STAYING on the theme of earlier blogs around the Summer Budget 2015 affect on landlords, I am writing today about how landlords can raise rents fairly to cover the new tax burden due to come in to play in 2021.
On my own seven properties I will need to pay a further £2000 tax in today’s terms in 2021. That’s £24 extra per month per property than currently being paid.
But to make it properly cover all costs, I need to add 40% to that figure as I will be further taxed on this additional rent charged. That makes the total I need to charge £2800 or £33 per month per property.
Adding inflation over six years on a compound basis at 2% means that will be £36.80 extra per month per property in 2021 for me to maintain current earnings levels.
The good news is I have six years to implement this rise and I will start immediately at the next rent reviews. My view is to raise the rent to the required level earlier than six years away, by adding £10 per month per property each year.
I am confident that my tenants can take this sort of raise as it will be phased in and gradual. The cost of £120 per year is a lot less than the cost of moving house, referencing, and other costs associated with moving. And my properties are already competitively priced for the current market, it is not like there is a similar house for a lot less rental available nearby, all are within a similar price band, some more and some less. So £10 per month per year is not going to make a massive difference.
I haven’t factored in any natural market raises in this time either. If the market rises by a conservative 5% in the next six years on a £500 rental, that alone would allow a £25 increase in rent. I may well implement that rise as well, but will watch the market carefully. I expect rentals to increase by a significant amount as we draw closer to 2021 as the supply of private rental sector homes either drops or rental charges escalate as landlords look to insulate themselves from the tax changes.
It is this logic that more than anything allows me to remain a confident landlord despite the new tax laws. The burden is going to fall on the tenants whether they like it or not, they are the big losers here, not landlords.
Despite all of this, I do not feel confident enough right now to invest further into the property market because I think starting today with the new tax laws, rising property prices and spectre of increasing interest rates, being a private landlord is less attractive now than at anytime in the last 20-years.