with running a company. Is that really worth it vs being a private landlord, even under the current regime?

From: Peter Merrick 28 June 2019 10:09 AM

The deposit replacement schemes work by making the tenant pay for an insurance in lieu of a deposit, usually at a cost of about one week's rent. This is effectively a tax on the tenancy agreement or indeed a tax on poverty for those with so little money that they can't pay upfront. If the tenant is staying several years, then it may be worthwhile For a tenant who is on a fairly short let or moving frequently, the cost of insuring each new tenancy is soon going to mount up and even exceed a traditional deposit, and this money will stay in the pockets of the scheme providers rather than being returned to the tenant at the end of each tenancy at nil or very little cost to the tenant. The only tenants who would benefit in the long term are going to be those bad tenants who would have had significant deductions at the end of the tenancy. A better and more equitable arrangement would be for the agent or landlord to have a blanket or bulk insurance scheme, the cost of which is then split between the tenants either via a small fee (if legally permitted) or paid for by the agent/landlord and recouped via a slightly higher rent. As a small landlord I have often taken a different approach. I sometimes find myself with a perfectly decent person who has been kicked out of a relationship and through no fault of they own their clothes and a few pounds in the bank are their only possessions. In this situation I can take advantage of the flexibility my position affords to allow them to pay what they can afford up front and they agree to catch up over the first few weeks, enabling me to gain a good tenant, and the tenant to have a place to stay, with no extra costs incurred other than taking a temporary risk on the tenant.

From: Peter Merrick 28 May 2019 09:31 AM

Please could someone write an article on this that does not make vague, contradictory and utterly useless statements? To quote the return on BTL for the last 10 years as evidence that it is still lucrative shows how completely ignorant the author is since tax changes only started in 2016 via SDLT for new purchases. The reduction in tax relief on finance costs only began last tax year so will have barely been noticed as yet. The full force of this is not going to be seen until the 2020-21 tax year, by which time many landlords on a mortgage in low yield areas will be facing negative cash flows in return for their time and money and risk. BTL is a completely different investment from shares and classic cars as it is about people's lives as well as making money out of what is normally a very non-volatile asset. In actual fact many landlords buy properties at below market value, often improving them prior to making them available to live in (for which they have to pay a penalty SDLT rate). By the time they have mortgaged the property at 75% of full market value, the return on capital investment may actually be incredibly high since the mortgage returns much of the capital investment back to the landlord whilst they keep the balance of rent minus running costs and tax, although this equation does not factor in the personal time costs. It would be incredibly unwise for the ordinary person to use such leverage in the volatile world of stocks and shares, as shares can rapidly fall below the value of the loan used to buy them, whereas a BTL house will normally cover the mortgage costs from the rental income and will be unlikely to drop 25% and thus go into negative equity. In short, there are many ways of handling a BTL investment. Unlike stocks and shares and other tradeable assets, the returns on BTL vary enormously depending on where and how you buy and manage the property. What is absolutely certain is that costs have gone up and tax relief has gone down, so landlords will need to be creative in how they respond rather than just seeing BTL as a traditional fairly passive income investment.

From: Peter Merrick 20 March 2019 10:08 AM

Thus is potentially a bonus for those landlords that charge fees. Fees are usually one-off, whereas the higher rent will no doubt apply for the duration of the tenancy. Potentially the cost will be recouped several times over by the time the tenant leaves. I saw that as soon as it was announced, although it makes no difference to me as I have never charged fees anyway.

From: Peter Merrick 17 January 2019 09:00 AM

That's sounds very interesting! Unfortunately I own and run mine in my sole name and my partner does not have anything directly to do with it.

From: Peter Merrick 07 January 2019 00:24 AM

It depends on the area ... I am in the Humber Area where the yields are still ok if you play it right. I have four small HMOs and three whole property lets, hopefully getting the next one soon. I usually look for something undervalued and get most of my investment back remortgaging it later. However, I notice that the amount I can get for a room has gone up considerably if I wanted to take advantage of that. Obviously it's different in other places as most of the return is via capital growth and the rent just about covers running costs, so if there is a property downturn then these people could be in serious trouble with negative yields and negative capital growth! I think in my case I would just carry on as usual, maybe charge a little more rent, unless demand for rental property fell through the floor or the tax regime became impossibly hostile. The reduction in interest rates is quite noticeable. When I started in 2015, it was 3.6% for a 2 year fee free fix and 4% for a five year, but now it's about 3% for a 5 year which is about 25% less. If you are on higher rate tax, the effective rate for this is still only 3.6% and only one lot of agent fees in 5 years. I'm still a bit sceptical of setting up an Ltd SPV as the extra work and bureaucracy, higher interest rates and other costs of running a business may not be worth it. You may get full tax relief but you have to pay for business banking, file trading reports, and pay both corporation tax and dividend tax if you take any of the profits out. One big advantage is that if you want to sell the property as a going concern, then you just sell the (shares in the) company rather than the actual property, which continues to be owned by the company. This is vastly quicker and cheaper than transferring property, and presumably avoids future SDLT.

From: Peter Merrick 06 January 2019 21:30 PM

Yes, I read read an article in the Guardian complaining about availability going down and rents going up saying that landlords we ripping off councils who had no choice but to give temporary according to more and more homeless people. It turns out that landlords are evicting them so that they can sell up as it was no longer worth their while to provide rental accommodation, or were trying to raise rents to compensate.

From: Peter Merrick 04 January 2019 00:10 AM

Surely someone has noticed the quite inaccurate statement about mortgage relief? It is simply being reduced to 20%, not removed altogether! This makes no difference if you are still on basic rate tax (and the threshold is going up to £50000 next year from £45000 last year). If you do end up paying higher rate then it basically adds 20% to the effective rate of interest. Given that rates are so much lower now then even three years ago, finance is still cheaper than it was then ... and rents have gone up in the meanwhile. There are downsides if you are looking for income generation, since property prices and stamp duty have also gone up, meaning that it is more expensive than it was to start up and to run a new buy to let, and for those that have furnished properties, the 10% allowance is sadly missed.

From: Peter Merrick 03 January 2019 19:49 PM

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