The economic situation over the past year or so has been difficult and words such as “credit crunch” are now quite common.

This has badly affected the housing market with sales declining.

Some people still have to move as a result of job changes or family circumstances.

But if they rent out their home, rather than trying to sell it in a depressed market, they have some opportunities to save tax while waiting for the housing market and the availability of mortgages to improve.

That is because there are a number of tax breaks available to the home owner who moves away and lets his home, and either buys another property elsewhere in the UK or rents.

Capital Gains Tax

The basic rule is that if the house you are leaving has been your only or main residence throughout the period of ownership, any gain in the value when you sell is exempt from capital gains tax (CGT) under the principal private residence rule (PPR).

Where you have vacated the property for a number of years, any gain in the last 36 months is also treated as exempt from CGT.

Some people are now having to relocate and, being unable to sell, are letting the property they have vacated.

If the property is let to tenants, and was previously the owners’ main residence, the owners should also qualify for another relief from CGT – lettings relief.

This could be available in any period where the house was not the main residence and does not fall within the past 36 months.

These two reliefs can be substantial.

How they work

Broadly, lettings relief is worked out to be the smaller of:

£40,000 or
an amount equal to the exempt amount for the owner-occupied period.
To understand how this works, take the example of a house you own and have previously lived in, but which you have been letting for some years.

You sell it this year for a total capital gain of £80,000.

Of that gain, £36,000 accrued while you were living in it, and in the three years after you moved out.

So that sum is exempt from CGT under the PPR rule.

That leaves £44,000 potentially still liable to CGT.

However that gain is reduced by the lower of:

£40,000 or
£36,000 (under the rule shown above).
Thus, in this case, the gain of £44,000 is reduced by £36,000 leaving just £8,000 liable to capital gains tax.

However, the CGT annual exemption will also be available if not used against another sale in the same year.

The exemption is currently £9,600, which exceeds the net gain of £8,000 in this example – so the result is that no CGT is payable at all.

The lettings relief is available to spouses and civil partners in respect of jointly owned property, so it could be worth as much as £80,000 per couple.

Income Tax

Income tax can be reduced too.

House sales may be falling but there is still demand for rental properties

Where a loan is secured against a rental property – typically a traditional buy-to-let – the interest on that loan is allowable as a deduction against the rental income received.

This means that the interest paid on the loan reduces, for tax purposes, the net rental income, and hence reduces the amount of tax payable.

Where an individual leaves his home, and lets it as discussed above, he would often like to buy a property in the area he is relocating to.

Obtaining a mortgage may be a problem in the current climate as he already has one on the home he is now going to let.

But if he is a good borrower with a good credit rating he may be able to persuade his lender to give him access to further funds, secured against the old property the family are leaving.

This may be sufficient in some cases to purchase a property in a lower cost area or at least give him a healthy deposit to arrange finance for the new property.

The tax benefit of taking out this new mortgage, secured on the original property that is now being let, is that all the interest paid on this second loan will be available to set against the rental income received for that property.

This means that he can release equity from his rental property to use to buy his new family home, or indeed for any other purpose as there is no restriction on how he spends the money raised.

Example

The reasoning behind this is that the letting of property is consider to be a business for tax purposes.

“Tax saving opportunities are available for those having to relocate and letting their old property”

The Revenue agrees that relief is due and the following example is taken from their Business Income Manual to illustrate how it works.

Mr A owns a flat in central London, which he bought 10 years ago for £125,000.

He has a mortgage of £80,000 on the property.

He has been offered a job in Holland and is moving there to live and work.

He intends to come back to the UK at some time.

He decides to keep his flat and rent it out while he is away. His London flat now has a market value of £375,000.

He renegotiates his mortgage on the flat to convert it to a buy-to-let mortgage and borrows a further £125,000.

He withdraws the £125,000, which he then uses to buy a flat in Rotterdam.

Although he has withdrawn capital from the business the interest on the mortgage loan is allowable in full because it is funding the transfer of the property to the business at its open market value at the time the business started.

So, tax saving opportunities are available for those having to relocate and letting their old property and these can be very valuable.

If in doubt professional advice should be taken to structure this correctly as it is sometimes difficult to change arrangements after the event.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.

News reported by The BBC

The government’s official statistics on property sales in the UK have been withdrawn from publication because they appear to be wrong.

The figures are published each month by HM Revenue & Customs (HMRC) for sales worth more than £40,000.

HMRC said that revisions to the previous months’ figures, going back to March this year, had cast doubt on their accuracy.

Figures for July were due to come out on Thursday, but have been postponed.

“Outputs obtained whilst updating the monthly series contained some significant and unexplained differences with the statistics published last month,” it said.

“All months in the statistical series are affected, with the differences showing falls in some months and increases in others,” it added.

“Our statisticians have come to the conclusion that something doesn’t look quite right,” explained an HMRC spokeswoman.

Sudden slump

June’s figures appeared to show that property sales had fallen that month to just 77,000.

That was a 45% drop from the same month last year, when 140,000 properties were sold.

This chimed closely with many other figures, which show that the market has gone through a sudden slump this year because of the credit crunch.

For instance, the most recent report from the Land Registry for England & Wales showed that sales in April were down by 39% over the previous 12 months.

The number of mortgages approved by lenders for house purchase was down by 69% in June, according to the Bank of England.

The HMRC house sales data which had been due out on Thursday will now be published on 21 September.

In May, another government agency, the Office for National Statistics (ONS), admitted publishing erroneous pension statistics.

News reported by The BBC

Property developer Brixton has said the commercial property market has become more challenging in the wake of the credit crunch and economic slowdown.

The industrial real estate specialist reported a pre-tax loss of £236.7m ($442.1m), compared with a profit of £191.7m in the previous year.

Investment profit fell 3.9% to £22.3m, but rental income rose 13.5% to £39.4m.

Shares in UK housebuilders Persimmon, Taylor Wimpey, Bovis, Barratt and Bellway all fell by close of trade.

Persimmon shed 8.1%, Taylor Wimpey fell 9.6%, Bovis declined 6.1%, Barratt slipped 8.6% and Bellway was 4.6% lower.

Persimmon is due to announce its half-yearly results on Thursday and they will be closely watched by the market.

Brixton’s shares fell 6% or 15.25p to 232.5p on Tuesday morning.

Brixton, which rents out industrial buildings and warehouse properties, said its first-half results reflected the uncertainties of the market.

It also said that since April, sentiment had worsened and there were indications of a downturn in activities.

Brixton, whose portfolio is largely concentrated in south-east England or near Heathrow Airport, said “potential near-term distress should bring opportunities” in the company’s specialist sector.

News reported by The BBC

The number of people instructing letting agents to rent out their homes rose at a record pace during the second quarter of 2008, as increasing numbers of would-be property sellers struggled to offload their home at a reasonable price.

According to the Royal Institution of Chartered Surveyors’ (Rics) quarterly residential letting survey, published today, the number of new instructions received by letting agents increased at the fastest pace in the survey’s 10-year history, providing the evidence that increasing numbers of homeowners are deciding they would rather rent out their property than sell it at a knock-down price.

Some 43 per cent of chartered surveyors reported a rise in instructions over the quarter, up from 30 per cent during the first three months of the year.

“The lettings market is booming, with many vendors opting to rent their property while sales in the housing market continue to dry up,” said James Scott-Lee, a spokesman for Rics. “Many are willing to ‘hold’ and await the return of capital appreciation. Becoming a landlord is now an increasingly profitable option with rising rents and yields offering good returns.

“Established investors have been reaping the benefits of the housing downturn for some time and will continue to do so in the short term. However, ever-increasing supply could have an impact on rental growth as tenant options increase.”

Property prices have fallen by almost 10 per cent over the past year, and much faster in some areas of the country, as the number of buyers has fallen sharply. Meanwhile, rents have been slowly increasing in most regions, improving prospects for amateur landlords.

