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TAX RELIEF CUTS WILL SEE LANDLORDS PASSING THE BUCK

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mortgage rates and interest rates
  • 4 Million tenants could be negatively impacted from the tax-relief changes.
  • 55% of UK landlords are not aware of the tax-relief changes.
  • 44% of UK landlords will increase the rent to offset the losses incurred from the new legislation.
  • Tax-relief cuts will drive landlords out of the property market.
  • First time buyers will find it harder to save on a deposit.

Over the past 20 years, buy-to-let was a great investment. In recent times, it has experienced a renaissance: mortgage rates and interest rates have been at a record low, encouraging more investors to snap up properties in the hope that its value will rise. In fact, buy-to-let landlords own 15% of residential property in the UK.From April 2017, things will change, over a period of 4 years.To the surprise of all, George Osbourne recently dropped a bomb shell, and announced big changes in the tax system, designed to limit the advantage buy-to-let owners have over those purchasing their own home. The most important and drastic change is the tax-relief on rented homes will be cut from 40% or 45% to a basic rate of 20% with the inevitability that losses will be recouped by landlords through bumping up rental prices, meaning renters will also feel the squeeze.

What does it mean for landlords?

The majority of landlords are in for a shock. According to a survey conducted by EasyRoommate, over 55% of the landlords surveyed are not aware of the tax-relief change. Landlords urgently need to familiarise themselves with the complex tax changes and its implications.

I believe that the buy to let tax changes will make investments a less appealing proposition for landlords and discourage investors. This increase in tax will drive landlords to recoup their losses, and what a better way of doing that other than by increasing the rent. In fact, 44% of the respondents said they would consider increasing the rent to offset the losses incurred by the tax increase, which is worrying news for renters.

To make matters worse for landlords,new tax changes mean they will also lose the right to claim 10% of the rent against wear-and-tear costs from April 2016. This will result in landlords reducing the levels of general property maintenance and improvements carried out and lead to landlords neglecting basic tenant demands for property improvements. This will have a negative impact on the standard of private rented accommodation.

Furthermore, this change in tax-relief could drive some landlords out of the property market given it will no longer be the profitable business it once was. Many landlords may now see fit to sell their property for let, resulting in tenants evicted from their rented accommodation.

George Osbourne claims that buy-to-let landlords have historically been taxed more favourably than home owners,I would dispute this – in fact, buy-to-let owners are not only taxed on rental income but also capital gains.

To provide further insight into British Landlords, I met Benjamin who’s a veteran buy-to-let landlord with a portfolio spanning 5 flats.

  • Karim: ‘What is your opinion on the tax-relief changes planned for April 2017?’
  • Benjamin: ‘Like a lot of landlords, I was shocked when George Osbourne announced the changes. The government is putting us in the same basket as home owners. I think this is extremely unfair as we are taxed on capital gains and the income we get from rent. Every other business in property is allowed to offset their total costs against their income before being taxed on their profit. I believe the next four years will be very challenging for us.’
  • Karim: ‘What do you think the impact will be on buy-to-let investors like yourself?’
  • Benjamin: ‘I think the impact will be negative. I predict that a lot of landlords will change their business structures. Not only that, some landlords will be forced to sell their properties to avoid falling into negative cash flows. Others, would have to increase their rent.
  • Karim: ‘What do you think is the solution?’
  • Benjamin: There is a petition which is gathering momentum. Landlords should unite by pressuring the government to revise and reverse this change.

What does it mean for tenants?

In London, tenants pay around £692 on average to rent a double bedroom per month. It is hard to contemplate that this astronomical amount would increase. But the tax-relief change could spell bad news for tenants. In fact, in a recent survey from EasyRoommate indicated, 44% of the landlords look set to increase rent prices to offset their losses.

To put numbers into perspective, let’s look at a hypothetical but realistic scenario. Peter earns £26,000 per year, the average UK salary. He rents a room in Notting Hill for £800 pm (£9600 per year).If his landlords increases the rent by 15% per month he would have to pay an extra £120 pmor £1440 per year. He now pays £11,040 per year.This would mean 42% of his income would go on rent. As of 2015, there were about5.4 million people privately rentingin the UK (as Pwc study found)and it would mean that 2.4 million tenants would be negatively impacted by the rent rise.

Furthermore, supply is already scarce in the UK, especially in London where there are 10 tenants seeking a room for every one double bedroom available. I believe this alarming number could rise to 13 seekers per room given a number of landlords could decide to move out of the property market.

George Osbourne recently quoted ‘First, we will create a more level playing-field between those buying a home to let, and those who are buying a home to live in’. In my opinion, this tax-relief change is in fact detrimental to the first time buyers. If we take into account the reasons I highlighted above, first time buyers will find it harder to save a deposit.

I strongly encourage all private landlords to start evaluating the impact of the tax changes now and have enclosed a simple calculator from our official partner, the RLA. This will help landlords assess the impact of the tax-relief changes on their income.

About EasyRoommate

EasyRoommate.co.uk is the world’s number one flat share and house share website. Running for over 10 years, it operates in 25 countries across the world, in eight different languages.  It has over 50,000 rooms to rent worldwide and a 100,000+ strong community of potential tenants.

About the research:

Research included a consumer poll with 464 EasyRoommate landlords.

