As you walk from one spot to another or busy with your head buried on that computer you keep trying to decide: is 2011 the year to buy that house, should I wait a little more and see if prices would fall further? The figures are a little too fuzzy at the moment to really make a sound choice.

Figures readily available show that houses are at their lowest prices in seven years in the U.K as in many other parts of the world; this is owed to low interest rates and drastically falling house prices (see http://www.citywire.co.uk/money/house-prices-fell-in-snowy-december-surveyors-report/a463745). The uncertainty lurking around is not whether the prices would rise anytime soon, it’s a question of how much lower can they get?

The contraction in the economy of 0.5% in the fourth quarter of 2010 was a surprise to many following the release of GDP figures (see http://citywire.co.uk/money/gdp-shock-scotches-early-rise-in-interest-rates/a465629?ref=citywire-money-latest-news-list). These figures don’t look like they would change this first quarter of 2011, but another three months of negative growth would officially welcome a double dip recession.

If you ask me, I’ll say the U.K government would do everything possible to avoid that. So where does that leave us? If you buy before the new figures are published in April you might be smiling to the bank when prices go back up, otherwise you might spank yourself for not holding on long enough to benefit from further price crash.

So the choice is yours – a bit risky I must say. Even speculators and forecasters are at a loss here as per what might happen in the housing market in the next few months. My candid advice – a little wait won’t do you too much harm! 

Sequel to my assertion last November (follow link here: Tenant Demand Hits Record High) that the demand for rental property is hitting a new high, reports just coming in this year confirms that there are indeed far more people willing to rent than buy properties.The global economic crunch and its slow recovery is really telling on people relocating for business, family, or academic reasons.

Landlords in the U.K are seriously taking advantage of this trend by hiking rents astronomically. The fear for tenants – or prospective tenants is not to fall victim to letting scams.It is common knowledge that when demand for residential or commercial properties is as high as it is now, some people that parade themselves as agents take advantage of the unsuspecting but desperate public.

This time would not be different unfortunately!The Association of Residential Letting Agents (ARLA) have taken note of this trend and are currently advising all prospective tenants in all U.K counties to be on their guard.

A little search on the prospective landlord is a good way to start off your rental search.Tenants are also advised to contract the services of a letting agent who is vast and well experienced in property search.

Considering the peace of mind you’ll get to enjoy eventually, the small fee you would pay this agent would definitely be worth the while.

Winning the rental bid would take a lot more than your money in this circumstance, so you need to be fully prepared in terms of your references, appearance, and other such pre-rental requirements. I wish you happy hunting and good luck on your quest!

According to the Royal Institution of Chartered Surveyors (RICS), 2011 may just be the turning point in the U.K housing market. RICS spokesperson Jeremy Leaf and others in the know believe that springtime would usher in this relief or turnaround.

According to him, ‘although bad weather hit the housing market during December 2010, sales levels have remained stable. While lack of supply, and more importantly demand continues to impact heavily, surveyor sentiment does appear more positive for the coming months’

The West has maintained its leading position in the world thanks to the ability of statisticians and forecasters to use past and present situations to correctly analyze the future. Governments in this part of the world rely heavily on these forecasts to plan and design their policies.

The National Association of Estate Agents (NAEA) is the leading center for all Estate Agents in the UK and a recent publication of this body shows that 59% of agents polled agree that there are more tenants seeking rent in the first two weeks of 2011 than would normally have been seen before.

Of the 700 polled, about 26% said the level remains the same while a minute 14% say it is worse than before. Added to that, a huge 45% of NAEA members are also reporting an increase in the level of inquiries from potential property sellers.

These are important improvements over the last few years and indeed show strong confidence in the rebound of the housing market.

Economists, statisticians, and forecasters are being vindicated again and again after predictions of hard times for citizens living in urban cities during the end of the recession. Everybody seems to be affected one way or the other; even landlords with high valued properties are not insulated from this trend.

Problem 1: More tenants are offsetting rent with credit cards. More and more tenants are finding it difficult to put food on the table, pay their kids’ school fees, and pay the rent at the same time. A clever method is now to use credit card funds to settle the rent. This is quite dangerous and leaves the landlord at a disadvantage. Tenants under stringent financial pressure are more or less using one form of debt to cover another putting the landlord at risk when the time to settle the mortgage arrives.

