Summer Budget 2015 – Landlords Reactions

It's surprising that the campaign and petition is not better know. I met an Estate Agent here in Newcastle two days ago who deals in lots of lettings, and while he was aware of the bones of the changes proposed by Osborne he had not thought through the implications, nor was he aware of Property118 or the Petition.
I emailed him the appropriate links and now he has been copying them to his clients. He was horrified by the possible consequences once he had the facts. The moral of this tale? "Never assume other professionals in our field are aware of what is being proposed or that we'are trying to stop it happening"

The journalist I contacted at the Sunday Express this morning is passing on my details to the political department, so fingers crossed.

Reply to the comment left by "KATHY MILLER" at "14/08/2015 - 09:14":

Ltds may not be as safe as they look. Although FRS 105 fro micro entities in currently voluntary, it might not remain so. See

http://www.accountingweb.co.uk/article/transitioning-frs-105-investment-property/587254

You might need to register

A depressing blog post which sums up the situation many of us find ourselves in now....

How a landlord can survive in 2021

MY day job is to try and save people money on Property Insurance of all kinds. After that, I am a private landlord with seven properties and I am still reeling from the Summer Budget 2015 and the changes it will make to my income and lifestyle in 2021.

Basically I will be paying at least £2000 more in tax in 2021 if nothing else changes. That’s harsh and I expect interest rates to go up before then as well, so I could be paying thousands on top of that as well.

So what are my options?

1: Move my properties into a company
This simply doesn’t add up for me, my company cannot afford to buy the properties from me, pay the stamp duty or the new finance/mortgage costs. This is tens of thousands of pounds of cost – 7 x new commercial mortgages (even if you can source one, which is difficult) at say £1500 arrangement fee alone = £10,500 in new costs! Stamp duty at £2000 each is another £14,000. That’s £24,500 so far.

Now let’s talk about the redemption clauses on my mortgages to sell the properties to my company. Let’s say 3% is the overall figure. I have approximately £700k on loan. That’s another £21,000 in costs and total of £45,500 so far. Add in accountancy costs and that’s another £1000 per year at least

My new business cannot afford that, never mind the deposit costs to get the mortgages in the first place.

This is not an option for me at all. Who is funding the new business in the first place – me! I cannot afford this option.

2: Sell my properties
OK, I get £11,100 allowance in Capital Gains Tax right now. So if I sell a property and make above that number, I will be paying CGT at 18% if basic rate tax payer or 28% if higher rate tax payer.

All of my properties have more than £11,100 in gain in them. Let’s say the average is £30,000. That means if I sold all in one year I’ll be paying away a maximum of 28% on £198,900 or £55,692.

Even if I sell one or two a year until 2021, I’ll still be paying tens of thousands of pounds in CGT.

I bought these properties responsibly with a view to my retirement and being able to live without a bank based pension scheme as they have underperformed dramatically over the last decades. I was being responsible, now I am being penalised.

If I wanted to sell properties and consolidate and buy outright one or two properties, then the CGT penalty kills that idea dead. £55,692 would buy at least one property outright.

3: Move to another country and become a non-dom
I don’t want to leave the UK, I have lived here all my life, my children go to school and I have as much right as anyone else born here to live here.

I am assured if I move away I may miss the new tax rules. I may even miss all CGT on properties sold if I moved to somewhere like Malta or Andorra.

I am not ruling this out as this is my retirement fund and I don’t have the time or earnings to make a change now.

4: Reduce my earnings (retire early) so the properties are viable
I could do this but I am only 43. I am not ready to retire on a low income yet. But this is possibly an alternative. If I earned nothing else, the income would allow me to survive and I would remain in basic rate taxpayer territory.

5: Maximise expenses on the properties
This is a no brainer. Anything I can claim as an expense will now be put through the properties. I’ll go out of my way to buy the best boilers and carpets etc. as these are directly deductible and ultimately will add value to the properties and allow increased rental charges. It’ll reduce my earnings but I also need to do this for the next option, the most likely one I will do…increase the rents accordingly.

6: Increase the rents accordingly
This is the most viable option for me. I need on average to increase rents by £33 per month on all seven properties to maintain the same income and I think in 2021, with landlords diving out of the market and rents skyrocketing due to lower supply, that will be very achievable.

Effectively the landlord tax will be passed on to renters and tenants. The construction industry will falter as there will be less demand for properties (1 in 12 approx. are bought by BTL investors now, that will be more like 1 in 50 or worse given how hard it will be to make money in the future). And tenants trying to save for a property will now find it harder to exit renting and purchasing.

I will say this. I have little interest in investing in more BTL properties now. Instead, I will look to cash in on property sales when capital gains allow and make sense and then put cash somewhere else.

