Airbnb and the risk of subletting

Airbnb is a phenomenon of our age and, in January of this year, it was reported that over 4million people in London had used the service since launch in 2008. As the go-to website – or app – for a host of travellers, Airbnb provides a convenient solution for those seeking an alternative to a traditional hotel room.

In recent years, its ease of use has seen Airbnb broaden its reach beyond the hospitality sector and into the lettings market, and while this might seem like an optimum solution for short-term tenancies, it is also proving to be a challenge that the industry is yet to navigate.

A primary hurdle that has arisen for landlords is around subletting, and a growing number of landlords are launching possession proceedings against tenants who have sublet their property via sites such as Airbnb, without the requisite permissions. Tenants who do this without consent risk eviction for a breach of their assured shorthold tenancy agreement – but for some, this is a risk they are willing to take.

At the same time, if the rent is paid in full and on time, some landlords might be inclined to turn a blind eye to the practice. However, it is worth remembering that while it is an ARLA Property mark standard to vet tenants at the start of a contract with full references and credit checks, tenants are unlikely to do this on behalf of landlords for subtenants, creating risks for all parties.

Furthermore, while the tenant signing the contract might show up well on paper, they could be subletting to just about anybody, with no verification of their credentials whatsoever.

It goes without saying that in not knowing who precisely is occupying a property can be disastrous for landlords, with unpaid rent, bills and damage to a property.

As such, we do urge landlords to ensure that they enter into an up-to-date contract with their tenants, which legislates against subletting under any circumstances. This is a clause inbuilt to every Carter Jonas contract, but for independent landlords who operate without an agency, it is worth checking the wording of all tenancy agreements.

Lisa Simon, 

Partner Head of Residential Lettings

T: 020 7518 3234 

E: lisa.simon@carterjonas.co.uk

The Trump Effect

The election of Donald Trump to the post of US President might seem like a distant geo-political anomaly that will have little bearing on our East Anglian bubble. After all, Suffolk has proved not only remarkably resilient to Brexit but surprisingly buoyant – despite the uncertainty that reigns over our cousins in the capital, only 90 minutes down the road.

However, given our proximity to London, we should be pricking our ears to the opportunity that the knock-on effect of the new President Trump could engender for us.

As the world takes stock of this new political landscape, our counterparts in the capital are preparing to see a movement of affluent Americans from major cities across the US into Prime Central London.

The pound remains attractive to dollar based buyers in the wake of Brexit, who still see relative market stability in London and, as a result, view it as a place to invest their money in property.  Keen to shelter from any ensuing political and economic upset, a number of buyers registered with our London offices during the presidential campaigns, with a view to progressing their purchase pending a Trump victory. Now that has happened, follow up interest is already underway.

There is also much anticipation of a potential power shift between New York and London, with a new wave of professionals, originating from Hong Kong, Singapore, Malaysia and even Tokyo, as well as investors from the Middle East, now looking to do business in alternative locations to the US. London is, inevitably, a primary contender for such activity, especially given the stability that our Prime Minister, Theresa May, provides, as well as the financial reassurance that Mark Carney brings, following confirmation that he will remain in role as governor of the Bank of England until 2019.

Of course it’s not just international buyers who we expect to see searching for refuge in London; there is also a population of ex-pats residing in the US, who have fluctuated for some time over their decision to return to the UK. For many, the Trump victory has forced their hand, with the prospect of living under his leadership simply too unpalatable.

This influx of jetsetters and ex-pats is set to inject some much needed liquidity into the London market, empowering homeowners who have otherwise been too paralysed by uncertainty to move.

So how does this impact on our local market? This will hopefully free the London buyers up to start buying in the country again. With its comparative affordability combined with its excellent commutability, Suffolk is the destination of choice for many. This should help stimulate the top end of the market again as the £1m plus market has struggled since 2014 when the stamp duty thresholds were so significantly changed. And if our government is wise enough to announce a reduction in SDLT in the Autumn Statement, we could have quite a bit to smile about.

Caroline Edwards
Partner
Residential Sales, Long Melford
T: 01787 888622
E: caroline.edwards@carterjonas.co.uk

Rural Payments Agency Issues

Watching the Rural Payments Agency (RPA) fail to get to grips with outstanding problems that exist from the introduction of the new Basic Payment Scheme (BPS) in 2015 is like watching a slow motion car crash.

The problem is that although the majority of farmers have received the correct payments for 2015, there are still a significant number of farmers who have not received the correct payments and in some instances this also means they have not been awarded the correct number of BPS entitlements which will impact on the 2016 claim and beyond.