Suggested Course of Action: Landlords should take precautionary measures to protect their business interests by reducing the likelihood of being exposed to arrears by referencing prospective tenants and consider additional protection via a rent guarantee policy to safeguard them in the event that their tenant loses their job or suffers any other major change in their financial circumstances

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In 1999 when I got my first buy-to-let property I made the decision that I wasn’t going to let to LHA (Local Housing Allowance) tenants.

The simple reason for this was because, at the time, I heard that if a tenant hadn’t been entitled to any benefits and the rents had been paid to you (the landlord) directly, then you were liable to pay everything back. This made me run a mile and suffice to say I never considered the strategy again.

However, I do now know landlords who run very successful property businesses concentrating on this strategy so I know it works, but it still wasn’t for me; I’ve just concentrated on professional lets.

Until now!

I had a tenant who moved into a property over 12 months ago. Unfortunately their business succumbed to the economic climate and now they have become LHA tenants. As a result of them receiving the allowance directly, they’ve not been passing it on to me so hence have fallen into arrears.

Now, if you do let to such tenants and if they fall into a minimum of two months’ arrears, you can contact the local authority and ask for the rent to be paid directly to you.

This is exactly what I did.

As soon as the tenant was two months in arrears, I called the local authority and they asked me to provide proof that the tenant was in arrears. I said ‘No problem!’ and they said you’d be surprised at how many landlords don’t have such proof readily available.

I opened up Landlords Property Manager, ran the ‘Tenant Payment History’ report and emailed it over to them along with a copy of the AST.

Here is a sample of the report right here…and it was generated at the touch of a button.

>>> http://www.propertyportfoliosoftware.co.uk/Tenant_Payment_History_Report.pdf

This report and my short email managed to initiate a response within 24 hours where the local authority said that they would now be paying the rent directly to me. Result!

Why am I sharing this report with you?

Well I was just seeking some advice from the NLA’s advice line and they said it was the first time they had heard of someone getting such a fast response from the local authority.

I am certain it was down to the documentation I sent them and the Tenant Payment History report,
which shows exactly how the arrears stand with the tenant.

Feel free to re-use this template. If you’re dealing with LHA tenants who decide not to pass on the rents to you, then I hope it gets you as fast a result as it did for me.

Alternatively you can go here to learn more about how our award winning software can make your life easier and help you to get better organised in 2011. This is a sample of just one of the many one-touch reports it generates…

> http://www.propertyportfoliosoftware.co.uk/landlords_property_manager_professional.prod.html

Happy investing
Amer Siddiq

On December 9th 2010, (just before the latest round of Bonuses in the City) draft legislation dealing with Disguised Remuneration was released. This is widely and comprehensively drafted with the clear intention of preventing the 50% income tax rate being sidestepped by the use of Bonuses routed through Employee Benefit Trusts (“EBTs”) and Employer Funded Retirement Benefit Scheme (“EFURBS”).

These Solutions were converting large Bonuses (taxed at 50%) into loans taxed on the Employee at low or no tax rates (depending on whether interest was being charged, or not). They were also popular with Footballers, Entertainers, Computer Contractors and other High Earners, including those running profitable private Companies.

The HMRC projections are that the new rules will bring in about £500 million a year in extra tax but the real loss currently is probably far higher, at closer to £2 Billion. Such was the popularity and frequency that EBTs and EFURBS were being used.

The new rules now bite on any means of paying or rewarding Employees through Third Parties with rewards or recognition by way of assets or loans; called a “relevant arrangement”. The rules then attack a Third Party taking a “relevant step”. Another key phrase is “Earmarking” when (however informally) funds are allocated or set aside for the benefit of an Employee or someone “Linked” with them.

These terms and the scope of the rules (including exclusions which appear to require a whole raft of detailed conditions to be met to qualify!) have already been the subject of much speculative comment and pronouncements as to their scope and meaning. In fact, the reality is that until the consultation period ends and the legislation is sharpened to eliminate some errors and extreme drafting, nobody should take any action going forward.

It does seem fair to conclude that using EBTs and EFURBS in the future will be only for large Companies and a few whose facts and needs fit the new rules. As vehicles for straight income tax avoidance, they will have limited scope.

