Landlords lose and whiplash gets cracked in Osborne’s autumn budget

Landlords lose and whiplash gets cracked in Osborne’s autumn budget 

Backtracking on the contentious cuts to Working Tax Credits caught the headlines when Chancellor George Osborne delivered his Autumn Budget statement, alongside a boost to building and good news for first time buyers. 

The Chancellor announced the allocation of £4 trillion of public spending over the next four years, with an £8 billion reduction in borrowing now being forecast and a predicted surplus of £10 billion by 2019-20. 

In a package of measures designed to help with housing, Mr Osborne announced a doubling of the housing budget to £2bn a year, to fund 400,000 new affordable homes by the end of the decade, to both buy and rent.  Help to Buy has been extended with restrictions removed on shared ownership schemes, so more people can get on the housing ladder.  There’s also a new Help to Buy equity loan scheme that will give London buyers 40% of the home value from early 2016, doubling the 20% offered under the current scheme.

But for second home owners and landlords looking to add buy to let properties to their portfolio, the Chancellor dealt another blow by announcing a massive 3% extra levy in land tax stamp duty on such purchases with effect from April 2016.  The money raised will be used to fund investment in local communities.   This follows on the heels of his last Budget when he announced that there would be a cut in tax relief on mortgage interest for landlords.  Tax relief is set to be gradually restricted to the basic rate, currently 20%, where landlords had previously been able to offset mortgage interest against top rates of tax.  The shift was to tackle what the Chancellor called an “unfair advantage” for landlords over homeowners.   

Landlords have been in the Chancellor’s sights for some time, with high levels of buy to let pushing up house prices and reducing affordability for first time buyers.  Buyers of second homes will also be caught by this new rate of stamp duty on their future purchases.  With the policies he set out today, it’s likely to reduce some heat in the housing market, once the new stamp duty level kicks in.

The other sting in the tail for landlords and others making capital gains is the shift towards faster digital taxation processes.  Mr Osborne has ambitions to build one of the most digitally advanced tax systems in the world and one result of this will be faster collection of capital gains tax, which is payable on any gain made by a landlord or second home owner on a property when they sell up.

The Chancellor also announced that people will no longer be able to get cash compensation for minor whiplash claims, in a crackdown designed to cut the number of fraudulent claims and likely to lead to reduced motor insurance premiums.   Instead, such injuries are expected to go to the small claims court with the upper claims limit increased from £1,000 to £5,000.

Underused courts will also be closed, saving £700m which will be used towards the introduction of new technology into the court service.

Web site content note: 

This is not legal advice; it is intended to provide information of general interest about current legal issues.

 

Property prices help fuel family inheritance court battles

Property prices help fuel family inheritance court battles  

 

Rising property prices are helping to fuel increased numbers of inheritance disputes reaching the courts, with second marriages another major contributory factor. 

Such challenges are no longer the preserve of the wealthy, although they continue to feature highly.  Recent cases hitting the headlines have included the family fall-out following the death of the billionaire owner of Sotheby’s, Alfred Tauber, through to a court case over a £600,000 estate destined for good causes, where the will was unclear.

The trend towards higher numbers of inheritance disputes has been attributed to a number of factors.

As in the case of the billionaire Alfred Tauber, who died earlier this year, the rise in divorce and second marriages is behind a growing number of children and step-children, and first and second spouses, warring over estates.  For the second Mrs Tauber, a marriage lasting over 30 years was not enough to protect her from a lock-out of her apartment in London’s Mayfair, as the children of the property tycoon’s first marriage took action to remove valuable artworks from the flat. 

And the rise in property prices has meant there is often more at stake, and families are more inclined to take the costly step of litigation and get the matters before the courts, if they feel they have been unfairly treated.

