Summer Budget 2015 – Landlords Reactions

Guys this is really simple:

George Osborne has changed tax policy to discourage BTL investment and in turn promote 2 other things:

1. Owner Occupation
2. Productive Business Investment

First - the government wants to promote owner occupation. Why? Because it brings stability. Homeowners buy furniture, fridges, ovens, lawnmowers etc. Homeowners improve their properties over time and generally maintain a higher standard of housing than landlords. They run for council offices, they join school boards, they volunteer. All of these are good things, and homeowners do a lot more of them than renters. Some of that is because of natural variations in life stages - middle-age married people vs. young and single, but renting delays people settling down and getting married, and regardless of age, does not promote stability and community ties.

Second - the government wants to promote more productive business investment. Ultimately that means companies that are creating valuable intellectual property and/or innovative products, creating new jobs, and exporting. That's what makes the country richer, it's that simple. The UK operates in a global economy and other countries are furiously working on doing these things - we have to compete. Even amongst a whole load of decent businesses providing decent jobs the thing that counts the most by far is being a net exporter. That's what truly matters to the UK economy.

So where does BTL fit?

BTL adds very little to the country's economy. You may gain, but the country doesn't. I would guess the job creation and employment taxes paid by a BTL landlord per 100K of turnover are an order or magnitude lower than in other small businesses. That's not much good. That's then compounded by you reducing and/or deferring taxes in a way that is not at all useful for the Treasury. And you don't export anything - you can't. All the "we provide a valuable service" talk is a smokescreen - in BTL you keep a disproportionately high amount of the gains, and pay a disproportionately low amount of tax versus other business endeavours. Stop and think for a moment and I'm sure many of you will recall that's why you got into it in the first place.

I'll be perfectly honest, I setup a business, I work ridiculously hard, and I find it incredibly annoying watching people make money passively through BTL and contributing next to nothing to the country's finances. I put £50K of my own money into a business that employs 7 others in a highly-skilled area, and approximately 1/2 of our turnover is derived from services to US companies.

Surely THAT's what George Osborne wants?

When I think of the money sitting around in some of your bank accounts or the equity that could be freed up to invest I think of all the new jobs that could be created and the innovation and exporting that could come from using that money in more productive ways and it irks me to know it's not doing any of those things.

So - if you've got a decent amount to invest and you want to look for good, productive, tax-advantaged investments, why not look at where HMRC does in fact encourage you to invest?

There are some excellent tax breaks available for investment into startups and small businesses:

https://www.gov.uk/seed-enterprise-investment-scheme-background
https://www.gov.uk/government/publications/the-enterprise-investment-scheme-introduction/enterprise-investment-scheme

(you may want to look at the "qualifying trades" part to see what kinds of businesses HMRC likes and doesn't like)

If you feel like getting started:

http://www.ukbusinessangelsassociation.org.uk/
https://www.seedrs.com/

(no, I'm not affiliated)

In summary - you've had a good run. The rules have changed. It's now time to restructure, sell some or all of your properties, and invest in more productive parts of the economy. Many of you should be sitting on some healthy gains from this good few years you've had, meaning you have a good amount to invest - those who don't, well you've been doing something wrong. So what's the problem?

Reply to the comment left by "Mark Alexander" at "04/08/2015 - 07:36":

Setting rents which are not at the absolute maximum a tenant can afford is in itself a form of prudence, but knowing what a tenant can afford (or is willing to pay) is not easy.

I rented in the past and the letting agent issued a notice that rent would be increased by something like 10%. At the time we had been great tenants for around four years and had no rent increases and were paying at least 10% under market rate. I refused the increase, on the basis I thought the landlord would back down rather than go back to unreliable tenants, voids, and general hassle. I was right. In total we were there for seven years with no increases and left when we wanted to. Tenants do have leverage, it's just that most don't use it !

Reply to the comment left by "Mark Alexander" at "04/08/2015 - 07:45":

@lisettestux

Not quite sure how to use Twitter properly...but I'll give it a go.

Reply to the comment left by "David " at "04/08/2015 - 08:13":

That's a fair point, it's also the reason I've not bothered my tenants with rent increases, some for 10 or more years.

