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2017 UK Election

The Entrepreneur & Property Investors Guide to the 2017 UK Election

What is each party saying and how will it impact us?

 

Conservatives

The Conservatives haven’t exactly done Property investors any favours over the last few years. An increase in Stamp Duty Land Tax for additional properties has impacted all Investors and curbed some of the enthusiasm for investing recently. Add in removing the ability to deduct mortgage interest costs from taxable income, and the Conservatives have made being a Landlord and Investor less financially viable. So what are they proposing in their manifesto? Well, it’s somewhat lacking in detail to be honest. But let’s look at each area in turn.

Personal Tax

Raise the tax-free threshold to £12,500 and the higher rate tax threshold to £50,000. This is nice and will benefit many Investors. In more recent years, and going forward, it makes sense to own properties within a corporate structure. One of the advantages is you can time when you want to take income from your portfolio. If you’re already a higher rate tax payer, you may choose not to take any property income until you retire and are a lower rate tax payer.

Corporation Tax

Proposal to reduce Corporation Tax from 20% to 17%. This would make the UK one of the cheapest corporation tax areas in Europe. As just mentioned, a lot of people are starting to use corporate structures to hold their property investments – so this would be of direct benefit for us! Yay.

New Builds

It’s kind of universally accepted we need to build more houses as a nation and each political party has made a statement on this point. The Conservatives have said they’ll build 160,000 new homes per year on public land and keep in place a Right to Buy Scheme after 10-15 years of habitation. There’s also a hint at a tax being applied to Planning Gain. Doesn’t say much, but sounds like they will want a windfall tax from landowners who get an increase in value due to gaining planning permission. This seems mean as there will already be an element of Capital Gains Tax on any investment in land that is disposed of profitably… so are they proposing to increase this tax even more? Bit harsh. If they are saying it will only apply to planning gain on your own residence – then how long until there becomes a tax on any gain on property ownership? Asshats.  

Conclusion

So what’s all this mean for us? Well… it’s not awful, but it’s not great either. It feels like the Conservatives have taken a; Hahahaha, you’ve got no other choice approach to property investors. For my clients, the Conservatives represent the status quo. They aren’t going to screw you out of a lot more tax, but they aren’t going to make your life easier. They aren’t going to be reversing any recent changes to tax policy either, so don’t expect that! Unfortunately, there isn’t much to lower our competition either. Dodgy Property Investors who are producing small, shit quality developments or Landlords who are renting out tiny crack dens to 15 families have been ignored in this manifesto.  This just leads to the general view of Property Investors is likely to remain sullied at best, downright hated at worst.  

Labour

I know what you’re thinking. Not even worth reading this section is it? Corbyn – the cardigan wearing, tree-hugging, hippy – wants to take all your money and give it to dirty poor people so they can continue to avoid work and just take all your taxes off you. To be fair, I almost didn’t bother reading the Labour Manifesto. For one, it’s really fucking long. Secondly, it’s Labour. Why bother? But I’m glad I did….

Personal Tax

There will be no increase in personal taxes for people earning up to £80,000. Now I’m all for earning all of the monies and spending £80,000 a month on new socks, but in reality… if you are going to tell me £80,000 a year isn’t enough to live a happy life on – then you’re a greedy dick. Sure, you might want more. I certainly do. In fact, I already earn more than that. Which might make me a dick, but not a greedy one. I don’t think you NEED more than £80,000 to live a great life.  So, I don’t think it’s that bad to be taxed more if you earn over that. If you’re a footballer earning £300k a week or a banker earning £10m a year, well I’m not going to cry into my cereal that you must pay a bit more tax. So, for myself and most of my clients, this isn’t that bad a proposal. Let’s call it slightly negative, but not that big of a deal.

Corporation Tax

Labour are looking at reintroducing the small profit rate of corporation tax. A bit like personal tax, there would be a lower rate to pay if your company makes under a certain amount of profit. The details are a bit vague on this, but fundamentally I agree with this tiered system of taxation for companies. SME’s are the backbone of our country, and I want to see more people able to set up businesses and get as much personal benefit as they can from their ventures. So, I’m on board with this one! If Sainsbury’s gets taxed a bit more…. yeah well, that’s what you get for sending me brown bananas, ya bastards. There will also be no requirement for companies turning over less than £85,000 a year to report on a quarterly basis. Not that big of a deal, but a bit helpful.

