Summer Budget 2015 – Landlords Reactions

Reply to the comment left by "Ros ." at "05/08/2015 - 16:12":

The current members of the Committee are:
Clive Betts
Bob Blackman
Jo Cox
Helen Hayes
Kevin Hollinrake
Julian Knight
David MacKintosh
Mark Prisk
Angela Rayner
Mary Robinson
Alison Thewliss

Are any of them on your list of Mps we've written to?

An interesting article published yesterday. Some misleading and deluded elements in it, but also some points and quotes we may be able to use, so I'm pasting a few extracts for people interested::

http://www.ftadviser.com/2015/08/04/mortgages/mortgage-data/limiting-buy-to-let-tax-relief-will-slow-house-price-growth-KjKaZ1PzMAsOmmel5Wo8tN/article-0.html

Extracts:
'Moody’s forecasted that over the coming months, reduced demand for buy-to-let properties will soften UK house price growth.'

Also: 'David Whittaker, managing director of Mortgages for Business, told FTAdviser that the government has taken a political decision to ‘rein in’ the buy-to-let sector, which will have made up approaching 20 per cent of new domestic mortgage lending in the first half of 2015.

“We do not consider that the means adopted is either fair or likely to be very effective, since it only affects individual investors, with mortgages held within limited companies being unaffected by the proposed change.

“Buy-to-let is a long-term investment supported by lenders offering mortgages for the long term – in no sense is this ‘short-term lending’ as stated by Moody’s.

“Ultimately the landlord’s cost of borrowing is paid for by the tenants (out of taxed income) and if the effect of taxation changes is to push up landlords costs then, in a market constrained by the supply of rental properties, there is likely to be an increase in rental costs to tenants.”

And: 'John Heron, managing director of Paragon Mortgages, commented that as the proposed tax changes are being phased in over a six year period, they have seen no impact in the short-term nor are aware of any impact across the market as a whole.

“We don’t quite understand the level-playing field argument, landlords already pay capital gains tax on any increase in the value of the property upon sale, whereas it is free of CGT for homeowners.

“It seems that landlords are being made a scapegoat here for wider failings in the housing market, particularly for affordability constraints which are essentially driven by a shortage in the supply of quality housing.”

Ray Boulger, senior technical manager for John Charcol, previously told FTAdviser that the Budget changes will force lenders to reassess their affordability calculation for buy-to-let mortgages, adding that higher rate taxpayers will see a “very significant” impact on their overall costs.'

Reply to the comment left by "Appalled Landlord" at "05/08/2015 - 16:12":

'' It is also worth noting that finance costs are not deductible for other forms of investment such as trading shares.”

That is a lie. All the companies you can incest in get tax relief on their interest costs.They only get relief at 20% going on 18% but none of them get forced into a 40% tax bracket from their interest cost!.

Reply to the comment left by "Lisa Stux" at "05/08/2015 - 16:19":

Hi Lisa.
Thanks for looking that up.
No, unfortunately, the number I have on my list is still short of 30 MPs and it looks like none of this committee have been written to, according to my records. There needs to be a lot more writing by everyone reading this thread. If anyone recognises anyone on Lisa's list and also on BTL's earlier list, as their MP, can they please write as constituents?

Also, it would be interesting to know who was on the Committee in October 2012 as there were obviously some individuals who were sympathetic to us. I'd love to know who they were!

As for the current committee, I don't know anything about that either and whether we could find some allies there. There's a lot we don't know.

Reply to the comment left by "Mark Alexander" at "05/08/2015 - 14:37":

This is just a 'stock' reply, no doubt I'll receive something similar via my MP who has written HM Treasury with my concerns.

Reply to the comment left by "Ros ." at "05/08/2015 - 16:27":

Ros, most of these arguments highlight the good such a move will do for the FTB. It's the Chancellor's goal to get FTBs on the property ladder, to buy up the thousands of proposed houses they intend to buy.

George Osborne's twitter page is all about patting himself on the back and meeting his quota for this and that. He promised he would get a certain number of FTBs onto the property with incentives like the 5% deposit (never mind subprime lending - that's in the past), so the new deposit ISA and other incentives are to help him achieve that.

He wants the market to slow down, for the FTBs to get on. He doesn't want buy let landlords to compete with the FTBs for the new homes he has promised to build (waved through with less red tape).

Come on everybody, nearly 8,000 signatures!!!!! Keep the movement going, do not lose faith!!!!

