Reasons to be cheerful, 1, 2, 3
Jeff Knight is director of marketing at Foundation Home Loans
Even the late Ian Dury might have struggled to pen a 2020 version of his classic song, “Reasons to be cheerful, part 3”, amidst all the upheaval that COVID-19 has inflicted on us this year.
Not least the fact that we’re still very much in the midst of this ongoing crisis and unfortunately there’s no guarantee that things won’t get worse before they get better.
That said, if you are inclined to look for reasons to be cheerful this year in both a personal and professional capacity, then I hope they can be found.
Perhaps it’s in the ongoing good health of you and yours, the work of all our key workers during this crisis, and – certainly from our market’s perspective – the fact that we are fortunate to work in an industry which has clearly not be as hard hit as others.
Professional concerns might pale into insignificance when confronted with personal ones related to health, but there’s no doubting that our ability to work through lockdown was a considerable bonus compared to the lot of many workers and that since lockdown was eased, there has been significant pent-up demand unleashed and the signs, at least at the moment, are very encouraging.
Clearly, there are government incentives at play here which – certainly from a private rental sector landlord perspective – have not been on offer before.
Landlords have had very little to be cheerful about over the course of the past five years, and therefore to have access to the same stamp duty holiday (at least in England, Scotland and Northern Ireland) as residential purchasers was perhaps surprising to say the least.
That said, it’s unlikely that landlords are going to look this particular gift-horse in the mouth, and as a buy-to-let lender we’ve already seen a noticeable increase in activity levels as they look to take advantage and secure what would be a large saving.
At the maximum £500k property value, we are talking about £15k of potential stamp duty money saved, and it is therefore not surprising to see landlords looking at purchase options, or indeed bringing them forward in order to complete before the deadline.
What may also be under consideration, especially by professional and portfolio landlords who utilise limited companies to house their properties, is whether now is the time to make the most of the cut to stamp duty in order to move any properties they own as individuals into the vehicle ‘wrapper’.
As advisers will know, there are considerable initial cost disincentives to do this, even if – in the long run – the tax benefits of having them within the company might ultimately work to their financial betterment. That said, doing this does mean that stamp duty would need to be paid – because it’s treated as a sale to the company – and there could be other taxes to pay, not least CGT.
It’s a situation which needs to be weighed up and, it probably goes without saying but it’s worth reiterating, that any client considering such a move should take full tax advice and make sure they know what those costs are, and what benefits they are likely to accrue by transferring those properties.
As mentioned, many landlords under the old stamp duty rules, will probably have found that those initial costs are too much to gain a benefit.
However, with the holiday, and the saving that could be made, it may well be worth another look and advisers might well wish to contact those landlords who have considered this in the past, in order to update them on their options, but to also point out that they need to take tax advice again.
The good news from a mortgage point of view is that most buy-to-let lenders can facilitate these property ‘transfers’, and the added benefit is that there is a highly competitive buy-to-let mortgage market at present which may well play into their hands if they can also get their monthly payments down.
However, it will require full advice from both the tax and mortgage perspective, and as advisers, we would always issue the warning not to stray into the former, even if this is ‘accidental’.
Clients might construe that they have received tax ‘advice’ even if they have not, and this is potentially a dangerous path that you would not want to embark upon.
Overall, however, the stamp duty holiday is clearly a reason to be cheerful, and – even if it is currently only due to last until the end of March next year – it may well be able to put a smile on both you and your landlord clients’ faces for the rest of the year.