The problem is that there appears to be no way of speaking to anyone at the RPA with whom one can actually discuss the problem.  All one can do is write in to the generic email address explaining the problem and then wait…and wait….

Eventually a letter will arrive re-assessing the claim and in most instances this is probably correct but I have personally experienced one situation where the re-assessment is still very wrong.  All I have been told is to email in again and explain the same situation yet again.

The problem is that there is no one to talk to who you can discuss the situation with and there appears to be no way of influencing the speed at which the claim will be processed.  This is an increasingly worrying situation because the 2016 payment window will open on December 1st and any problems from 2015 will be carried forward for a second year thereby making things worse.

If this is the case the consequence is that it will become increasingly difficult for farmers who have outstanding issues to get them resolved because understandably the RPA’s resources will become focussed on getting as many of the 2016 payments out as quickly as possible.

NFU vice-president Guy Smith has commented, “The problem is that, although we think they [the RPA] are about to draw a line under BPS 2015 payments, we are not convinced that everyone knows whether they have been paid correctly,” He went on to comment that it needs, “the skills of a forensic investigator and the time of a land agent” to work out whether or not one has been paid correctly.

But as a land agent myself I think the main problem is that even when one has established there is an error there is just no way of discussing the problem with anyone within the RPA who has the skills or knowledge to deal with this issues themselves.

If this results in last year’s errors being compounded in to 2016 and beyond it seems very likely to me that we will be arguing about missing Common Agricultural Policy support payments well beyond our eventual exit from the EU.

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk

A Clearer View - September edition

Since the government implemented its Stamp Duty Land Tax ('SDLT') reforms in April of this year, applying an additional 3% levy to buy-to-let ('BTL') properties, many landlords are scrutinising their portfolios to ensure that their investments are maximised.

Navigating SDLT reforms, however, is a sensitive and complex manoeuvre, and often calls for expert advice. In this edition of Clearer View, we have invited the Tax Team at Price Bailey Property to share key advice for buy-to-let investors.

Company ownership for buy to let properties
Many of the country’s landlords are starting to question the fairness of the UK tax system following the introduction of tax changes in the buy-to-let market in April.

Despite the financial implications of the reforms, many landlords have not considered how they hold their interests in property and what this means for their investment. While owning property personally is simple and requires minimum fuss, for many individuals, it isn’t very tax efficient, and we are anticipating that post-tax returns on property investments could be lower under the new legislation.

Potential tax advantages
Income Tax on rental profits can be anything up to 45%, which seems a significant imbalance given that companies currently pay Corporation Tax at 20%. This already favourable rate will reduce progressively to 17% over the next four years and may even drop as low as 15% - a figure previously quoted by George Osbourne, the ex-Chancellor of the Exchequer, following the result of the EU referendum.  Therefore, if a landlord does not require rental profits on which to live, or if they are not being used to repay loan capital, establishing a private company to manage lettings portfolio starts to look attractive.

Furthermore, from 2017, loan interest will be restricted to Income Tax, but not Corporation Tax, further enhancing the appeal of the company model.

When residential properties are sold, individuals pay Capital Gains Tax (‘CGT’) of up to 28%, whereas on residential property gains, other than in limited circumstances, companies pay Corporation Tax at the lower rates mentioned above. In addition, companies are often taxed on a lower gain because they can claim an inflation allowance (known as indexation).

Shareholding and future planning
Corporate ownership allows a wide range of investors to participate as shareholders, rather than having direct interest in the properties. This also benefits Inheritance Tax planning, as assets can be passed to the next generation without having to transfer the property. For example, landlords can introduce their adult children as minority shareholders, or with generous grandparents, grandchildren can become shareholders, and dividends can be paid to them to fund school fees or other expenses, rather than grandparents paying out of their taxed revenue. Dividends can also be paid to the wider family group, which is likely to improve overall tax efficiency.

In summary, prospective and existing landlords should consider their ownership structure before making any further property purchases.

For those BTL landlords who own portfolios personally, it may be possible to move them into a new company structure; however, inadequate or poor advice could increase the risks of triggering high CGT and Stamp Duty Land Tax liabilities with no cash to settle them.

Price Bailey are a firm of chartered accountants and tax advisors who are experienced in this area, having successfully assisted clients reorganise BTL landlord property portfolios without incurring ‘dry’ CGT and SDLT charges.

Price Bailey are happy to give clients a free initial portfolio review to assess whether benefits can be had from the recent tax changes, as discussed above. Contact details can be found below.

