Transferring your home to your children might seem like a smart move to avoid inheritance tax or simplify estate planning.
However, this decision often leads to significant tax implications and other financial pitfalls that can outweigh the perceived benefits.
(Read Time: Approx. 4 minutes)
Topics Discussed:
- The overall shift in rental market dynamics, from private landlords to institutional investors.
- How tax and policy reforms are reshaping the property sector.
The Evolving Rental Market
The Retreat of Private Landlords
The landscape for private landlords has dramatically shifted in recent years.
Factors contributing to this trend include the removal of tax relief on buy-to-let mortgages and the introduction of a 3% stamp duty surcharge on second homes in 2016.
These changes have made property ownership less appealing for individual investors.
Charlie Bryant explains, “The potential returns from alternative investments, such as bonds or equities, have outstripped those from rental properties.
This shift has made owning a rental property less attractive for individual private landlords.”
Rise of Corporate Landlords
As private landlords exit the market, institutional investors are moving in.
Pension funds and private equity firms are investing heavily in the build-to-rent sector, developing large-scale apartment complexes that offer economies of scale.
This model is already prevalent in the US and Germany and is rapidly expanding in the UK.
According to JLL property consultants, the number of build-to-rent flats in the UK has increased from 7,200 in 2015 to over 90,000 today, with another 90,000 in the pipeline.
Labour’s Housing Policy
The Labour Government, led by Sir Keir Starmer, plans to overhaul planning rules to facilitate the construction of 1.5 million homes.
This initiative is expected to benefit corporate build-to-rent investors who can manage large developments efficiently.
The Labour Government’s focus on building a variety of homes, including social and affordable rent, is seen as crucial to addressing the housing shortage driven by high levels of immigration.
Challenges and Solutions
Regulatory and Tax Reforms
Post-financial crisis regulations, such as limits on lending multiples, have made it challenging for first-time buyers to secure mortgages.
There could be reforms that would consider rental payment histories in mortgage applications, potentially easing the path to homeownership.
Additionally, the traditional home-buying process in the UK, characterised by complex and often collapsing chains, needs streamlining.
Bryant suggests that the Government should introduce rules to shorten transaction periods and enhance transparency through broader access to Land Registry data.
The Future of the Rental Market
With the shift towards corporate landlords, the rental market is set to evolve further.
Build-to-rent developments are likely to play a significant role in meeting the UK’s housing needs, particularly in light of Labour’s ambitious housing plans.
This model promises more professionally managed rental properties, potentially improving the quality of rental housing.
Summary
The era of the private landlord in Britain appears to be waning, replaced by a new wave of corporate investors in the rental market.
As tax hikes, mortgage rate increases, and regulatory challenges drive individual investors away, institutional investors are stepping in to fill the gap.
At Tax Expert, we have over 30 years of property tax experience, and have witness a number of changes in the market over that time.
If you own property or are planning to invest in the property market, keeping aware of these changes and adapting to them is crucial.
Our expert property tax planning services can help you maximise your investment returns and stay compliant with evolving regulations.
Contact us today at info@taxexpert.co.uk, or fill out our form here to find out how we can help you adjust and adapt your tax strategy.
For any questions, please give us a call at 01772 788200, or message us on our WhatsApp for out of office hours.
Kind regards,
Ilyas Patel