New Builds

This is where I start having a few issues with the Labour policies. Labour want to build 100,000 houses for councils and housing associations per year – a combination of rental and sales properties. Probably not a bad thing, but Housing Associations aren’t the best way to get more good quality properties into the social sector in my experience or opinion. One weird policy was the proposal to give local first-time buyers ‘first dibs’ on new houses built in their area. Not sure how that’ll be managed in practice. But from a developer’s perspective it might mean you have an extended sales period while the locals have a sniff round first. The plan is to build 1,000,000 new homes by 2022, half of which will be for social use. It is a nice target, but the document is a little thin on the ground on how it would be funded, who would build it, how it would be managed, where it would be built, etc. Government bodies aren’t the best at managing massive projects like this. I know, I used to work for them. There is a lot of inefficiency in there!

Rental Market

Labour plan to keep the Letting Agency fees ban, which most of them will, so no real differentiator here. But they do plan on making 3 year tenancies the norm for tenants and capping rent increases by linking them to inflation. There will also be powers given to tenants to force Landlords to make improvements to housing to keep the property in a decent standard. Finally, Labour were the only party that commented on Leaseholder protection against ever increasing Ground Rents. Not sure how they’d tackle this, as it’s a standard contract that was signed by all parties – and they all will have had a solicitor read the lease and should have been given advice on the terms… Will this be the next PPI mis-selling scandal? Everyone, sue your solicitor because you didn’t read your lease properly! There are a significant number of Investors who have built up fairly sizeable ‘ground rent funds’ who bank on these uplifts. It’ll be interesting to see how this is handled, but could be of concern to anyone who is involved in this area of investing.  

Conclusion

So, what’s voting for Labour going to mean for us as Investors? Well you are potentially going to have an issue with tenancies. At the moment, most mortgage lenders will not allow you to rent for more than 12 months, so a 3-year tenancy would put you in breach of your mortgage terms. Oops. But by adding in inflation-linked rent rises this means you can still buy and hold a property for a consistent profit. I have invested across the country and have seen huge rent rises in some areas, none in others. In those areas where demand remains low, I’d probably not notice any difference as I couldn’t raise the rent anyway. In London where rents have gone a bit bat-shit crazy, I would have only been able to raise rents by a smaller amount under Labours proposals. Is that bad? I bought the property based on it made sense for me at the time. I didn’t buy it needing a huge increase in property prices or rent inflation to make money. This policy might get rid of some of the speculative Investors who don’t know what they’re doing. These people are driving up prices for us sensible Investors (as well as Homeowners, which I guess is what most politicians care about). By removing the speculative, unprofessional, and daft Investors the market should stabilise a bit more and make investing more of a service based business again. We, as Investors, provide value by means of a decent property, and we should get paid by a happy customer. The Labour policies around giving tenants the power to insist their property is maintained to a good standard doesn’t bother me in the slightest. In fact, it might make my life easier because now the Council could be the ones inspecting my property for me and letting me know when and what needs doing. I already own properties in Selective License areas, so I have to keep my properties to a decent standard, but it’s honestly not any higher than a reasonable human being would want to keep a property they are renting out. If you think it’s unreasonable for your tenant to want a property with good heating and not to have water leaking into the rooms… well you’re a bad human and shouldn’t be a Landlord. That attitude has been the reason ‘Landlord’ is now used as a dirty word in this country.

Liberal Democrats

The Lib Dems had the most to say about property within their manifesto. Maybe they feel they need to put more effort into their manifesto to win votes. Probably true. I was fairly impressed with the content generally, but let’s look at the specifics as it relates to Investing in Property.

Personal Tax

1% increase in income tax. I guess it’s not that big of a deal, but a bit shitty. If it pays for a bunch of good stuff, I can live with it. And that seems to be their general promise (ha, like we believe that shit). There is a proposal to reverse the proposed cuts in Capital Gains Tax, but presumably they will keep them where they are.

Corporate Tax

While corporation tax is to remain at 20%, there was a comment about potentially linking corporation tax to sales and turnover. Presumably to lower the tax for smaller companies. At least, that’s what I assumed, rightly or wrongly.

New Builds

The Lib Dems are proposing to build 300,000 new homes each year by 2022. Punchy. I like it. Don’t believe it though. Mostly because the rest of their policies then seem to make planning more difficult again. There will be a community right to appeal against a planning decision if it goes against the local plan – so all the NIMBY’s will be out in force. This will inevitably choke up the planning process with more red tape and localism. There is also a proposal that affordable housing units will be required on smaller scale developments. This will reduce the profitability for developers, and that’ll mean less development. At the same time, they will be penalising developers for not building on land within 3 years once planning is obtained, potentially even seizing the land if it’s not used. The Lib Dems are proposing 10 new garden cities. I quite like this idea, Letchworth is quite a success. Milton Keynes probably is too, but I dislike their grid system personally. Too many roundabouts, makes me dizzy. This policy will mean tearing up some random part of the greenbelt somewhere and creating a town. It’ll be a very long-term project, but could be a better plan than just increasing the size of our existing cities.

