SELF EMPLOYED and the importance of INCOME PROTECTION.

The latest research shows almost two million self-employed people are unable to save any money each month, leaving them vulnerable to financial shocks like long-term sickness. What's more, a third couldn't survive more than three months if they lost their income.

State benefit entitlements are even smaller for self-employed clients as they don't get Statutory Sick Pay (this is paid by an employer).

If they’re too ill to work, they’ll have to apply for Employment Support Allowance instead. This means for the first 13 weeks of sickness, self-employed clients would receive less in state benefits compared to clients in permanent employment and eligible for Statutory Sick Pay.

Ref; article published 8th September 2017 by LV.
1) YouGov, on behalf of Liverpool Victoria, conducted online interviews with 9,495 UK adults between 5th and 10th July 2017. Data has been weighted to reflect a nationally representative audience. Among the research there were 676 respondents who are self-employed.
2) Our research showed that 41% of the self employed were unable to save. The Resolution Foundation reports there are 4.8 million self-employed workers in the UK (A tough gig? The nature of self-employment in 21st Century Britain and policy implications). 4.8 million x 41% = 1,968,000 unable to save.

New Regulations and your Buy to Let

January 2017 is the deadline for new regulations in BTL lending to kick-in. If you haven't yet considered how this will effect you and your own BTL portfolio, then you need to act fast!

The amount you can borrow is typically dictated by the rent you receive for a BTL property. The new rules will add additional stress testing to make sure that a property will be self supporting financially. This has come about after changes in tax relief for landlords were announced in 2016, which could mean a decline in profits. This means lenders want borrowers to have a greater 'buffer' in place to account for rental voids, increases in interest rates over a 5 year period and the loss of tax relief for some individuals (therefore higher tax bills).  

Some individuals could find themselves in a mortgage trap if the new rental calculations prevent them from re-financing their properties. One way to deal with this is to reduce the mortgage balance to fit with criteria, but not everyone can do this. For this reason, some properties will be sold in preference for lower cost properties with higher rental yields. 

Please note that the content of this blog has been formed around my own view of the market as it stands today. I strongly advise that you get professional help to understand your own position and please don't wait. The clock is ticking!

Should I set up a Ltd Company for my BTL Investments?

I have decided not to place my properties into a ltd company because of several reasons

  1. I'd have to pay Capital Gains Tax and stamp duty Land Tax for the privilege of transferring my current properties into the company, this because it's treated as a sale and purchase to another 'entity'.
  2. The allowance for dividend income has been restricted to £5,000 per person.
  3. I can't use my CGT allowance within the ltd company structure. 
  4. The cost of finance tends to cost more than standard BTL mortgages and the choice is more limited.
  5. The comparative accountants fees make my eyes water.
  6. I also don't want to have to provide all the annual reports required for companies house.

But for some, the pros out-way the cons and what suits me isn't necessarily right for you. This is definitely a question for your accountant and no one rule fits all. There are many tax and cost implications that need to be considered and I urge you to get expert advice from more than one source before making your decision. Here's a link to the Governments website to explain more about your responsibilities when running a limited company.

https://www.gov.uk/running-a-limited-company/taking-money-out-of-a-limited-company

The BTL world post 1st April

Huge changes in the way rental income is taxed have and are being implemented. Do you know enough about how this will affect you and your income? Many people now need to re-structure their portfolios and re-think their property investment strategy to cope with the changes.

We can't give tax advice but can help you to manage your BTL mortgages to make the most out of your investment. Give us a call and we can analyse your portfolio and see if any improvements can be made to maximize their potential.

Stamp Duty Land Tax Changes

The SDLT changes are due to take affect on 1st April 2016 and people are often asking me to comment. I do not give advice on tax, so please make sure you get advice from your accountant or other tax professional if you are concerned or feel the changes may be relevant to you. The Government are yet to announce their final verdict on the various tax changes that are afoot, but the initial content is concerning to say the least. There are many scenarios that could catch people out and so it's important to check with your solicitor where you stand before proceeding. You can visit the Government website for up to date information by using this link. link https://www.gov.uk/stamp-duty-land-tax/overview

If you just have one property when the purchase transaction is complete (simultaneous sale), then it's unlikely you will be subject to the extra 3% SDLT. If, however, you have an existing property which is not being sold and you're buying another, it's very likely that you will be charged. Even if you currently live at home with your parents, own a BTL and are now buying a residential home! If you would like some help and need to discuss your own situation, please get in touch.