SCOTTISH TAX CHANGES FOR 2019-20
A few weeks ago (in post from week #44) I summarised key points from the budget. Scotland has devolved tax raising powers and the draft budget for 2019 was published on this week on the 12th Dec.
Here are key points for property investors living in, and those investing in Scotland:
#Income tax
You may be aware that a new five-band regime came into force earlier this year, for this budget the finance secretary has decided to maintain the current rates. (see tax table attached)
He will increase the starter and basic rate thresholds by inflation in a move designed to help the lowest paid.
However, the Scottish higher rate threshold has been frozen – unlike in the rest of the UK where the threshold will go up to £50,000 from April next year – which Mr Mackay said would raise an extra £68m in revenue. In other words, those earning £50K in Scotland will be paying the higher rate of tax (41% in Scotland) on £5,570 while the rest of the UK will enjoy the lower rate on those earnings up to £50,000.
#Other taxes
This next one will have a costly impact on Scottish Property investment:
The replacement system for stamp duty in Scotland (Land and Buildings Transaction Tax) is also being revamped with the amount that buy-to-let investors or holiday home buyers pay on a second residential purchase going up from 3% to 4%.
The Scottish government’s Small Business Bonus Scheme is maintained, while the non-domestic poundage rates paid by businesses will see a” below-inflation increase”.
Local authorities will once again be allowed to increase council tax levels by up to 3%.
#Government Spending
Support for business comes in the shape of £5bn commitment for capital investment to be spent on modernising Scotland’s infrastructure, including a new £50m fund for regenerating run down high streets. – That will be some encouraging news for those looking at commercial investments next year and beyond.
Bear in mind these are draft proposals and the SNP will need majority agreement for all of these to go through, so watch this space.
OTHER UPDATES
#Lender eases rules for landlords
I saw an article that The Mortgage Works (TMW) have softened the financial tests it applies to assess whether landlords are capable of meeting repayments, even if interest rates go up. Typically lenders use 5.5% for the stress test however TMW have reduced the that to 4.99% for this with a 25% deposit and for those with a 65% deposit it will drop to 4% for the stress test. TMW have also launched a products to allow longer periods of fixed rates ie 5 yrs and 10 yr fixes.
#HMO Licensing (rest of UK, not Scotland)
Many of you will know that from 1 October 2018 mandatory licensing of HMOs was extended so that smaller properties used as HMOs in England which house 5 people or more in 2 or more separate households will in many cases require a licence.
New mandatory conditions to be included in licences were also introduced, prescribing national minimum sizes for rooms used as sleeping accommodation and requiring landlords to adhere to council refuse schemes.
It seems like some local authorities are much more on top of the new licensing than others.
I understand from my agent in Doncaster, where I have an HMO (that is now licensed), that there have been Council representatives researching and surveying the area and noting all non-registered HMOs. There are potentially as many as 1900 properties that need a license, but don’t have one. For those who ignore the licensing there are 2 levels of prosecution – on the agents and on the landlords.
On the other hand I’ve read articles (YPN) highlighting that many local authorities have failed to meet their obligation to inform landlords about the changes in legislation and don’t have in place a system for dealing with mandatory licensing.
Meeting minimum room sizes:
As I have read and understood it, each local authority has the power to grant some time for landlords to bring their properties into line with new minimum bedroom sizes. This period does not kick in immediately from 1st October 2018 but rather it begins when a new or renewed license is needed from the 1st. I believe legislation allows up to 18 months to make the changes but this time will only be given where there has been an established tenant/s in place. In other words, it’s one to discuss and agree on a case by case basis.
SOME CERTAINTY IN UNCERTAIN TIMES
I saw some of Martin Lewis’ Money programme this weekend and something he said struck a chord which I’ll try to paraphrase, “Everyone wants certainty in these uncertain times but the only thing that is certain is that fact that these uncertain times will continue for some time.”
So what can the property investor do with that knowledge? Yes we can understand what is happening around us but we must ignore worrying about externalities and focus on what we can control ie saving for deposits, making sure you can service borrowing costs etc.
If you are an investor waiting to see if interest rates on borrowing will come down, Lewis reminds us that interest rates are at near all time lows, and while there’s not much room for them to drop, there’s lots of room for them to go up. So you may as well go ahead and lock in the best rate you can for a fixed period.
I often make reference to Darren Hardy and he also reminds us that ‘you can only control the controllables ie you can’t control the economy but what you can control is your own economy. You can’t control how the government is running the country but you can control how you run your house. So stop paying attention to what you can’t control or it will control you. Focus your mind on what’s right in the world and what’s possible for you.”