Rental Market

Lib Dems are planning on increasing the LHA rate in line with average rents in the area. I’m a huge fan of this because a few of my tenants on in receipt of Housing Allowance. So yay (selfish I know). It does make sense though, LHA rates are linked to the local area already, but they haven’t risen in line with the rest of the housing market. So that means fewer and fewer houses are actually affordable for those on benefits. With all the taxation and increased costs we’ll have as Landlords, we can’t afford to then rent at a lower than market rate as well. Disturbingly there is mention of a ‘Rent to Buy’ model, which implies you can own a property after 30 years of having lived there as a tenant. I think this includes the Private Rented Sector. Now if that was ‘a right but not obligation’ to buy at current market value – I can live with. If it’s a case of, you’ve paid rent for 30 years, the house is now yours… what the fuck?! Surely that goes against the security of tenure that the Lib Dems want, because I’d be evicting every tenant as soon as they’d been there for 29 years! It’s not a dissimilar proposition to saying, “I’ve used the train for the last 30 years, so now I own the train and will never pay for a train ticket ever again.” It’s feckin daft. As they have gone on to say they want 3 year tenancies to become the norm, but with rent increases linked to inflation it sounds like it would be possible to stop a tenant from living in a property for 30 years if you don’t want to be in this situation. So perhaps it would only impact on social housing. Alternatively, Investors already have a ‘Rent to Buy’ model which involves the tenants paying a slightly higher than market rent to build up the equivalent to a deposit. When they exercise their right to buy, they just need to get a mortgage for the difference but there is no requirement for a deposit. So ya know… we’re not all complete ass-hats. Sometimes we think of nice things to help people out as well. There’s also mention of giving tenants first refusal to buy their property if the Landlord decides to sell it while they are in occupation. I’m pretty sure every Landlord would be fine with that. Once we’ve decided to sell, it makes life much easier if the person living there wants to buy it. This already happens, so making it a legal thing is a bit unnecessary, but doesn’t really make a difference to us. Lib Dems want to help the under 30’s get into rented accommodation so are offering deposit loans for first time renters. I think that’s unnecessary and they should instead just give a bond to the Landlord that is Government backed. That’d save on the cost of giving the cash out, but it depends if they plan on making money off the interest charges to the tenants. In which case, it’s not that altruistic an offer. There are proposals to ban letting fees, cap the amount of deposit that can be requested at the start of a tenancy and impose minimum standards for rental properties. Alongside this there would be mandatory licensing for Landlords, with a rogue Landlords and Agents database that tenants can access. No issues with that, if you’re a shitbag, then you shouldn’t be renting to people anyway. If you’re a decent human, it’s not a big deal. There are a few other policies proposed in the manifesto – it’s quite comprehensive compared to some of the others. There is an insistence that properties must be advertised in the UK before being advertised abroad. I understand why, but are they going to insist on how it’s advertised and if there any differences in marketing? 1 bed in Manchester advertised at £2m in the Bournemouth Gazette… then advertised to Chinese Investors at £185,000 at big Investor Expo’s. Some obvious flaws in this policy, but they’re trying at least. There’s also a proposed doubling of Council Tax for 2nd homes and empty Investment Properties. This could suck, we’ve already lost the tax-free period when properties become void between tenancies. And now our properties must meet a minimum standard, those voids might take longer to get the property up to standard… all that time we’re to be paying twice as much Council Tax? Harsh. Finally, there is a proposal to enforce building on unwanted public-sector land. Hate to break it to you, but it’s probably unwanted because it’s not viable to build on it. If they are going to also give locals the right to slow down planning, and make developers build more affordable housing units, that unwanted land has just become a bit more unwanted… dicks.  

Conclusion

What’s my general feeling about the Lib Dems manifesto? I think they have at least given us the most thought. None of the parties have figured out how to solve the housing crisis, mostly because they fundamentally don’t understand Investors and tenants it seems. The changes to tenancies are in line with most of the other parties, and I’m not sure how much of a detrimental impact it will actually have once all of the finer details are hammered out. There isn’t much in there that would make me drastically change my strategy, and I think it’s still possible to provide a good service (house) to a satisfied customer (tenant) within the restrictions of the regulator (Government). Might have to do some fancy footwork at times, but it’s not all that bad.  