Price Bailey Property Tax Team
Jay Sanghrajka
Partner, Head of Property
T: +44(0) 207 7382 7431
Jay.Sanghrajka@pricebailey.co.uk

Chris Hammond
Senior Tax Consulting Manager
T: +44(0) 1223 507 632
Chris.Hammond@pricebailey.co.uk

Lisa Simon, 

Partner Head of Residential Lettings

T: 020 7518 3234 

E: lisa.simon@carterjonas.co.uk

Basic Payment Scheme

West Country farmers and landowners are worried that the current level of cashflow coming from the Basic Payment Scheme will not be maintained after 2020.

They welcomed the announcement by Philip Hammond, the new Chancellor, that funding under the Common Agricultural Policy will stay - at least in the short term.

This appears to mean that the current level of payments being made under the BPS will be maintained until 2020, which coincides with the lifetime of this EU scheme. What is not clear is whether the domestic rules relating to this scheme will change following our departure from the EU.

Mr Hammond also confirmed that any structural and investment projects signed off before the Autumn Statement at the end of November, “even when these projects continue beyond the UK’s departure from the EU”, will continue to be funded. This should include all projects paid through the Rural Development Programme for England such as agri-environment schemes.

Again this is good news for farmers and landowners committed to long term agreements, many of which still have up to ten years to run. But what will replace these schemes? We need urgent clarity on the future of agri-environment schemes beyond November.

Unsurprisingly, Mr Hammond’s announcement was welcomed by leaders of farming and countryside organisations as good news for the short term.

A National Farmers Union statement said: “This should mean that farmers can count on receiving the Basic Payment Scheme through to 2020, and that agri-environment schemes already in place are guaranteed through to their conclusion,” while NFU president Meurig Raymond added: “I hope that this short-term certainty will help to deliver longer-term confidence. This is exactly what farm businesses need now.”

Similarly Ross Murray of the Country Land and Business Association (CLA) explained: “This will provide a significant degree of reassurance to farmers and other landowners across the country.

“We have been clear, since the start of the EU referendum campaign, that this is the first decision ministers had to make to reassure rural businesses in the event of a Brexit vote. It is therefore a strong signal that will give confidence to businesses considering their future in a difficult agricultural market.”

So, in the short term, this provides farmers and landowners some degree of certainty and gives government breathing space to develop UK agricultural policies which will be fit for purpose.

But it is a pity the government did not start planning for a post-Brexit vote until after the referendum.

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk

"Leaving the EU can be an opportunity for businesses across the countryside"

Agriculture looks worryingly neglected in North Somerset MP Liam Fox’s department created to win crucial trade deals following Brexit.

His new Department for International Trade has now announced all his ministers but none of their portfolios include a direct reference to agriculture.

The Country Land and Business Association has raised the alarm, pointing out that failure to secure strong trade opportunities for agricultural products will put UK food security and the environment at risk.

The worry is that agriculture will be treated as a low priority or may even be excluded from international trade negotiations.

In response the CLA has published a briefing which explores the opportunities for agriculture and forestry trade outside the EU and sets out the risks if trade declines substantially following Brexit.

CLA director general Helen Woolley said: "Leaving the EU can be an opportunity for businesses across the countryside. We have great entrepreneurs and great products. If the conditions are right we will thrive. But those conditions will not come about without careful planning and tough negotiations.

"Nowhere is that more the case than in agriculture. It is notoriously difficult to establish open trade deals for farming products. It is seriously alarming that no government minister has been given specific responsibility to deliver it.

“We now seek urgent reassurance that the government will deliver for our farmers and rural producers. We expect the Department for International Trade to start working together with us straight away and this is a terrible start.

“There are serious consequences if we don’t get this right. We could see food prices rising and the nation’s food security may be compromised. The environment could start to suffer and many farms and manufacturers could go out of business.

“Farmers and other food producers want to provide the country with a safe, secure supply of food. Land managers want to carry on their good work improving nature and wildlife, helping to tackle climate change and managing the UK’s distinctive landscapes.

“This is why it is so important that ministers assure us all that securing the best deal for food and farming will be a high priority and not an afterthought in their trade negotiations.”

The CLA briefing sets out the five objectives for a trade policy that will allow UK farmers and rural businesses to compete on an international platform.  These include:

•    Opening new markets
•    Growing existing markets at home and abroad
•    Delivering the best deals for UK consumers
•    Equipping businesses to compete
•    Improving farmer resilience

However, I doubt many of these goals will be achieved if there is no high level representation fighting for British agriculture in the international trade negotiations.

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk