Managing director John Heron says: Our customers have told us of their need
Posted in General on 26. Aug, 2010
Managing director John Heron says: “Our customers have told us of their need for a Buy, Develop and Refurbish package to take advantage of the growth of the lettings market. Hopefully this special package for investors in the private rented sector, together with the new tax allowances and VAT rates, will bring more of the existing housing stock into use.” However, this product is not aimed at the new investor. Paragon will only lend where there is evidence of previous successful development, saying that refurbishment projects require experience to be handled effectively. Even where a loan is approved, development finance will only be released as the work goes ahead.But the potential further expansion of the buy-to-let market has been welcomed by the Association of Residential Letting Agents (ARLA). Spokesman Malcolm Harrison says: “It should bring more housing into the private rental sector and should certainly encourage more good quality property into the sector.
But there is a lot of small print for people, which they should read carefully. This should open up more housing and be worthwhile for landlords who do it.”Ironically, moves to open up the market to refurbish properties coincide with measures from the Inland Revenue to tighten up tax regulations that will discourage landlords from carrying out improvements to homes. Landlords have been advised by the online home improvement service Improveline that they only have until 5 April to carry out repairs that contain an element of improvement, if they wish to offset the costs against their rental income.”Currently, if you replace a broken boiler with an energy efficient heating system, for example, the full cost can be offset against rental income, but from the end of the current tax year this benefit will only apply to the cost of the actual repair,” explains Phil Smith, managing director of Improveline.This view is endorsed by John Battersby, a tax partner with KPMG. He says: “There is a detailed change which has been known about for a couple of years. There has always been a problem about what is a repair and what is an improvement. Landlords are allowed to deduct repairs, but not capital expenditure.” From the new financial year, the Inland Revenue will use a stricter interpretation of what is the precise definition of a repair.”After that you will need to decide for yourself under self-assessment whether you think something is allowable or not,” adds Battersby. “The Inland Revenue don’t penalise you if the improvement is simply the result of changes in technology If you replace pipes with better pipes it is still a repair.
But if you have only got single-glazed windows and you replace them with double-glazing this is an improvement, not a repair. If windows are broken it depends on what you replace them with whether they are a repair or an improvement.”The advice from Improveline is for investors to make intended improving repairs before the end of the tax year. It adds, though, that they should not to rush into using cowboy contractors which it believes account for as much as 20 per cent of the sector. It has therefore produced an online directory of trusted contractors who trade legitimately..