UKIP

This Manifesto document was a quirky little beast. I didn’t read all of it (who has time for that shit?) but scanning through it and seeing what they, and presumably their core voters, feel are the pressing issues is quite different from the other parties. But anyways, what is this party proposing?

Personal Tax

UKIP plan to raise the tax-free threshold to £13,500 and the higher rate threshold up to £55,000. I approve of both plans. It’s not going to make a huge difference, but it is helpful. They are also planning to raise the Inheritance Tax threshold to £500,000 (or £1,000,000 for couples). With house prices having gone up so much in recent years, more people have found themselves paying IHT, so this will be a welcome tax policy by the Southerners.

Corporation Tax

Not a great deal on this one. I assume just keep things as they are?

New Build

UKIP have gone for a slightly more original approach to the current housing crisis by proposing an increased use of Factory Build Modular (FBM). This is a Modern Method of Construction (MMC) that has been around for a while, and is quite extensively used in continental Europe. It’s not a bad idea, in fact there are a lot of positives to it from a pure building perspective. You can make them cheaper, build them quicker, and get a pretty high standard of finish. If you’ve been to any chain hotel that was built in the last 5 years, you’ve probably seen a FBM en-suite bathroom. The downside is the huge impact this has on construction jobs. Building something in a factory and then plugging it together on-site like giant Lego takes a lot less man-hours than traditional building. So, solving the building crisis may have an impact on employment in the country… Following on from their plan to build a shit load of FBM houses was the policy of selling these cheap to under 40 year olds – but not allowing the properties to ever enter the general housing market. If you buy a cheap FBM house from the Government Housing Agency, you will get an increase in price (linked to inflation), but you can only ever sell it back to the Government Housing Agency. Or you can stay there forever. I can see it making sense if you want to live somewhere forever. But if you buy one of these at a huge discount to local house prices, your £100,000 house goes up to £120,000 over 10 years thanks to inflation, but the open market houses in the area have gone from £300,000 to £380,000… you’re still screwed. You have to find another FBM scheme in the country that you can move to, otherwise you’re back to the starting position of being unable to afford a house on the open market.  

Conclusion

So what is my take on UKIP’s proposals? I like the fact they have tried to come up with a new model for getting more houses built, quicker and cheaper, by using modern methods. That should be applauded. What needs to be done though is getting mortgage companies to lend to these types of properties, and getting planning authorities to approve their construction. Once those two hurdles are overcome, I think private developers would happily start using these methods and start driving down the cost of housing on their own. Without Government intervention.  

Green Party

Awww, bless them. Their Manifesto is a quarter of the size of the others. I guess they know they don’t have to worry about having a full planned scheme for what they’d do if they ever get in power. But a bit like a plucky underdog, you’ve got to love ‘em! Come on then, what did they say about us…

Personal Tax

They want to work towards a 4-day work week. To be fair, I think that’d be great. Life’s too short to spend it working all the time. It would also make it easier for people willing to hustle and work a 7-day work week stand out even more. Win for the lazy and win for the highly motivated!

Rental Market

The big push from the Green Party was around security of tenure. They want to make people feel more secure in their rental properties and impose rent controls so they aren’t priced out during their tenancy. They have stated they want mandatory licensing for Landlords, which again I don’t really care about. If you’re a good Landlord it won’t be an issue. The problem comes in how it’s administered and how much it costs. Sometimes you end up charging the good Landlords and the dodgy ones just ignore the Mandatory licensing and don’t pay. So you punish the good while the bad carry on being dicks. I’d want to see something to minimise this. They did say something that I was confused about. They want to axe Buy to Let tax breaks… Anyone know what these are? I need a new accountant because I don’t seem to be getting any of them!

New Builds

There wasn’t much on this other than to say they wanted to add a Land Value Tax to stop developers land banking and not developing on land that they had. Makes sense on the surface, but the way most large developers work is by having a landbank of thousands of units sat there waiting to be developed so they can bring new sites live in a sustainable way. If you tried to make every developer out there build out all of the units they have planning for, firstly there aren’t enough workers to do it. If there was there would be a drop in property prices once all of the properties came on the market as there would be a temporary over supply. Then there would be a huge house price increase because going forward there are a lot less houses coming onto the market. So yeah, sounds good on paper to encourage developers to build, but in reality it’s a stupid suggestion. Sorry Greens.  

Conclusion

Unfortunately, or fortunately depending on your stance, it’s not worth talking about the Green party as a viable option for leadership. Sorry if you vote that way. I agree with a surprising number of their other proposals (I’m secretly a bit of a tree hugger), but their property policy is daft and ill conceived. It will never impact on us, so whatever.

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