However, since I took on my tenants the demand for rental property has increased. Tenant referencing and RGI has also improved. Therefore, the risk of rental voids is much lower now if my tenants do decide to move on as a result of a rent increase.

Previously I have only tended to reset rent to market levels between tenancies but the Budget proposals have forced me to reconsider that strategy.

My tenants have a similar dilemma. If they move house what sort of landlord will they get? It is expensive to move, it can be unsettling for children if they have to move school and very few landlords think as I do in terms of allowing tenants to keep pets. What if they move and end up with an accidental landlord who decides to sell up in six months time? Maybe they will end up with a landlord from hell, the type who never fixes things and just lets themselves in to check up on their property.

The risks cut both ways.
.

Reply to the comment left by "David " at "04/08/2015 - 08:13":

"knowing what a tenant can afford is not easy."

It is.

Credit check; bank statements; credit history; type of employment; length of employment; security of employment; employers reference; pension; pay slips; outstanding debt; credit cards; benefits; children; likelihood of children; age of children; all previous landlords; RGI; parents income; guarantors income; and many more.

I don't need to check all of these but I check more than enough of them to know exactly what a tenant can afford.

Reply to the comment left by "Actual Entrepreneur" at "04/08/2015 - 08:01":

If it's that easy and lucrative to rent out property why don't you join in the gravy train? You haven't got a clue what your talking about.

Reply to the comment left by "Actual Entrepreneur" at "04/08/2015 - 08:01":

Your comment is incredibly disparaging to so many groups.

You appear to be suggesting that tenants do not contribute to society. I have tenants who are teachers, doctors, dentists, pilots, volunteer RNLI members, Army reservists, firemen, trades people etc. etc etc. Some of my tenants are also landlords, i.e. they rented the property they couldn't sell and relocated to one of mine for work purposes because they didn't want to buy another for personal reasons. Many of my tenants are also active in their communities.

You also seem to be suggesting that BTL landlords are not entrepreneurial. How do you think they got their money to invest into property?

The only point I agree with is the tax efficiency of SEIS and EIS investment. My own entrepreneurial businesses have used both. Maybe you would like to consider investing into this one >>> http://www.property118.com/own-shares-in-property118-portal-limited/76815/
.

Reply to the comment left by "Actual Entrepreneur" at "04/08/2015 - 08:01":

'I’ll be perfectly honest, I setup a business, I work ridiculously hard, and I find it incredibly annoying watching people make money passively through BTL and contributing next to nothing to the country’s finances.'

I'll also be perfectly honest: I also set up a business...I also worked ridiculously hard. Through ill health I had to stop. I had to fight my ex husband to keep my share of my mother's house (that she was still living in) and lost any rights to his pension as a consequence. When she died I inherited that house, and paid the IHT. I have never claimed any sort of benefit. That house is now let. It will provide the pension I don't have. It will 'help' pay for me if I have to go in a home when I'm older so that I am not a burden on the state or my children.

I thought we had dealt with the misconception that BTL is a 'passive income'. It is not...it is hard work. We, as landlords are contributing to the economy. Do the government/councils have the money to house all those tenants? No.

Reply to the comment left by "Actual Entrepreneur" at "04/08/2015 - 08:01":

Actual entrepreneur....I agree with many of your points. I do believe entrepreneurial companies are the back bone of our country ..and we should give them all the tax breaks we can.

But you forget 2 things. ....

1. A healthy market place needs to accommodate mobility....which the rental market helps support.

2. As much as I actually understand why the new tax is being introduced to private property investors.....I don't think it's fair that a change in tax laws will impacts people with existing portfolios so hard. I feel existing portfolio owners should be exempted from stamp duty and allowed to roll their cgt liability into a company.

Reply to the comment left by "Lisa Stux" at "04/08/2015 - 09:06":

Well said Lisa, Mark, Jim and Monty
Lisa has provided a very good example - some people are trying to de-humanise us, whilst knowing nothing of our lives and its complications, stresses and issues.
'Actual entrepreneur' seems like a bitter and jealous person. A happy person doesn't feel that way about others and use ignorant, ill-informed and stereotypical arguments.
All of the arguments he presents have already been refuted on this thread. He needs to go back and read them, without his blinkers on.