Earlier this year, estranged daughter Heather Ilott won a share of her late mother’s estate in a landmark ruling.  Her mother expressly excluded her daughter, choosing to leave her £500,000 estate to animal charities.  An eight-year court battle saw the daughter, who had run away from home to get married at 17, finally win a one-third share of the estate, on the grounds that her mother had not made adequate provision for her, as her circumstances were such that she would be in a position of poverty, reliant upon state benefits. 

The ruling focused on the lack of connection between the late Mrs Jackson and the animal charities named, as she had not been a regular supporter or shown interest in such causes during her lifetime. 

The implications of the ruling are that it may prove harder for parents to disinherit children in future, unless they have strong grounds for doing so, and strong links to the alternative beneficiaries.  It has long been the case that a spouse or financially-supported child could challenge the will if they were excluded, but this ruling, and the sum awarded to the daughter, suggests a shift in approach by the courts.

Another factor contributing to the rise in inheritance disputes is the rise of online and ready-made wills, as well as clerical errors in word-processed documents, leading to challenges on the grounds of lack of clarity of intention.  The sort of difficulties that can arise were highlighted in the recent High Court ruling in the case of the late Mrs Harte, whose will was unclear as to the charities she intended to benefit from her estate and how exactly it was to be divided.   The causes were identified by recognised registered charity numbers, but the names did not match up, and the way the estate should be divided and distributed was described in different ways, with different terms being used interchangeably adding to the confusion. 

A similar case reached the Supreme Court recently, when Alfred and Maureen Rawlings inadvertently signed each other’s will, but the error didn’t come to light until after they had both died.   The wills were identical, so-called mirror wills, leaving all to each other and to the same beneficiaries if their spouse died before them, but with the respective names changed to suit.   When Mrs Rawlings died, as property and assets were owned jointly they simply transferred to Mr Rawlings as the survivor, so the problem did not come to light until he died.   The Supreme Court decided that the wills could be rectified to reflect the intentions of the couple, and should stand as though they had each signed the correct will.  

The ruling broadened the idea of what constitutes ‘clerical error’ meaning more such errors may be able to be corrected in future and was a landmark in how the Courts will interpret wills, making a shift towards that applied in commercial contracts, by trying to identify the intention of the person who made the will. 

International mobility is also playing a part in the complexity of managing estates, where people have lived abroad during their career, or in retirement, as they may have assets which could be subject to the jurisdiction of the country where they are located.  If that’s not been addressed in estate planning, it can give rise to outcomes that were not anticipated, such as where a country’s laws may insist on property passing down to family members in a particular way.  

In many cases the problem lies in lack of planning.  The number of instances where an off-the-shelf, pre-packed will is appropriate are few and far between.  It’s always going to be worth checking with a specialist to make sure that what you plan is right for your own unique circumstances.  Also, importantly, there will be corroborative evidence of your intentions that will be recorded and held by the professional drawing up the will, which can provide vital evidence if a case should reach the courts.

To make a claim under the Inheritance (Provision for Family and Dependants) Act 1975, a claim must be made within six months from the date of the grant of probate. For cohabitees, they need to show they were living with their partner throughout the two year period before they died, in the manner of a spouse or civil partner.

 

This is not legal advice; it is intended to provide information of general interest about current legal issues.

 

Landlords must act to avoid ending up in hot water over heating supplies

Landlords must comply with the introduction of individual metering and charging on communal heating and other forms of heat networks

Landlords operating a communal heat supply have until December 31^st to comply with regulations which introduce new responsibilities on how services are metered and charged. 

The regulations apply to any type of building where the building is heated, cooled, or supplies hot water from a central source. 

Technical details of the heating system or network must be reported to the National Measurement & Regulation Office no later than 31^st December this year, and where applicable metering equipment must be in place by one year later, 31^st December 2016.

Landlords will have a duty to install and maintain meters to monitor individual consumption, unless they can present a good case to show why it would not be feasible or cost-effective.  For new buildings, meters must be installed from the start.  

