Summer Budget 2015 – Landlords Reactions

I have sent the following letter to several letting agents that I know personally, asking them to forward it to their clients. I will send it to others later, and to other landlords that I know.

I sent it as an attachment: if I had put the text in an email they might have just forwarded it with my email address on it.

If you were all to copy me the message would be spread very quickly. I will post my covering email next.

Levy on landlords’ interest from 2017

The Chancellor announced in the July 2015 budget statement that in 202/21 he will disallow finance costs as a deduction in calculating our profit, and give a Tax “relief” of 20% of the finance costs as a deduction from the amount of tax payable.

This will only apply to people who bought in their own names, rather than through companies. It will be phased in over 4 years, starting from April 2017.

The effect of this change on someone who is already paying 40% now is that he will pay 20% of his finance costs in extra tax, or 25% if he is pushed into the 45% band.

Some people will pay tax at more than 100% on their real rental profit. Indeed, in the case issued by HMRC as an example, the extra tax payable by that landlord, who is currently in the 20% band, will be equal to 150% of his rental profit.

Finance costs are usually the biggest expense, and are deductible by any other type of business.

The Property118 portal is organising a campaign to try to stop this levy being applied to pre-existing mortgages. As yet, many landlords are unaware of what its impact will be.

Those who are in the 20% band think they will be unaffected, but this is not true, as even HMRC’s example showed. If the total of their gross income and their BTL finance costs is more than £43,000 they will pay more tax.

A spreadsheet is available to download from http://www.property118.com/new-landlord-tax-rules-for-new-debt-only/76750/#comment-59528

Landlords can use worksheet 6, called Calculator, to work out the effect that this change will have on them. They can change the red figures on the top 3 lines simply by inserting their own. There is no need to change the red figures for tax bands.

The top line is not just for salaries, it is for all gross income apart from property. The second line is for rental profit before deducting finance costs. The latter go on the third line.

If you have any questions, please direct them to Property118 – you will find the answers there.”

Reply to the comment left by "Mark Alexander" at "23/07/2015 - 19:26":

Tried a few times to be devils advocate and draw balance in this thread without success.

Still think this has change been done to reduce the leverage options and large debts highlighted on this forum. A HRT gets little sympathy from the public. And a HRT who is a landlord even less.

There are definitely some qwerks eg impact on means tested benefits, CSA payments, allowable pension contributions, lending criteria need thinking through by the government and u hope they do.

Fight the fight but if anyone owes over £1m and waits for sympathy from the general public....they will have a long wait. Borrow that money - take the risk - and as with anything - tax, legislation and rules can change.

My brother in law employees 45 staff in his factory and still can't believe my 'modest' 900k debt level - he thinks it's massive. He also can't believe my priority has not been to repay what I owe.

If the government protect 'old loans' against the changes the argument is we will keep that borrowing outstanding whilst new borrowing is repaid. So maybe they protect them for a 10 year period?

It's not right - never said that....but my plan has change. I see how quickly a change like this causes an issue for me...so I will protect myself now and sell 2 before we get there.

I know that is not something everyone can do....and for those I will continue to fight.

Reply to the comment left by "Appalled Landlord" at "23/07/2015 - 20:19":

This is the covering email:

"Hi

I am writing to ask you to spread the message about a disastrous budget announcement.

The Chancellor announced in this month’s budget statement that in 202/21 he will disallow finance costs as a deduction in calculating our profit, and give a tax “relief” of 20% of the finance costs as a deduction from the amount of tax payable.

Some people will pay tax at more than 100% on their real rental profit. Indeed, in the case issued by HMRC as an example, the extra tax payable by that landlord, who is currently in the 20% band, will be equal to 150% of his rental profit.

This measure will drive landlords to sell up, which will reduce the number of properties available to rent.

The attached letter describes the problem and what landlords can do about it. Property118 portal is organising a campaign to try to stop this levy being applied to pre-existing mortgages. As yet, many landlords are unaware of what its impact will be.

Would you please send a copy of this letter to your clients to make them aware of the threat, and of what they can do about it before it is too late. They will be able to download a spreadsheet so that they can calculate the effect themselves.

If they have any questions, please direct them to Property118 – they will find the answers there.

Kind regards"

Reply to the comment left by "Mark Alexander" at "23/07/2015 - 19:26":

I suppose if the proposed taxation measure is amended so that is NOT applied de facto ‘retrospectively’ as planned, then the treasury could (1) Still restrict PRS growth if that’s their end goal by applying to new BTL purchases only (2) Avoid a lot of chaos in PRS with LL bankruptcies, repossessions, tenants becoming homeless, upward pressure on rents etc?

