Summer Budget 2015 – Landlords Reactions

65% of LL considering raising rent

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Interim findings from a survey of landlords by the Residential Landlords Association (RLA) has found that 65% are now considering increasing rents as a direct result of the Budget.

The Chancellor announced earlier this month that Mortgage Interest Relief for residential landlords would be restricted to the basic rate of income tax.

Also landlords will no longer be entitled to an automatic entitlement to a wear and tear allowance for their properties, leaving them with no recompense for general wear and tear of a property.

Today’s findings undermine HM Revenue and Customs’ assessment that these measures will have no significant impact on rent levels.

As MPs prepare to debate the Finance Bill later today, and with the Chancellor also being questioned on his plans by the Treasury Select Committee, the RLA is warning that the basis of the Budget assumptions is wrong.

The Chancellor had argued that landlords are taxed more favourably than home owners. Both the Institute for Fiscal Studies and the Conservative’s favourite think tank, Policy Exchange, have warned that this is not correct. Unlike home owners, landlords are taxed on rental income and capital gains.

Commenting on the revelations, Alan Ward, Chairman of the Residential Landlords Association said:

“The reality is that the Chancellor’s belief that rental property is taxed more favourably than home owners is simply not correct.

“Rather than supporting the sector to provide the vital homes needed to support a flexible labour market, today’s Finance Bill will choke off supply and drive up rents.”

Mr Ward continued:

“The belief that landlords should be compared to home owners is like comparing apples with pears. The two are vastly different.

“It’s time the Treasury recognised residential landlords as a business.”

It is not too late to take the survey, so please visit it >>> here.

Reply to the comment left by "Lisa Stux" at "21/07/2015 - 11:37":

Hi Lisa.
You make a very good point. I'm getting some notes together exactly on this theme. There are all kinds of reasons why FTBs may or may not buy - these are not only economic; they can be practical, related to job mobility, sociological - as you describe, they make different decisions about how to spend their money than we did at that age and/or they may want to live in an area they can't afford (don't we all?); and they can be psychological - they don't want to be tied down etc.
If anyone can add some more ideas to this list - anecdotal is fine, that would be great.
But I believe this was a spurious 'justification' used to bring in the measure. If the Government were going to treat rental houses as the same as owner-occupied houses and create a 'level playing field' they would have to abolish capital gains tax for us at the same time. If, on the other hand, they are not going to abolish CGT for us, I'd say they are implying our business is not a business, and not the same as an owner-occupied house, but is rather a 'pure' investment.
So I believe the crux of our argument is not related to FTBs (although we should explain this as part of our argument). I believe the crux is that we must prove that BTL is a business and not a 'pure' investment. And I believe we CAN prove this and I believe it is what will get this thing overturned.
I have a new name for it, which I will be using on all my correspondence and suggest others adopt it if you agree. It is 'THE LANDLORD TAX.' We could coin this as it's short and snappy (like 'THE BEDROOM TAX') and it shows that we are being singled-out and discriminated against.
So, also any ideas out there on the distinctions between 'business' and 'investment' vis-a-vis BTL would be much appreciated.

Reply to the comment left by "Jason E" at "21/07/2015 - 11:15":

On Megan Shaw's example she does not add Rental interest onto Actual profit from rental business ! the only thing she does with Rental interest is deduct 20% from it .

Wow! Ninety nine pages - that has to be a record and has forced me for the very first time to have to skip reading all of the old messages before commenting so apologies if this has been mentioned before.

With respect to operating from within a limited company, and sorry that this is quite so vague so please correct me if I am wrong, but aren't there provisions for passing on the shares of a limited company upon retirement in a tax efficient manner which take the sting out of things like CGT & IHT and which therefore may be useful to anybody contemplating this route?

Very vague I know, so apologies and perhaps somebody who is a bit more clued up could offer a further detail or two?

Reply to the comment left by "Melvin Edwards" at "21/07/2015 - 12:34":

Hi

I was trying to show the the results in simple terms. Megan Shaw doesn't add the interest to the taxable amount, she just doesn't deduct it form your actual profit so your "profit" goes up by the amount of your finance and then this figure is added to your other income, tax calculated and then relief given. In this case you can get the same figure by adding your finance costs to your "actual profit" i.e. the taxable income has gone up by the cost of the finance. Here is the example so we don't have to keep clicking back. I think the point of this example was to show a basic rate tax payer who is now starts paying some tax at the higher tax band (even if they get the relief)

Jason

Before Restriction (16-17) £ After restriction (20-21) £
Salary 40,000 Salary 40,000
Property income 15,300 Property income 15,300
Less Other costs (3,300) Less Other costs (3,300)
Less Finance costs (10,800) Less Finance costs (0)
Property profits 1,200 Property profits 12,000
Taxable income 41,200 Taxable Income 52,000
Less Personal Allowance (11,000) Less Personal Allowance (11,000)
Tax due on 30,200 Tax due on 41,000
Tax at 40% 3,600
Tax @ 20% 6,040 Tax @ 20% 6,400
Total Tax 6,040 Total Tax 10,000
Less Finance Costs @ 20% (2,160)
Final Tax 6,040 Final Tax 7,840

I juat had the pleasure of reading (skimming) the Spending Review published by the Treasury today. Because it's about spending it doesn't mention stealing our money from 2017 onwards. However, it states that there will be an 'external engagement programme' in August, where they solicit the opinions of 'experts.' Well solicit our opinions too! They haven't even approached landlords about this as far as I know. I've heard nothing. I read a newsletter from the RLA where they met with an MP from the 'influential 1922 Committee' on 10th of July, before any of us really fully understood what the Landlord Tax (see, I'm using the new phrase) was. Crafty, I'd say. Apart from one MP promising to take it up (following on from the no-show breakfast meeting with Michael Gove), has anyone heard of any other MP promising anything? I've written 3 letters now to the centre of Government and still not had one reply (apart from a few automated responses).

Reply to the comment left by "Ros ." at "21/07/2015 - 12:32":

Hi Ros

If you watch this video you will get a taste of what we would be up against in terms of being able to convince the establishment that buy-to-let is a business.

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Reply to the comment left by "Badger " at "21/07/2015 - 12:35":

Hi Badger

With proper tax planning it is possible to gift shares in a limited company so that CGT can be deferred (not done away with altogether) and to also reduce the level of IHT.

You will need to speak to an accountant or tax profession to ensure that your particular circumstances are dealt with in the most tax efficient manner.

Reply to the comment left by "Jason E" at "21/07/2015 - 13:04":

Hi Jason

What you do not show, as it is not in every case, is that if the individual's family is in receipt of child benefit in the year, then, as the income subject to tax is now over £50,000, some of the child benefit will be repayable to HMRC as well.

This is in effect an additional tax meaning the actual amount due to be paid to HMRC is even higher than the £7,840 in your example.

This is post #1,000 on this thread in a week!
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