As an investment class or alternative retirement plan, to start on property now is simply non-sensical. You can lose money and have to pay tax on that. It’s poorly thought out policy and I am sure if it had been touted before the election, landlords may well have voted for alternatives to the Conservatives. So much for the Conservatives being the party of opportunity and entrepreneurship.

I am sure other strategies will emerge but right now increasing rent is the most obvious and straightforward solution for me. That and maybe moving out of the country, which is growing in attraction every passing moment.

Jason McClean

I just received this " spam mail" promising to deliver all estate agents' details .... Worth a go? Anyone want to chip in for the £50...?

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Reply to the comment left by "Graham Kogan" at "14/08/2015 - 13:59":

Hi Jason
i think you have given an excellent demonstration of the lunacy and injustice of this proposal; I don't call it a 'decision' as I assume it will be reversed - but we have to work to achieve that.
I think it would be a very useful thing if you could slightly edit what you have written and put it in the format required by the Public Committee on the Finance Bill and then submit it. It has to be with numbered paragraphs and in a word document. The details are in this link:

http://www.property118.com/have-your-say-on-the-finance-bill-2015/77383/

Let us know if you are able to do this. I am going to try and get several different reports drafted and as I am probably only allowed to submit one, I'll pass the others on to volunteers to amend as they wish and send in. We have to act on this in the next week or so.
Many people here have written excellent posts and I think that it would be great if they could turn some of these into reports and do the same. If people can let me know what they submit I could co-ordinate it a bit. Ah, I just remembered, the reports should not have been 'published' before, and apparently putting them here means that they have been, so make enough changes for this not to be the case.

As suggested by an earlier poster, I have also now emailed two agents who continually email me potential new properties to purchase for letting ( not investing 😉 ), saying from now on I will be buying nothing more based on the Summer budget, and have also included the 'All you need to Know' PDF and the petition link, and asked them to distribute these to their email database of clients and colleagues. If they keep sending me auto-emails, then this will be sent back each time. I suggest all of us on this forum adopt this strategy as soon as possible

Reply to the comment left by "Graham Kogan" at "14/08/2015 - 13:59":

In this example, as unfair as the position is, rather than sell property, or take the drastic action of moving abroad, isn't the obvious thing to do, to simply concentrate on paying off some of the debt. The example states a worse off tax position of 2000 per year, it wouldn't take a major reduction in debt to claw most of this amount back.

Reply to the comment left by "Ian Simpson" at "14/08/2015 - 16:00":

Yes Ian. We should do this with all property-related emails. The only problem I find is that sometimes they're those damn 'no-reply ones,' so you have to fish around a bit then, but it doesn't take long and it's worth it. Martin and Co are still sending out nonsense about BTL mortgages still being viable and I have to re-send one of my replies to them as it bounced back. This is a good plan for all of us. This is the one I just sent:

'I have sent several emails to Martin and Co head office, regarding the 'tax relief' restriction announced in the Budget. In your newsletter, you say buy-to-let is still viable. If you are dependent on a BTL mortgage, unfortunately it won't be viable. Even if you own one property it can become unviable, but for many portfolio landlords it will become unviable overnight. For others, they will gradually be taxed into bankruptcy especially when interest rates rise. One example is here:

http://www.property118.com/how-the-budget-will-affect-private-landlords-example/76673/

To help combat this and get the 'tax relief' restriction reversed, can you please circulate the link to the petition below to everyone you can think of - if it goes ahead it will be disastrous for landlords and therefore also for letting agents and tenants, so all of these groups should be asked to sign the petition.

https://petition.parliament.uk/petitions/104880

Thanks'

Regarding exit strategies, I was working on one this morning, if the worst comes to the worst (expect the best; prepare for the worst). I've thought about becoming a tax exile, but I don't think I can face it.
So I think a priority for me is to bring myself down to being a basic rate tax payer (this currently would involve reducing the joint profit before tax in my business by about £16,000 a year, from £100,000, but God knows how much I would have to reduce it by if my debt payments are added post-2017....). I might have to act quickly in 2016 while my profit is still my profit instead of the new fictitious profit, which will miraculously convert me into a higher rate tax payer.
I'm assuming then that if I sell some properties I will only have to pay 18% CGT instead of 28%. Is that right or am I being simplistic? (Maths isn't my forte).
This strategy could mean spending more on the properties (a good idea prior to selling anyway) and, as counter-intuitively as it seems, I wonder if this would mean it was in my interests to even possibly reduce rents in the years when I am selling, if push came to shove (although it would obviously be more in my interests to just spend, spend, spend!). It's giving me brain-ache.