IMPORTANT

I have received the following communication from The Treasury

Dear Mark,

As I am sure you will be aware, at the Summer Budget 15 the Chancellor announced two new policies related to property income. Firstly the restriction to finance cost relief for individual residential landlords and secondly the reform of the wear and tear allowance. The Government announced that it would like to consult stakeholders on the detail of these measures, as an individual with an interest in the area we would therefore like to invite you to participate in a discussion on the changes. We are particularly interested in comments on the legislation in the Summer Finance Bill 2015 regarding the restriction to relief for finance costs (clause 24) and your views on the new relief that allows a deduction for actual costs that will replace the wear and tear allowance (https://www.gov.uk/government/consultations/replacing-wear-and-tear-allowance-with-tax-relief-for-replacing-furnishings-in-let-residential-dwelling-houses).

We plan on running two workshops to discuss these issues, please do let us know if you are able to attend either of these sessions. If you would like to meet to discuss this issue but none of the times above would be suitable, please let us know and we will explore arranging further meetings.

18th Aug 10.30-12.30
24th Aug 14.30-16.30

Finally, if you are not the correct person to talk to about these measures, please do forward this on to relevant colleagues.

Kind Regards

Sean

Sean Rath | Policy Advisor | Personal Tax | Personal Tax, Welfare and Pensions
HM Treasury, 1 Orange, 1 Horse Guards Road, London, SW1A 2HQ
0207 270 6430 | http://www.gov.uk/hm-treasury
.

MY RESPONSE

Dear Sean

I am indeed aware of the proposals and would like to comment specifically about clause 24 and the Impact Statement which has failed to consider many unintended consequences.

It is somewhat unclear what the Chancellors objectives are. Increase revenue for the treasury, cool the property market down, help first time buyers etc. There have been some very muddled comparisons offered too.

FACTS

“For every £1 invested into new build property £2.12 flows into for the economy” – source ONS.

57% of new build property has been purchased by buy to let landlords since 1992. For every four properties built for sale developers have built another for social housing in recent decades. Therefore, buy to let has been responsible for much of the property development of the last two decades. Reducing investment demand will reduce property values and the viability to build more. This will not improve the housing crisis. IFS support my views on this.

The Impact Statement suggests that clause 24 will affect 1 in 5 landlords. I have run several scenarios though a spreadsheet and arrived at the conclusion that landlords with highly geared property portfolios will be hit hardest. Based on the Pareto Principle (the 80/20 rule) it is likely the affected 20% of landlords will own 80% of the property in the PRS, many of these will be highly geared. Due to the way the proposed tax changes are to be calculated it is possible that many of these landlords will pay more tax than they make in terms of real profit, i.e. profit as calculated after all costs, which is the method used for all other businesses to calculate tax liabilities. Indeed, it is even be possible for landlords to be taxed on losses under the clause 24 proposal. Cashflow problems will get worse as interest rates rise.

Affected landlords have some stark choices to face. Should they increase rents to cover the additional tax burden in order to maintain the status quo for their finances? Do they sell and incur CGT with a view to reducing their gearing? In many cases the net proceeds of sale will be insufficient to pay CGT where a leveraging strategy has been utilised, this is likely to be applicable to the same landlords affected by the tax. The bankruptcy of many landlords is therefore inevitable if clause 24 is implemented as proposed. I am one such person. Mass repossessions are inevitable if clause 24 forces portfolio landlords to into insolvency. This will need to be factored into the recovery of lending institutions balance sheets.

Given the scenario’s outlined above it is likely that the property market will soon be flooded with sales of tenanted properties. This will impact the personal budgets of tenants for many reasons, moving costs for example. There will also be social implications, a simple example is children having to change school.

Surveys of both landlord and tenant groups have all come to the same conclusion, rents will have to rise to protect the cashflow of landlords. However, many landlords are not able to raise rents, particularly those housing LHA claimants. This group are at the greatest risk of insolvency and repossession. The knock on effect is that many LHA claimants will be seeking alternative rental accommodation at a time when availability will be shrinking.

What clause 24 fails to recognise is that over a million people have invested into the PRS over the last two decades and have based their property investment strategies on the normal business principles of taxing profit. The proposed changes affect business decisions made historically, clearly that is unfair.

As you may be aware, I run an online forum for landlords and tenants. Well over 100,000 people have subscribed to our discussion thread on this subject and over 2,000 comments have been posted. Link >>> http://www.property118.com/?p=76164

I have intentionally kept my reply brief at this stage and covered only the most important aspects of a much wider debate. Would you like to meet me to discuss additional unintended consequences and alternative solutions to achieve the Chancellors objectives?

Yours sincerely .......
.

Reply to the comment left by "Ros ." at "05/08/2015 - 16:36":

Ros - George Kerevan is on the committee - He is an economist and former journalist with The Scotsman newspaper. See his wikipedia profile.

https://en.wikipedia.org/wiki/George_Kerevan

He is the MP for East Lothian. Would be good if he was aware of the issue.