The aim is to increase accountability and understanding of individual energy usage and once meters are fitted, all invoices for heating will have to charge for actual usage and present the customer with accurate consumption information. 

Our property legal expert Vanessa Johnston explains: “Getting the initial technical information and reporting is not a quick fix and it’s important that landlords take action sooner rather than later.   If they fail to comply, it will lead to compliance notices and possibly financial penalties.”

The Heat Network (Metering and Billing) Regulations 2014 have been introduced in the UK in response to the European Energy Efficiency Directive.

The types of buildings affected include those with a central boiler serving more than one customer, or a heat network where a boiler is shared with other buildings. This could involve anything from small residential or commercial developments through to blocks of flats, university campuses and shopping centres.  

Web site content note: 

This is not legal advice; it is intended to provide information of general interest about current legal issues.

Property owners win and lose in Osborne’s first fully Tory budget

Property owners win and lose in Osborne’s first fully Tory budget 

Action towards a new living wage caught the headlines as Chancellor George Osborne delivered his first Budget statement under a Tory majority, alongside good news for families who want to pass on their property wealth to future generations. 

The Chancellor announced that economic growth forecasts would be held for 2015 and 2016, but gave a prediction of increased GDP in 2017 to 2020, up from 2.3pc per year to 2.4pc per year.  Growth is also expected to accelerate, from 2.2pc this year to 4.4pc in 2020.

Under the Chancellor’s plans for employers to pay a living wage, to reduce the burden on welfare support for low earners, employers will have to pay staff a minimum of £7.20 an hour from next April, and continue to raise wages by some 6% each year to reach a living wage of around £9 an hour by the end of this parliament.

For homeowners, as widely reported in advance, the Chancellor gave a much-hoped for hike to the threshold at which people pay inheritance tax on the family home.  By 2017, a married couple or civil partners will have a combined allowance of £1 million, up from the current level of £650,000, with a resulting saving of inheritance tax of £140,000 at the maximum level.  A single person will have a £500,000 allowance, up from £325,000, giving a tax saving of up to £70,000.   People will also be allowed to sell a larger house, but retain the relief from inheritance tax, in a move designed to encourage down-sizing and free up larger properties by older owners. 

Inheritance tax will continue to be charged at a rate of 40% on the value of an estate above the tax-free threshold and the additional allowance is for family homes. It will be introduced at £100,000 in 2017-18, rising by £25,000 in each subsequent year, to reach the £175,000 level in 2020. High values estates will not qualify for the additional relief, which will be tapered away for estate values at between £2m and £2.35m

The news on inheritance tax was not so good for non-domiciled residents, with the announcement that it will be payable on all residential property they own from April 2017, regardless of their tax residency and even when the property is through an offshore company or partnership.

Said private client expert Richard Knight of Gamlins Law :  “A review of inheritance tax thresholds has been long awaited and this is good news for middle England who have seen the values of their family homes rise considerably over recent years.  They will now have more to pass on to their children.”

He added:  “As this is going to be a gradual change, those with estates in excess of the current £325,000 per person threshold should still be working with their advisors to see how best to manage and mitigate values.  And for those with estates over £2m, the agenda of lifetime gifts and other means continues to be worthy of consideration.” 

There was good news also for people who rent out a room in their home.  Tax is not currently due on the first £4250 of rental income, where it has stood for 18 years, but this will increase to a tax free allowance of £7500 from next year. 

But there will be a cut in tax relief on mortgage interest for landlords.  Currently, property-owning landlords can offset mortgage interest payments against the top levels of tax they pay, meaning the wealthier landlord can claim tax relief at 45%.  From April 2017, the tax relief will be gradually restricted over four years to relief solely at the basic rate tax rate, which is currently 20%.   In announcing this move, the Chancellor said the current system gave landlords an “unfair advantage” over homeowners.  It is also seen as a response to the Bank of England’s warning last week that the high levels of buy to let were inflating house prices and reducing affordability for first time buyers.