For those doing their tax returns early in the year, I am sure you would often hear the phrase, ‘Tax doesn’t have to be taxing’. This may seem like a great advertising slogan, but still for most people I think tax is still taxing – hence this is why we have an army of accountants and tax advisers in the UK to help us try and make sense of it all.
Talking of taxation, for landlords in particular, the last few years have resulted in an array of tax changes to take into account and I would not be surprised if there was a large number who scratched their heads in bewilderment, looked at their falling profits, and wondered what is going on.
Some commentators want us to believe these tax changes will lead to landlords quitting the market. There is some anecdotal evidence to suggest that it may be deterring new landlords entering the market, but there is also plenty of evidence to suggest that while the number of ‘amateur landlords’ has fallen slightly, the number of professional and portfolio landlords has actually grown.
Now, some might point to this being due to the fact that we now have a formal, regulatory definition of ‘portfolio landlord’ which covers those with four or more mortgaged properties but I think it’s also true to say that many professionals see the long-term benefits of not just staying involved in the sector but actively growing their portfolios.
What we have seen, in terms of a fundamental shift, is a significant growth in the number of professionals using limited company vehicles to purchase new properties, plus to a smaller extent the number who are transferring properties held in their individual names into limited companies. Although given the added extra cost of this in terms of stamp duty, it’s likely that existing properties will remain in the individual’s name and only new properties go into the limited vehicle.
Judging by the research we have carried out, advisers themselves expect the number of portfolio landlords to rise, and the number using limited companies to go in the same direction. That being the case, it seems more important than ever to have lenders who are specialists in this sector and are not using the processes and criteria of yester-year when it comes to limited companies.
We’ve certainly adapted our portfolio/limited company mortgage/criteria offering to make it more flexibility and to cut down on the huge administrative burden that – in the past – lenders used to employ.
It means that we’ve shifted our stress testing for portfolio landlords plus we’re not asking for reams and reams of information, therefore landlords won’t need to provide a business plan, neither will they have to provide an ASTL for every single property in their portfolio, nor do we have any limit on the mortgage value of their portfolio, as long as they do not have more than £3bn of lending with Foundation.
What we are trying to do is make the broker’s lot an easier one when it comes to portfolio landlords because it’s clear that these individuals are likely to make up the bulk of their buy-to-let clientele in the months and years to come. The admin requirements have previously been considerable but by adopting a nuanced and flexible approach we believe that, for advisers at least, ‘portfolio landlords don’t need to be taxing’.
Jeff Knight is director of marketing at Foundation Home Loans