For many in the City and other High Earners, this will be the last straw. With the US extending its low rates of income and capital gains tax for another 2 Calendar years at least; those in the City who can, will now consider moving. Avoiding the UK 50% income tax rate is still possible, but the choices are now very limited and the EBTS and EFURBS solutions which offered near instant access to Bonuses at a very low tax cost, has clearly gone. Although alternative Solutions may be emerging (in my view prematurely), it is clear that anything that attempts to mirror EBTs and EFURBS will be subject to possible retrospective legislation. The scene is therefore set for a large exodus from the City that only a return to the 40% income tax rate can prevent!

Not wanting to be a Scrooge (in this Season) there is unfortunately more bad news in the December 9th 2010 announcement.

Conventional wisdom on tax schemes (as espoused by tax product sellers) is that the fact there is a cut-off date in the legislation, demonstrates that the scheme works, up till then!

Well for EBTs and EFURBS that may not be the case! In the HMRC documentation there is an overt threat to pre-December 9th 2010 EBTs and EFURBS.

“Some types of transaction which will be chargeable to tax under this measure (including the earmarking of funds held in a discretionary trust) are not accepted by HM Revenue & Customs (HMRC) as effective in avoiding tax under the present law. HMRC will continue to challenge such transactions under the present law, including in litigation where necessary.”

Having spoken to HMRC they were keen to mention that this may apply to some Pre-December 9th 2010 EBTs and EFURBS.

HMRC’s argument (and they acknowledge there are counter-arguments) is that once funds are placed in any sub-trust or allocated unconditionally for the use and benefit of the Employee, they become income subject to PAYE and NIC’s.

They also consider that by analysing any of the steps in an arrangement, if the intention is clear to place money unconditionally in the hands of an Employee, then this falls within the RAMSAY Principle as set out in IRC v Scottish Provident (2005) STC15.The leading House of Lords decision.  They have been buoyed by their recent First Tier Tribunal success in Aberdeen Asset Management Plc v Revenue & Customs [2010] EWCA Civ 1255.

This case was argued in the Scottish Tribunal.  It dealt with a convoluted scheme “The Discounted Option Scheme” using an EBT and various options and further sub-trusts to award large bonuses to the key Employees at Aberdeen Asset Management Plc.  Using the RAMSEY Principle of purposive  construction and analyzing the particular facts, the Tribunal held that the sums in the Scheme were allocated unconditionally for the use of the Employees and therefore subject to Income Tax and National Insurance Contributions.

There were other arguments raised including a Decision on valuation of Company Shares subject to Option (that may have far-reaching consequences to other tax planning).

This contrasts with other previous occasions HMRC argued these points before the Special Commissioners in the Sempra Metals case (see my previous article INCOME TAX PLANNING AND OSBORNES’S FIRST BUDGET). Their arguments were dismissed on both of the 2 points above. The case was settled before an appeal could be heard in the High Court. Sempra Metals was distinguished in the Aberdeen Asset Management Plc case because the terms of the sub-trusts and the loans meant the funds were not allocated unconditionally to the Employees.

In the end, it is clear HMRC are going to group together many different types of EBTs and EFURBS (where loans and benefits have been paid pre-December 9th 2010). Many Employees will therefore face a lottery, depending on the exact nature of the way their particular trust was set up and operated. Those who have purchased Disclosed Schemes from tax product sellers will be in my view, most at risk!  This is highlighted once again by the decision in Aberdeen Asset Management Plc where the operation of the Trusts and Companies was felt to be lacking any independence.

CONCLUSION

Once again, tax planning and what is effective has been demonstrated as an uncertain science. Who gives the advice and how it is implemented are now critical to having any chance of success. Any advice must be objective and independent, setting out to the users, both the risks as well as the potential benefits. There may well be restructuring opportunities for some, (if and when) HMRC’s approach to particular EBTs and EFURBS becomes clear.

In the meantime, Companies using EBTs and EFURBS users and beneficiaries should consider seeking independent advice.

Landlord-tenant relationship can easily go sour when both parties fail to understand each other. Allowing a tenant the use of your property even when he/she owes some arrears can be a tricky situation to handle especially if the tenant has always been good and timely with the rent.