For more information please contact:

Michael Benjamin

Head of Global Marketing

Email: [email protected]

Karim Goudiaby

Karim Goudiaby

About Karim GoudiabyChief Executive Officer of EasyRoommate

Bio:

In 2002, Karim joined the EasyRoommate team then located in the New York offices. He began his web journey as an ambitious, driven and passionate intern. He re-joined the team a few years after graduating and was instrumental in establishing the company’s global offices and developing EasyRoommate’s online presence.
Karim has an in depth knowledge of the property and shared accommodation market, and he is dedicated to bringing benefits to consumers through extensive web services, which meet the needs of lifestyle demands and connect people, locally and globally.

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EU sets itself jobs, training and equality targets for 2030

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EU sets itself jobs, training and equality targets for 2030 1

By Jan Strupczewski

BRUSSELS (Reuters) – The European Commission on Thursday announced goals for the 27-nation bloc to reduce poverty, inequality and boost training and jobs by 2030 as part of a post-pandemic economic overhaul financed by jointly borrowed funds.

The EU executive arm said the European Union should boost employment to 78% in 2030 from 73% in 2019, halve the gap between the number of employed women and men and cut the number of young people neither working nor studying to 9% from 12.6%

“With unemployment and inequalities expected to increase as a fallout of the pandemic, focusing our policy efforts on quality job creation, up- and reskilling and reducing poverty and exclusion is therefore essential to channel our resources where they are most needed,” the commission said.

The goals, which will have to be endorsed by EU leaders, also include an increase in the number of adults getting training every year to adapt to the EU’s transition to a greener and more digitalised economy to 60% from 40% now.

Finally, over the next 10 years, the EU should reduce the number of people at risk of poverty or social exclusion by 15 million from 91 million in 2019.

“These three 2030 headline targets are deemed ambitious and realistic at the same time,” the commission said.

The goals are part of the EU’s set of 20 social rights, agreed on in 2017, to make the EU more appealing to voters and counter eurosceptic sentiment across the bloc.

They say everybody has the right to quality education throughout their lives and that men and women must have equal opportunities in all areas and be paid the same for work of equal value.

The unemployed have the right to “personalised, continuous and consistent support”, while workers have the right “to fair wages that provide for a decent standard of living”.

(Reporting by Jan Strupczewski; Editing by Nick Macfie)

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UK aero-engineer Meggitt eyes return to growth after pandemic slump

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UK aero-engineer Meggitt eyes return to growth after pandemic slump 2

LONDON (Reuters) – British engineer Meggitt said that it could return to profit growth in 2021 provided there are no further lockdowns, despite a weakening in the struggling aviation market at the end of 2020 and early this year.

Pandemic restrictions halted much flying globally last year and forced plane makers Boeing and Airbus to cut production rates, dragging down suppliers like Meggitt, which makes and services parts for such aircraft.

Meggitt’s underlying operating profit plunged by 53% to 191 million pounds ($267 million) in 2020, it said on Thursday, despite continued growth in its defence business which makes parts for military jets and accounts for about 45% of the business.

Meggitt, however, said it expected air traffic to recover in the second half of the year which would help it return to profit growth over the year, although its guidance for flat revenue disappointed analysts who had expected growth of 6%.

Meggitt’s Chief Executive Tony Wood said in November that he had expected flying to start to recover by Easter, but new variants have led to more restrictions and delayed the recovery.

“It has gone back a couple of months… it’s now very much in the summer,” Wood said of the recovery in an interview on Thursday.

Further in the future, Meggitt is positioning itself for the move to lower emissions flying, and its sensors and electric motors will be used on electric urban air mobility platforms, such as flying taxis, and in hybrid aeroplanes being developed.

But Meggitt said new tax breaks announced in Britain’s annual budget on Wednesday aimed at encouraging investment would not change its plans.

“Yes, it will be a benefit. Are we looking at any acceleration as a result specifically of that? Not really,” Woods said.

Shares in Meggitt were down 1% to 427 pence at 0943 GMT. The stock has risen by 50% since news of a COVID-19 vaccine last November, but is still down 23% on where it was pre-pandemic.

($1 = 0.7165 pounds)

(Reporting by Sarah Young; Editing by Alistair Smout and Susan Fenton)

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UK’s Sunak will struggle with plan for tax hikes and spending cuts – IFS

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UK's Sunak will struggle with plan for tax hikes and spending cuts - IFS 3

LONDON (Reuters) – British finance minister Rishi Sunak will probably have to offer concessions to businesses if he wants to be able to implement a big hike in corporation tax that is at the centre of his new budget plan, a leading think tank said on Thursday.

The Institute for Fiscal Studies also said it was very unlikely that Sunak would be able to deliver the 17 billion pounds annual spending cuts included in his plan.

IFS director Paul Johnson said if the plan was implemented as announced on Wednesday, Sunak would meet one definition of a balanced budget – borrowing only to invest – by 2025-26.

“The sad truth is that that would be a balance built on the highest sustained tax burden in UK history and yet further cuts in unprotected public service spending,” Johnson said.

“That is perhaps one measure of the difficulties presented by more than a decade of paltry growth followed by the deepest recession in history.”

(Writing by William Schomberg, editing by David Milliken)

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