Summer Budget 2015 – Landlords Reactions

Russell Gardner from EY, is quoted elsewhere as saying that foreign BTL investor are not affected by the mortgage interest tax changes. he advised me about something I did not know and some others may not. Non-resident BTL investors are always standard rate payers (if not simply evaders).

So BTL investors can claim higher rate relief on all their borrowings and then , perhaps with a shrunken debt free portfolio, they retire abroad and become non-resident and only pay 20% regardless how high their net rental income is .

This is certainly an argument to restrict high rate relief on debt interest for that cannot be done inside a company .

Hi all.
I have just drafted an email to the Council of Mortgage Lenders, as suggested by BTL this morning. If anyone has any ideas on how to improve this, let me know and I will incorporate them (if I agree with them!). Also, if anyone wants to adapt and send to other appropriate parties, feel free. I haven't yet looked for the most appropriate email address to send it to, so if anyone knows more than me about this, let me know. Thanks.

'To whom it may concern.
I am writing with regard to the proposal to restrict 'tax relief' for landlords, which was announced in the Summer Budget. Curiously, I have not heard nor read anything in the newspapers about mortgage lenders' reactions to this. Instead, there are still reports of mortgage providers drawing up new products as though this game-changing move has not just happened. As someone who takes a keen interest in psychology, I would call this 'denial.'

The Budget proposal clearly makes buy-to-let mortgages defunct, as landlords will no longer be allowed to offset all of our biggest business cost and we will even be taxed on it. The chief economists in the country (including the IFS, the Institute for Economic Affairs and the Policy Exchange) all say this is 'plain wrong' and 'doesn't make sense.'

The only way for buy-to-let from now on will be via limited companies (until the Government targets these too) or for cash purchasers of property. Only people ignorant of the changes proposed will now go ahead and take out BTL mortgages and this is going to become less likely as publicity grows about the impact of the policy.

With that in mind, could you let me know if the Council has done a thorough analysis of the impact you think this is going to have and if so, is this document available for the public to read?

As private landlords we have been thrown into a terrible state of uncertainty - we don't know if we should try to sell quickly and redeem our mortgages, for example; or whether we should wait, and risk the possibility that house prices will drop as a result of this absurd decision (as many portfolio landlords put their houses on the market at the same time; as assets are turned into liabilities because of the policy). If we choose the latter, many of us we will face big CGT bills, which may mean we are unable to pay all of our borrowings back. What is this going to do to the balance sheets of mortgage providers?

We are facing the unknown and would like to know what the current thought processes of the mortgage providers are. For instance, could you make a public statement on this? And could you let us know what representations you are making to Government on something that is going to affect your industry so drastically?

Could you then let me know so that I can pass it on to the thousands of landlords who are in my network (on the website, Property118, which has been at the forefront of the campaign to get this policy reversed)?

I look forward to your reply and I am going to paste some examples and links below, which illustrate some of the likely scenarios for portfolio landlords.

Yours sincerely'.

Reply to the comment left by "G Cox" at "07/08/2015 - 15:30":

Hi Graham

I had seen a reference to this anomaly, and asked if anyone could confirm it.

! would have thought that the solution would be to tax them at the same rate as UK residents, rather than penalise us.

Reply to the comment left by "Ros ." at "07/08/2015 - 15:36":

Hi Ros

This is an excellent idea.

However, the lender will get its money from the sale proceeds immediately (assuming these exceed the loan). The CGT will not be payable until January of the following tax year, so that will not be a problem to the lender.

I think you mean " just not happened".

You're doing a grand job. I don't know where you get your energy from!

Reply to the comment left by "Appalled Landlord" at "07/08/2015 - 16:04":

If this is true (and I doubt it but hope I'm wrong) then it will make my decision on which Country to spend the rest of my life in a whole lot easier.

If you find any more details please let me know.

We have second homes in Russia and USA by the way, but we are also considering an offer which could end up in us living in Malta if we decide to go for it.
.

Reply to the comment left by "Appalled Landlord" at "07/08/2015 - 16:04":

A fair point. especially as the a higher rate tax would make them less likely to buy up UK property for let and keep prices high.

Reply to the comment left by "G Cox" at "07/08/2015 - 15:30":

Sorry G. Cox,
But I can't understand any of your posts! If you really know what what your talking about then your going to have to talk much more descriptively with examples so that the lay man (me) can understand! I didn't have the best of a school education but if you put a £sign in front and give me an example I'll work it to death until I get it. If I don't understand you then you can guarantee that others won't.

I have emailed Nigel Peters, a Councillor for West Sussex all the links and articles, after speaking to him on the phone for about half an hour. He is outraged (his word) at the government's interference in the Private Rental Sector and have sent my initial letter on to the MPs who have some influence.
He is a Landlord himself, his father before him, and his son set up an Estate Agents that managed to survive the recession. He is totally behind us and very sympathetic to Landlords, whom he regards as providing a service to those who are unable to buy. He believes that Landlords have been demonised over the years and public support will be hard to win, but he agrees that the newspapers need to report on our plight to change that perception of us. (I sent him the petition to sign and circulate.)

Reply to the comment left by "G Cox" at "07/08/2015 - 15:30":

Interesting. I've been thinking about moving back to Australia. It could be all the incentive I need.

Reply to the comment left by "Dr Monty Drawbridge " at "07/08/2015 - 19:02":

Oddly enough this will be an issue for Mark. A parliamentary committee has something in common with a council Planning Committee.

If you have something complex, and this is, in order to be effective with the knowledgeable/experienced etc you have to talk turkey with them but risk leaving the rest bemused because you are not given time to , if you like, go back to square one to explain. . It is not as bad actually but there are elements of that .

It took me days to understand the Treasury methodology since it is , I believe, unique.

OK The point form 15.30.

A 40% BTL investor builds up a large portfolio with his huge interest bill making his net profit from BTL always less than the 40% threshold even though his net rental income before interest costs is huge.

He pays no higher rate tax tax for 20 years.

He moves abroad and stays away long enough to be a non-resident .

He sells enough proprieties CGT free (as a non-resident) to pay off his or her mortgages. No more interest payments.

Net rental is now 110,000. 20% tax max as a non-resident: ie 20K..

And so he lives happily in Dubai after having paid no tax in the UK, now paying a max of 20% UK tax regardless of UK income from his UK portfolio and having an extraordinary tax free capital gain under the belt subsided by all those interest payment on the gearing which were full offsetable against any potential 40% tax and fully offset any higher rate bill when in the UK.

The new proposal will will be a spanner in those works thought the birds have or will mainly fly the coup. The Treasury may have realised that this major loophole has become or will soon become heavily exploited and this is one reason for the change

As another contributor said, BTL income of non-residents should be subject to higher rate tax like UK residents. That seems to be an excellent idea by itself. Mr Corbyn may be interested. to take it up first!

Please advise if they was understandable or if not, which bit was not.
Or someone else please advise if have made an error in this simplistic example ..