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UK Budget Effects on HMO Investing
Budget tax saving back door left open for HMO landlordsToday saw George Osbourne deliver the Budget, here are some of my thoughts on how it will affect HMO investing in the UK.In a Budget that offers little for HMO investors, Chancellor George Osborne may just have left a back door open a chink to help landlords.In his hour-long speech to MPs in the House of Parliament, Osborne did not mention landlords or property tax.The big taxes stay the same – with no movement on stamp duty or capital gains tax.The good news was the personal tax free allowance for income tax increases to £10,000 from April 6, 2014, so no one pays any tax on the first £10,000 they earn.Corporation tax will align with income tax from April 1, 2015 – at 20% – which means the Chancellor inadvertently confirmed the basic rate of income tax will not rise before the next general election.But that chink of light at the back door may be the new Employment Allowance. Employer Allowance for landlordsAimed at helping small businesses and entrepreneurs create jobs, the allowance exempts the first £2,000 off employer’s national insurance contributions (NIC) for every company.So, if you run HMOs through a company and employ a non-shareholder or property owner, your business should qualify to benefit from the allowance.This follows the general rule that allows property investors to employ partners and family members, providing they are not property owners – and then deduct their wages as a business expense from rental profits.If the Employment Allowance deduction applies as well, that means a saving of £2,000 on their NIC bill that stays in the business and can translate in to profit.The nitty-gritty of exactly how the allowance will work and what, if any, exemptions apply, has not yet been published by the Treasury.However, the scheme does look like a way of helping landlords retain some extra money in their businesses.“For the person who’s set up their own business, and is thinking about taking on their first employee – a huge barrier will be removed,” said Osborne.“They can hire someone on £22,000, or four people on the minimum wage, and pay no jobs tax. It will become available in April next year once the legislation is passed.” Help To BuyOther than these tax changes, the big Budget news was Help To Buy, a government initiative aimed at freeing up the housing market by injecting public money to guarantee deposits for first time buyers and movers.The reason Help To Buy has come about is down to the banks. Despite siphoning billions from quantitative easing, borrowing is tough for many potential homebuyers as the banks are sitting on the cash.Their problem is many can afford a mortgage but cannot raise the 25% cash deposit to buy a home.Help to Buy is trying to bypass the lending pinch point by providing funds to help borrowers raise deposits as shared equity or mortgage guarantees.Whether the scheme will work or not depends on banks and building societies. Government cash will ease lending restrictions, but whether the money available is enough to make a real difference to the market remains to be seen.Nick Fox (HMO Expert)