Tax tips

Telephone: Cardens accountants 01273 739592
Web address: http://www.cardensaccountants.co.uk/

Buy to let landlords are currently being targeted by Revenue and Customs (HMRC) after it found 62% of landlords were not paying the right amount of tax. HMRC is likely to increase vigilance with falling interest rates leaving many landlords with large profits from rent. Old style tax investigations are being supplemented with "interventions".
These relatively new interventions involve calls, letters and meetings with landlords to identify the areas with a high risk of errors in their tax affairs. The interventions allow HMRC to avoid opening formal tax enquiries but limit the areas they can probe. An intervention can, of course, go on to become an investigation!

If you are a landlord the amount of tax you pay can be a very cloudy issue. Many buy-to-let landlords are unaccustomed to managing their own tax affairs and often incorrectly assume there is no tax to pay on buy-to-let activity. As an example it is often wrongly assumed that losses from property can be offset against general income. (Holiday lets are another issues but we can also advise on that).

It is possible that the first time many buy-to-let landlords discover they have erred in their tax calculations will be a call from HMRC initiating an intervention.

In order to avoid interest on underpaid tax and fines look out for the following pointers:

• repairs to buy-to-let properties are taxed differently to improvements. Repairs are deductible, improvements that permanently enhance the value of a property (such as a conservatory or loft conversion) are not.

• only offset the interest component of mortgage payments. Capital repayments are not allowable.

• Cancellation charges for shifting mortgage deals are not deductible.

• Letting agency fees and advertising costs are allowable, legal costs of long term leases not.

• If selling furniture left in a property, it should be sold separately for capital gains purposes.

There is no legal requirement to comply with an intervention, but being quizzed by HMRC is something to be taken seriously. If you think you've made a mistake take advice and consider making an early disclosure as part of a negotiated settlement. We can recommend reliable advisors so do ring or e-mail.

HMRC: http://www.hmrc.gov.uk/workingtogether/news/times-buy-to-let-shock.htm

Mortgaging and finance

Web address: http://www.mansfieldfinancialservices.co.uk/

The area of raising finance for buy-to-let properties is well regulated by the Financial Services Authority (FSA) so we don't give specific advice. However, we can recommend some very good people who do!

In general always get independent advice. Your own bank and building society will be keen to offer you deals but often you can get much better deals on the open market.

Good advice comes at a price. Independent Financial Advisors (IFAs) generally get paid in 1 of 2 ways; by fees or commission and by law they are required to give you the option of either.

• Fees. Here they charge a flat hourly fee for their advice. Standard fees range from £75 to £250 per hour depending on your area and what kind of advice you need. Make sure you ask in advance and compare costs.

The great advantage of fees-based advice is there's less incentive for advisers to bias their advice according to how much commission they'll make, as they should pay any commission earned back to you – either in the form of a rebate or a boost to any plan (always ask and check this is happening).

Plus if you're making a large investment or pension, then you're definitely better off paying a fixed fee rather than commission, as commission increases with the size of the investment.

• Commission. Advisers paid commission may seem to be giving advice for free, but over the long run they tend to make more money this way than by charging a fee upfront. Some plans can be extremely profitable and will make advisers a large amount of money. As an example, a typical upfront commission paid on a £30 a month level term life assurance policy for 25 years would be £600.

The proof that commission impacts advice is that companies deliberately market increased commission rates to IFAs. If advice was never biased, then the rate of commission wouldn't make any difference, yet product providers know that up the commission rate and they're more frequently recommended.

However the commission route still has its merits. While there will be some bias, the legal obligation to give good advice means advisers tend to tweak at the fringes rather than give downright poor information. And the big advantage is that as you won't need to stump up the cash each time, you'll be less scared to seek help when needed; thus will continue to get retained advice.

Overseas landlords

Web address: http://www.hmrc.gov.uk/cnr/nr_landlords.htm

Are you going to be living (normally resident) abroad? If so you need to register with Revenue and Customs (HMRC) to receive your rent payment net of tax. As ever just give us a call for advice.

Fair Contracts

Medics on the Move celebrates the judgement against Foxtons over unfair clauses in lettings agreements. We do not use any of the business practices highlighted prefering simple, open and honest agreements. We have never used "overhang" clauses.

"The Office of Fair Trading (OFT) has welcomed a Court of Appeal Judgment in its favour against estate agent Foxtons, over what the OFT claims are unfair terms in its lettings agreements with landlords.


