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The taxman cometh.
Just like off-duty policemen always look like on-duty policemen, the taxman is the embodiment of the job it is his lot to perform.
And here he is looking at your buy-to-rent property.
The market has done well for you. And he wants his slice of the pie. He wants a big slice, too – a big greedy slice when you consider what he wants to take off you and yours in that inheritance tax when you die.
But what are the rules on buy-to-let tax? You need to be aware so you can play the game and not fall foul of the taxman and the law. (Tip: The trick with the taxman is to operate unnoticed – once noticed, you are a suspect.)
So here are the tax rules:
I said yesterday that I rather admired the bravado on display at Northern Rock as they continued to offer mortgages with high multiples of income and over the value of the security. But his story today shows that they've moved beyond bravado into the realms of pure stupidity:
There are lots of logical reasons why Northern Rock should push on – regardless of the growing criticism – and pay shareholders their interim dividend.For a start the cost of the 14.2p interim dividend is just £59m – "a mere drop in the ocean", as one Northern Rock adviser put it, given the £3bn that the troubled bank has had to borrow from the Bank of England to prop up its broken business model.
It is also reasonable to point out that the dividend was promised weeks before the bank was plunged into chaos and that it won't just be the board and senior management who miss out – small shareholders, frontline staff and pension funds will also be hit.
But the fact is that the Northern Rock situation is no longer about logic.
Quite what is going to happen to Northern Rock is as yet unknown. It seems pretty clear that it's not going to survive long as an independent business, that's for sure.
There's no way that the commercial paper markets are going to open up again for it, if, as and when, the Bank of England guarantee is withdrawn.
So that leaves only one of three options, someone else buys it, it goes bust or it is closed down in an orderly manner.
The thing is, there doesn't seem to be anyone who wants to buy it: thus there's going bust quickly or slowly:
Many people with spare cash have chosen to put it into property. It’s been a wise move, and buying-to-rent has been a nice little earner for landlords.
But signs are that over-supply is calming the market. In simple terms, the number of people renting their properties has risen faster than the number of tenants.
Savvy renters are getting a better deal. But buyers looking for new property can take advantage of these market conditions.
Many new developments in places like London are due to be finished this year or the next. The developers want to sell their new units as soon as they can. And news is that they will negotiate.
You really rather have to admire the bravado on display here:
Northern Rock stands accused of “reckless” lending after it emerged this weekend that the beleaguered bank is still offering mortgages of six times salary to potential borrowers.Despite provoking the worst banking crisis for decades, the bank last week offered a reporter posing as a first-time buyer a £180,000 mortgage even though he had a salary of only £30,000.
The loan was at least £30,000 more than other leading lenders were prepared to offer. Repayments for the loan would have accounted for more than 60% of the fictional buyer’s take-home salary.
The reporter, posing as another potential customer, was also offered a so-called “negative equity mortgage” worth 117% of the value of the property he claimed to be interested in buying. The mortgages offered by other banks to the same potential borrower were significantly lower.
Don't forget that this sort of lending is now being supported by the taxpayer's money: even if it is at a high interest rate.
As the Wall St Journal blog points out, Alan Greenspan has identified the true culprits in the current credit crunch.
...former Federal Reserve Chairman Alan Greenspan sharply criticized ratings agencies for their role in the current credit crisis. “People believed they knew what they were doing,” Mr. Greenspan says in today’s German newspaper. “And they don’t.”Still, he doesn’t think it’s necessary to strengthen rating-agency regulation. Essentially, they’re “already regulated,” he says, because investors’ loss of trust means the agencies are likely to lose business. “There’s no point regulating this. The horse is out of the barn, as we like to say.” Greenspan also said he believes that the volume of structured-finance products will decrease. “What kept them in place is a belief on the part of those who invested in that, that they were properly priced. Now everyone knows that they weren’t. And they know that they can’t really be properly priced,” said Greenspan.
Many of us when we hit eighteen look forward to drinking inordinate amounts of alcohol - legally – going to an 18-rated movie and legally do all those things that have been denied us for so long.
A few - let’s call them Paris and Tara – will have the added bonus of a call from their bank manager. “Hello,” he’ll say. “Since you are now of age, I am required by law to hand you the contents of an account set up in trust for you. You, my dear, are sticking rich. You lucky s**.”
Being the recipient of a trust-fund windfall, is something we cannot all be - but we can tell you what they are and why they are.
Pay attention. This is the last in our series on bonds, and we are looking at high-income bonds. Note the “high income” part of this bond’s name. Sounds tempting, and so it should as these schemes offer good returns.
But you have learnt that if it looks too good to be true it usually is, and the caveat to the high income is that your capital is linked to the stock market.
Know that high-income bonds are also known as precipice bonds. As in about to fall over the edge of a precipice.
You’re right-on. You’ve got a “Drop The Debt” T-shirt, two years on a kibbutz under your hemp belt and more cheap-yet-meaningful bracelets than Argos.
And now you’ve got a bank account.
Oh, the shame. But you need one of these instruments of capitalism because you are about to experience debt at close quarters. The maximum maintenance loan is £4,405. A year! Can you live off that?
To facilitate the debt you need a bank account. And that gives you access to an overdraft.
This is the amount of money you owe the bank. And because the banks know you are a student, and therefore cash poor, they can offer you a very decent rate.
The incredible thing is that because the banks see you as a future good earner they are fighting for your custom.
In our crash course on the alternatives to the stock market, we’ve already touched on bonds, namely guaranteed income bonds and premium bonds. We now look at a few other variants on the theme.
The first are distribution bonds. These are operated by life insurers and mix gilts with equities and corporate bonds. They can also involve commercial property, a boom sector in recent years.
The key thing to remember here is that you can lose your capital. But these bonds can offer some income and steady growth. At present, they are a decent investment, giving a yield of around 5%. Since your savings account is paying you around 4%, these bonds look attractive. And you may be getting next to nothing leaving your cash in some bank accounts.
And what is yield?
Because no-one is sure which way the stock market will jump, and savings are offering low returns, investors are looking ways to beat the market. It is impossible to give any definites, but you should at least be familiar with the options.
We’ve touched on the risky side of investing with spread betting, and now look at some safer options. One of these is a guaranteed income bond (Gib). These are run by life-insurers and not, as with your savings account, by banks or building societies. Interest on Gibs is paid net of basic-rate tax. Non-taxpayers cannot reclaim it.
