Summer Budget 2015 – Landlords Reactions

Reply to the comment left by "Mark Shine" at "29/07/2015 - 20:55":

In many ways, this new proposed levy will actively discourage non-incorporated landlords from converting IO mortgages to repayment. Personally I had already started the process of conversion to repayment. But in my case the levy will halt that in its tracks. It’s all down to affordability and cash flow.

Ironically the wealthier LLs (the ones who the govt are allegedly targeting with their LOL / Levy On Landlords), will find it easier to convert to repayment to mitigate the impact of this levy.

I was going to post a link to ltd company BTL mortgages @ 2.89%, but decided against it as I think it might slow down the post moderation process here?

Reply to the comment left by "John McKay" at "29/07/2015 - 20:42":

Hi John

It is impossible to overestimate the importance of the wording of a petition.

I was not expecting tenants to stumble across our petition. But when they are directed towards it I want them to be able to understand it, and see how it affects them. The current petition fails on both counts.

I don’t think any confusion that existing signatories might feel is insurmountable.

You still want us to get behind it and push push push, in spite of Mark Alexander asking us not to, and Ruhal agreeing to withdraw it and remove the link from Facebook, and Ros submitting hers instead?

Are you taking over this campaign?

Reply to the comment left by "Connie Cheuk" at "29/07/2015 - 13:08":

Connie...I commend your efforts to date ...together with the rest of the btl community on here....but let's get realistic...Most investors in the btl business make the majority of their gains not from profits but from the appreciation of their assets. (I've been particularly lucky this year and seen a six figure increase in my only property). Naturally that far outweighs any income I will earn from that asset. That's why in my eyes property is an investment and I certainly would not consider myself an entrepreneur because of that! No many other businesses would bother for the miserable ROCE (return on capital employed) that us property investors earn.

Yes, Appalled. We have a wide consensus here, and I am also unhappy at attempts to subvert it. I wouldn't personally do that as I believe in getting behind the consensus and we had a long consultation process here, meaning that the petition was the work of many different people here - the wording of the title came from you, as I recall and the rest was a combination of all the salient points we had made over a process of weeks. I would like John to stop and to get fully behind what we are all, Ruhal included, attempting to accomplish here - a petition that will get a million signatures - we should be aiming to get the most signatures on a petition in UK history! God knows how many that is - but so many people will be affected by this lunatic measure that it is achievable.

Reply to the comment left by "John McKay" at "29/07/2015 - 21:22":

Yes, and his name is on every page. Mark Alexander has adopted it, that is what I meant by “ours”.

Team,

Here is the latest version of the examples in the Q&A. This is a key part of the document and its important we take our time and put forward credible examples that support our position.

Example 1 is included to show that we understand that some landlords are not greatly affected.

Example 2 is included to show that large portfolio landlords who are highly geared are trapped and have no easy way out.

Example 3 is included to show that landlords have legitimate reasons for investing in property and these are the type of people that are being let down by the new tax proposal.

As always, I welcome comments. I will try to play about with the figures using a spreadsheet that actually works so that convincing (and credible) figures are included. If anyone with more expertise than me wants to have a go at this it would be very much appreciated.

One technical questions for the accountants. Is the Dave and Margaret example correct? Is it not the case they would lose their personal allowance and would face an even higher tax bill?

Proposed new text is as follows:

Example 1 : Joe is a teacher and is what is called an ‘accidental landlord’. He has only one buy to let property. This used to be his home but he let it out when he moved in with his partner Monica. Joe is a 40% taxpayer. His rental income is £7,200 per annum; his mortgage costs are £2,500; and his repairs and other tax deductible costs are £1,000. Under the current tax system, Joe would pay £1,480 tax. Under the proposed tax system, Joe would pay £1,980 tax, an increase of £500. For Joe, the new tax system still results in him making a ‘real profit’ but his effective rate of tax on ‘real profit’ increases from 40% to 53.5%.