As is the situation in every sphere of life, there will always be some bad eggs that would contaminate the whole crate. Landlords in the U.K are becoming more cautious and wary of tenants owing many months of rent or mismanaging the property due to the weak laws that attempts to protect the tenants’ rights of occupancy and not the landlord’s right to evict as may be necessary.

Right of access to your property in a situation where the tenant has violated the contract is not clearly stipulated in tenancy laws. Present eviction laws would normally take months – and free usage of the property by the tenant while the landlord is made to suffer for it.

That may not be the case any longer if steps being taken by the Landlord Action and backed by the Landlord Association and RLA is anything to go by. When the new law(s) goes into effect, county courts and other such courts would deliver judgments in such cases quickly and landlords would get injunctions to eject the erring tenant much faster.

This is indeed a good development for landlords – whether single-property owners or large estate owners. Local councils should, at this juncture, work with landlords and help sensitize tenants about the consequences of not paying rent on time or not using the property accordingly. All in all, only time can tell how this new legislation would affect all parties involved.

Since the resurgence of world economies from the ashes of the global economic recession a few weeks ago, there seems to be a steady increase in the price of almost everything. January 2011 would be remembered for many years to come as “the month that commenced the increase in food, fuel and other sundry prices long after the recession.

Rent is not left out in this ugly phenomenon. UK landlords have begun raising rents on their properties since 2010 and experts predict that this trend would gain momentum in 2011 – and possibly beyond if something urgent is not done.

You would agree with me that the “Liberal-Democratic-Conservative” marriage in the centre of governance have – to a large extent, added more burden to the life of the ordinary UK citizen. One of the most striking examples is the massive hike in the fees university students are required to pay.

In October 2010, rent monitor website: “This is Money” reported that rents had hit an all time high, with the average tenant paying £689 a month. And that average is far outstripped in London, where average rent is £972.

A recent poll by buy-to-let specialist, Paragon Group has revealed that 41% of the landlords it polled are planning to increase rents during the next 12 months, while only 4 percent are considering lowering rent in 2011. Nigel Terrington, chief executive of Paragon, which polled 182 landlords, said: ‘Landlords are in a strong position. Tenant demand has risen faster than supply during 2010 and that is expected to continue well into 2011.’

So, is it the fluctuation in the demand-supply curve that is responsible for this, or the global trend, or even the government’s insensitivity to the plight of the people it has promised to serve? Your guess is as good as mine considering the steady rise of rent over the years.

The implication of this for tenants is very obvious. There is unfortunately, no increase in wages in all sectors in the UK – at least for now. With the general increase in the cost of fuel, education, food, and now rent, the common man on the street should better brace up for tough times ahead.

Big players in the landlord industry are keen to get some much needed advice out to their fellow landlords. Mainly this week it has involved the all important procedure a landlord should follow at the end of the tenancy.

I sympathise with landlords who are in a tearing hurry to be rid of some tenants but that is often when things go wrong. The other circumstance where landlords miss something is when the tenant has been next to perfect, it can be easy to get complacent.  That is why it is vital to make sure you have an end of tenancy procedure and stick to it rigidly.

In my opinion part of this procedure should be a meeting with the outgoing tenant at least a week before their departure.  This way you can discuss the standards that need to be met for return of deposit. You cannot move the goalposts from what was agreed when the tenancy started but you can gently remind the tenant of what you are expecting.

This often diffuses any disagreements.

Then make sure you meet the tenant on the day of departure and immediately return any deposit owed to the tenant.

Working like this is the best way to avoid confrontations and has worked on ninety nine per cent of occasions for me.

It is the question on everyone’s lips and with my ear close to the ground I am starting to hear things that make it seem the answer is a resounding ‘Yes’.

There are still only 300 BTL products available on the financial market at the moment which is a far cry from BTL’s hey day but the figure seems to be steadily rising. It is hard to believe that we will ever hit a point again like the heights of 2007 when the figure was more like 3000 products but I am not sure we need to.

 There are real signs of improvements on the lending front with rates falling and the number of lenders and products increasing.

This fact coupled with the strong demand for private rented housing is pointing to a huge come back for our sector.

The face of private rented housing may have changed forever and irrevocably after the last crash but change does not always have to be a bad thing. With the lessons professional landlords learned from the hard times, the private rent sector is promising to be stronger and smarter than it ever was.

I have a good feeling that the next few years are going to be a great time to be in our business.