An alternative view

Could an argument be made against individual landlords that a ltd company only obtains tax relief at 20% because that is the rate of tax paid by the company and then any tax taken out of the company is taxed at a marginal rate or as dividend income?

Also to increase support would it be worth targeting the housing offices of local authorities on the basis if this does go ahead tenants will be served notice, properties will be sold and they will see an increase in demand for non existent council properties - government may be more willing to listen to them

Reply to the comment left by "Appalled Landlord" at "23/07/2015 - 20:19":

Fantastic idea, I will do some this weekend to agents in Norwich.
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Hi Mark. We'll have to agree to disagree - which is bound to happen now and then as we've all got varying views.
I'd go with the idea of the highly unjust measure being applied retrospectively (new rules for new debt/property purchases) at a later date, once all other avenues have been exhausted. I don't believe we're anywhere near that and I don't believe the ideas are deeply entrenched in central Government.. On the contrary, I think this has been a very quickly conceived plan, ill-thought out.. And I think that the more people who realise the actual devastating consequences of it on all levels, the better chance we have of stopping it.
I'd like to see hundreds of thousands of landlords sign the e-petition when it eventually can start as well.
So, as I said I would like others to give their ideas on what would be good questions for my MP to ask which expose the injustice of the proposal and, at this stage, aim to get it overturned. In a way, the answers given might not be as important as that the questions have been asked. And my questions are just a quick draft I did - I'm sure others can come up with more concise and piercing questions for the Treasury. As someone said at the meeting yesterday (or the day before) 'it's not an economists' budget' - i.e. the economic basis of the implicit arguments behind the proposal aren't very clever.
As for the business versus investment debate, I don't think that's a non-starter either. If that were the case why aren't limited companies also included if they do identical work? So the move is definitely discriminatory. Also, what about the case in the video you posted a few days ago, where the couple's property business was deemed by a judge to be a business? I'd like to see exactly how it is defined as an investment in statute and tax law, and if it is like that, why has it not been treated like that up to this point? I think there are more questions to ask about a lot of this.
[And I've got no idea about dividends, so maybe you can explain this a bit?]
Also, are you sure that the BoE recommended this specific proposal? I thought Carney's comment just days before the budget was general and did not specify how to go about dampening down BTL (but I can't remember exactly what was said)

Guys, may I make humble request that, as I requested before, please avoid to mention LTD companies, as I have previously mentioned this may draw Osborne's attention and consequently he may single out properties held in LTD companies which will have exactly same result as properties held in individually .

Therefore please, do not keep mentioning in letters to Osborne or in this forum...leave companies out I can assure you that, this will be way out for buy to let landlords if this tax gets implemented.

That's without transferring properties into LTD company...there is a way out.

"LEAVE LTD COMPANIES ALONE AND DO NOT COMPARE THEM WITH PERSONALLY HELD MORTGAGES" as Osborne is unpredictable.

For avoidance of doubt all my properties are held on personal name.

Reply to the comment left by "Ros ." at "23/07/2015 - 20:43":

I seem to remember reading this week on one of these threads that the Bank of England wants to rein in BTL because of the danger that in a downswing, landlords would exacerbate a price crash buy selling into an illiquid market. I question this assumption.

When the sales market died in August 2007 the BoE Bank Rate was 5.75%. My partner and I were making losses but we had to grin and bear it because not enough people were buying, due to lack of confidence and a lack of available lending.

People even became reluctant landlords because they had to relocate without being able to sell. Others became accidental landlords through inheritance. This increased competition forced rents down.

Admittedly, this squeeze caused some landlords, who did not have enough resources, to have property repossessed. However, I do not think the price fall was caused by many people selling cheaply. They fell because of a dearth of buyers. Both experienced landlords and reluctant/accidental landlords held on to their property because they knew that prices always recover, then go on growing.

Since that time rents have increased. Mark Carney has indicated that BR will not exceed 2.5% in future, and that it will take a long time to get there. So I do not envisage landlords making losses, and if they did, they will have built up savings to withstand them. What kind of catastrophic downswing does Mr Carney envisage, I wonder?

Reply to the comment left by "Appalled Landlord" at "23/07/2015 - 21:31":

The one which could follow the Summer Budget of 2015 perhaps?
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