Example 2: Dave and Margaret are a married couple. They operate a sizeable buy to let business. They have tenants who are professional people in employment but most of their tenants are in receipt of housing benefit. Their only source of income is from their rental business. Properties have been acquired over a period of nearly three decades. They have recently fixed their interest rate at 4.99% for 10 years to protect their business from risks associated with rises in interest rates. Their rental income is £600,000; their mortgage costs are £350,000; and their repair and other tax deductible costs are £200,000. Their net rental profit is £50,000. Their taxable income is £28,000. Under the current tax system, Dave and Margaret will pay £5,600 tax. Under the proposed tax system, because Dave and Margaret will not be able to offset all of their mortgage costs against their rental income, their taxable income will increase to £400,000 and the actual tax they would pay would be £77,800. This is £27,800 more than they actually make in profit from their rental business. Their effective tax rate on ‘real profit’ is 155.6%. Under the new system, Dave and Margaret are now higher rate tax payers. For Dave and Margaret, the Government’s proposal is catastrophic as their business is no longer sustainable as the tax they pay exceeds their ‘real profit’. Dave and Margaret are now very worried and feel trapped. Their once profitable business is no longer viable. If they were to look at selling their properties they would incur early repayment charges, incur selling costs, be required to pay a significant sum in Capital Gains Tax and repay their outstanding mortgage balances in full, the sum total of which would be greater that the proceeds of sale. They are responsible landlords and are concerned about what will happen to their tenants if their properties are repossessed.

Example 3 : Emily is a civil servant and has non-property income of £55,000. She started to invest in property to create an additional income stream to fund her children through university. Her rental profit is £25,000 and she pays £35,000 in mortgage interest on her rental properties giving her a total income of £80,000. Her total tax bill under the current tax system would be £19,500. This would increase to £26,500 under the new tax regime. Emily’s effective tax rate on her real profit of £25,000 will go up from 40% to 80%. Emily is now concerned that there is very little profit left after she pays her legitimate business expenses and higher tax bill. She is becoming increasingly concerned about risk, especially knowing that if interest rates go up very slightly, her once sustainable business will be making a loss because of the Government’s tax policy. This was not what she had in mind when she used all her savings to invest in property to fund her children’s further education.

p.s. I think it could be another late night for some of us!

Reply to the comment left by "James Tallis" at "29/07/2015 - 21:38":

James. You may not be an entrepreneur, but many of us are, myself and Connie included. And we work very hard in our businesses. Why do you have to try and get a dig at people while boosting yourself up at the same time? You seem to like an argument. But we haven't got time for that. We've got important work to do and could do without the distraction.
As I believe I asked you before: What have you done this week for the campaign against this illogical, discriminatory and unfair tax? Many of us can give a list of the constructive things we have done. What about you? And I mean concrete, useful things for the benefit of those on the forum who are facing financial ruin if this thing goes ahead.
BTL: your post just came up as I had written this. I do not want to distract from your excellent work. I read through it all this afternoon and it is going to be an excellent resource. Well done for putting in all the work. You are an example to us all. Thanks very much.

Reply to the comment left by "Appalled Landlord" at "29/07/2015 - 18:06":

Apples and eggs was my point. I was highlighting the difference that will be drawn when we try to compare our scenario with other businesses and their interest payments.

Not meant to be adversarial - and I don't blame the lenders for doing interest only, nor the borrowers or the government - the security is different to machinery. Just highlighting the uniqueness - and how that may be used as a rationale for treating them differently for tax purposes.

To contra this point I would then highlight that this change also impacts capital and interest mortgages too - which is a good comparison and draws a more clear unfairness.

I am not going to keep raising points otherwise it starts to feel like trolling and mindful this is viewed openly in 'other forums'.

I think we are pointed in the right direction with the actions being taken....just fine tuning thoughts for my own sanity and to give some challenge to our thinking.

Cheers.

Reply to the comment left by "Appalled Landlord" at "29/07/2015 - 21:33":

I'm a little surprised and disappointed by your comment AL. I was not aware that you or someone else has been voted in as a National campaign leader or manager by UK Landlords as a whole. I disagree with the amount of importance you put behind the wording of what Ruhal has written. Yes it would have been ideal to reword but there are now nearly 900 signatures on the petition and to take it down would have a very negative effect.

We agree that tenants will not stumble across the petition and as I have already said, I believe that they will find it because we have driven them there. Indeed the press will too in time.

I think you need to face reality in that it is too late, the petition is going viral amongst landlord forums. Wake up AL.

The existing petition is now up to 895 signatures. Still being shared on Facebook.