However, the growth in the number of new landlords will put further strain on the buy-to-let mortgage sector, which is already struggling to meet demand. Bradford and Bingley and Paragon, the sector’s two largest lenders, have pulled back from writing any significant volume of new business in recent months, creating a glut of supply. According to Moneysupermarket.com, the financial comparison site, the number of buy-to-let mortgage products on offer has fallen from more than 4,300 to just over 300 over the past year, meaning only those with excellent credit records and a significant amount of equity in their homes are being accepted for new loans.

David Hollingworth of London & Country, the fee-free mortgage adviser, said homeowners need to think carefully before deciding to become an amateur landlord. “This is a drastic measure, and will usually result in taking on a much greater level of mortgage debt than originally planned at a time when credit is more expensive and not as freely available.”

“Borrowers need to fully understand the costs and risks that come with being a landlord before putting additional stress on their finances. Both properties are likely to be subject to larger mortgages, and payments need to be met whether there are tenants in place or not.”

The growing number of new amateur landlords has created a two-speed market, with many amateur buy-to-let investors now trying to exit the market in response to the collapse in prices.

Thousands who bought properties over the past few years are still struggling to generate enough rent to pay their mortgages – and are now facing even higher borrowing costs when they come to refinance. While they had hoped a continued rise in capital values would help them to achieve a profit, the collapse in the market has encouraged many to sell.

Meanwhile, the number of landlords defaulting on their mortgages has risen sharply over the past few months, and Bradford & Bingley has predicted that the market may only get worse during the second half of the year.

News reported by The Independent

Having previously tried to resist market forces, property sellers have begun aggressively to cut the asking prices for their homes, according to the online estate agency Rightmove.

After months where asking prices moved down by much less than the actual prices agreed on property deals, householders slashed the asking price of the average British home by 2.3 per cent last month – a drop of £5,403. In London, the discounting has become even more marked, with asking prices down by 5.3 per cent last month alone, representing a reduction of £21,000 in the four weeks to 9 August, said Rightmove in its latest survey of the housing market.

The 2.3 per cent fall in asking prices represents a significant quickening of pace on the 1.8 per cent and 1.2 per cent drops in the preceding months, and is the largest fall Rightmove has ever measured in August.

Miles Shipside, commercial director of Rightmove, said: “Sellers coming to the market in the middle of the summer holiday season tend to be more motivated. London, in particular, appears to be having its own special summer sale.” Prices in the capital are 3.8 per cent lower than last year, compared with 4.8 per cent nationally.

Rightmove said that national asking prices reached a peak for the year at £242,500 in May, compared to selling prices, as measured by the Halifax and Nationwide indices, which peaked last autumn. The catch-up is attributed to “some discretionary sellers choosing not to enter the market, leaving a higher proportion of forced sellers who price more aggressively”, said Rightmove.

Such anecdotal evidence is supported by the most recent survey of the housing market by the Royal Institution of Chartered Surveyors, which also detected an increasing number of distressed sales, especially in the south and East Anglia. The number of new mortgage approvals, says the Bank of England, is down 70 per cent on last year.

The latest survey also confirms that business is extremely slow for estate agents. Rightmove says that the average unsold stock of property per estate agency branch has increased again to new record levels: in spite of the low supply of new instructions, it now stands at 78, up from 77 last month: Mr Shipside said this indicates that the number of transactions will continue to be at historical lows.

“The number of transactions this year is in danger of being the lowest since 1959. This raises serious questions as to whether any short-term incentives by the Government or the Bank of England would be effective in speeding up the market recovery against the backdrop of the global problems of the credit crunch.”

Meanwhile, a separate survey published today found that more than £18bn of equity tied up in buy-to-let properties will be cashed in over the next few years, as Britain’s private landlords sell out of the sector in their droves.

The insurance giant Skandia said the total buy-to-let mortgage stock will reduce to just £44bn within the next few years, as thousands of landlords sell up and pay off their loans. Last year, buy-to-let mortgage balances topped £120bn – a rise of more than 20 per cent on the previous year and some 60 times greater than the £2bn which was outstanding a decade ago. By the end of 2007, private landlords represented one in 10 of all UK mortgages, up from well under 1 per cent back in 1998.