The OFT commenced High Court proceedings against Foxtons in February 2008, seeking an injunction preventing the estate agency using terms, considered by the OFT to be unfair, in its lettings agreements with landlords.
During the preliminary stages of these proceedings the OFT appealed against a ruling by Mr Justice Morgan which accepted arguments from Foxtons that any injunction on unfair terms could only apply to future contracts, rather than preventing the use or enforcement of unfair terms in existing ones.

The Court of Appeal has overturned this ruling, confirming the OFT’s long-held view that it can take enforcement action under the Unfair Terms in Consumer Contract Regulations 1999 (UTCCRs) to protect consumers in relation to both existing and future contracts.

TA ruling in the Office of Fair Trading case against Foxtons is set to have major implications for the lettings industry.

Consumer bodies are celebrating the judgement as a major triumph for consumers. The case was brought by the OFT under the Unfair Terms in Consumer Contracts Regulations 1999.

The High Court has ruled that certain terms and conditions in Foxtons’ lettings contracts are unfair. The judge has also given his permission for this ruling to be applied across the lettings industry.

One industry source described today’s ruling as a ‘knock-out blow’.

However, crucially, the court has not said that the charging of all renewal fees in all circumstances is unfair.

But the court has said that important terms must be flagged up prominently and not hidden away in the small print.

In today’s judgement (Friday, July 10), Mr Justice Mann ruled that the following Foxtons terms are unfair:

* Requiring a landlord to pay substantial sums in commission, where a tenant continues to occupy the property after the initial fixed period of the tenancy has expired – even if Foxtons plays no part in persuading the tenant to stay, and does not collect the rent or manage the property

* Requiring a landlord to pay commission to Foxtons even after it had sold the property

* Allowing Foxtons to receive a full estate agents’ commission for sale of the property to a tenant.

The ruling, following a three-day hearing in April 2009, found that the charging of repeat renewal commission by Foxtons represented a ‘trap’ or a ‘time bomb’ for consumers.

The judge held that such important terms must be flagged prominently not just in the contract, but also in any sales literature and processes.

He said a typical consumer would be unlikely to read standard terms with a great degree of attention and would not expect important obligations to be tucked away in the small print and not specifically brought to their attention. He also found that Foxtons had used language in its contracts which is not ‘plain and intelligible’.

On the use of a term providing for sales commission to be payable on the sale of a property to a tenant, the judge said consumers would not merely be surprised but ‘astonished’ by the potentially large financial liability to Foxtons in relation to a transaction in which Foxtons played no material part.

The court looked at Foxtons’ letting contracts which typically applied an 11% renewal commission where a tenant remains in occupation of the property beyond the initial (usually one year) period, and a 2.5% commission payment in the event that a tenant buys the property.

The OFT said it expects the letting industry to comply with this ruling, and will take the necessary steps to ensure this where appropriate.

OFT chief executive John Fingleton said: “This ruling sends out a clear and unambiguous message that businesses offering services need to ensure unexpected or surprising terms are not hidden away in small print. Contracts need to be written in clear and straightforward language with important provisions, particularly those which may disadvantage consumers as in this case, given prominence and actively brought to people’s attention.

“The OFT prefers to work with businesses to agree solutions where concerns are raised but we will not hesitate to take court action where this is not possible and especially where there is serious harm to consumers.”

In a statement, Foxtons put a brave face on the outcome. It said it “welcomes the judgement and is pleased that the OFT has eventually made it clear that it is not its case that renewal commission is always unfair in contracts with consumer landlords.

“The judgement is consistent with that position and does not find that renewal commissions are always unfair.

“The judge has stressed the importance of consumer landlords being made properly aware of how renewal commissions work in order for them to be acceptable. Foxtons is currently reviewing its terms and its marketing material to meet the concerns raised by the judge.”

Michael Brown, Foxtons CEO, said: “We are extremely pleased that this matter has finally been clarified in a way which is to the benefit of consumers and the industry.”

Holiday let vs AST

Web address: http://www.hmrc.gov.uk/budget2009/furnished-hol-lets-1015.htm

Recent changes to the furnished holiday letting rules. Under changes announced in the 2009 Budget, the furnished holiday lettings rules will be withdrawn from 6 April 2010 for Income Tax and Capital Gains Tax purposes, and from 1 April 2010 for Corporation Tax.

Further details will be given in the 2009 Pre-Budget Report, but it is intended that landlords of furnished holiday accommodation will be treated in the same way as other landlords.