Nick Poyntz-Wright, chief executive of Skandia UK, said: “Higher mortgage rates and falling property prices will cause investors to reconsider their exposure to residential property, and many will choose a more diversified approach.”

News reported by The Independent

The Spanish housing market is close to collapse, prompting fears the country could go into recession.

The property market’s growth in recent years had given Spain’s economy a boost, but now inflation and a lack of growth are taking their toll.

Steve Kingstone reports from Madrid.

Click here to see the video on Spanish property crisis

If you are looking for a holiday home on the French Riviera, the stock of available properties just got smaller.

With grounds so grand that it takes a reputed 50 gardeners to tend them, the Villa Leopolda in Villefranche-sur-Mer has been snapped up by a mystery Russian billionaire.

Built by King Leopold II of Belgium in 1902, the sumptuous villa has been graced by world leaders and superstars.

The previous owner, the late banking billionaire Edmond Safra, is said to have entertained Ronald Reagan and Frank Sinatra there.

With the credit crisis causing turmoil in the world’s financial community, and property values falling generally, you would expect the price to have tempered a little.

“The increase in the mega high net worth individuals globally is on a march” Jonathan Hewlett, Savills estate agents

But no, the mysterious buyer is expected to hand over a whopping 500 million euros ($736m:£397m) for this luxury home on the Côte d’Azur.

Hotspots

It is all down to a shortage of supply and rising demand from rich business people, according to luxury estate agent Jonathan Hewlett, who has recently sold a London pad for more than £100m.

“The increase in the mega high net worth individuals globally is on a march,” the Savills director told BBC News.

“And they are very specific about where they want to live.”

Central London and the French Riviera are the current hotpots for Russian buyers, according to Mr Hewlett.

With the recent surge in commodity prices, there are still people in the market looking to purchase a very exclusive address, he added.

The Villa Leopolda price-tag smashed the previous record of £117m ($217m), which Britain’s richest man Lakshmi Mittal reportedly paid this year for a home on London’s so-called Billionaires Boulevard close to Kensington Palace.

But even the latest record may not last long. Asia’s richest man, industrialist Mukesh Ambani is expected to move into the 27-storey property he has built to house his family and offices in Mumbai next year.

With a value reported to be up to $2bn, the design was said to have be inspired by the Hanging Gardens of Babylon.

News reported by The BBC

The cost of new fixed-rate mortgages became cheaper in July, the Bank of England has confirmed.

Its latest figures show that the average rate charged by lenders on a new two-year deal, for someone with a 25% deposit, was 6.36%.

That was down from an eight-year high of 6.6% in June.

In the past month all the big lenders, and some smaller ones, have been cutting their rates to try to attract new borrowers.

It is the first time since February that the average cost of these mortgages has fallen.

That trend continued last week with further small reductions by the Abbey and the Halifax.

Risk

It is one year since the start of the credit crunch, which has caused an unprecedented contraction in the UK mortgage and housing markets.

As a result, the cost of borrowing to buy a home is significantly higher than it was 12 months ago.

The financial information service Moneyfacts said that interest rates, and the fees demanded by lenders are higher, while borrowers now have to put down much larger deposits.

“The standard factors which usually determine the rates at which mortgage rates are set, including bank base rate, swap rates and Libor rates are all much lower than this time last year, yet the rates on offer are much higher,” said Michelle Slade of Moneyfacts.

“As house prices continue to fall and the risk of default increases, the lenders are pricing more for risk,” she added.

Despite last month’s modest retreat in borrowing costs to the public, the average rate being charged on the popular two-year fixed rate deals is still at its highest since the summer of 2000.

“It will be a while before lenders regain a healthy appetite to lend, with the maximum loan-to-values on offer largely determined by the future decline in property values,” warned Ms Slade.

News reported by The BBC

An estate agent has come up with a novel way to help potential buyers secure a share in the housing market.
Customers can part-exchange anything from a car to jewellery in order to get a step on the property ladder. Alex Bushill reports.

Click this link to watch video clip on the BBC