Summer Budget 2015 – Landlords Reactions

I have just had a reply from my MP, John Penrose, as follows and I am composing a reply that I hope will catch his attention:

Thank you for contacting me about mortgage interest rate relief. I appreciate your concerns
about the Chancellor's decision to lower it to the basic rate of tax — I think it is an attempt to
make the system fairer by equalising the treatment of individual buy-to-let landlords and
property companies. Until this change, companies could offset mortgage interest against
corporation tax (ie at a rate of 20% or less, depending on their size, and declining as George
Osborne's much-needed cuts to corporation tax are steadily taking effect over time) while
some higher-rate taxpaying individual landlords were able to claim relief of 45%, which
clearly wasn't a level playing field or fair.

Other people have also pointed out the unfairness of buy-to-let landlords having a huge
advantage in the market since, unlike homebuyers, they can offset their mortgage interest
payments against their income. And the better-off the landlord, the more tax relief they got,
which doesn't seem sensible at a time when public finances are still under a great deal of
pressure.

So I'd strongly agree with you that buy-to-let landlords are an important part of the answer to
Britain's housing problems — it's just that we need to make sure the playing field is level and
fair at the same time. Equally, buy-to-let landlords will need some time to adapt to the new
regime, which is why the reduction to 20p will done in stages, over four years from April
2017. I hope this will strike the right balance between tackling an unfair advantage and
protecting hard-working people who have saved and invested in property and are dependent
on the rental income they get.

I hope this helps, but please let me know if you think I've missed anything out!

Yours sincerely,

Reply to the comment left by "Jerry Jones" at "21/08/2015 - 12:48":

Here is my first draft:

Thank you for your letter, which is pretty much a summary of the Chancellor's justification for this wholly unreasonable change in the taxation of landlords' finance costs.

I have a feeling you may not have grasped exactly what the problem is, so allow me to illustrate it with a worked example, based on your own circumstances as an MP who draws a salary and expenses from the public purse.

In broad terms, your current income is composed of £74000 salary as of May this year plus expenses, based on the complete year of 2013-14's figures, of just over £129000, of which £111000 was staffing costs. In this respect you are in quite a similar postion to many landlords as regards their income. In your case the total is £203000, of which part is taxable and part is an expense and thus deductible. On that basis, in very broad terms, you are liable for tax of around £19000, leaving you a post-tax income of £55000.

Let us now consider the position if we reduced the tax relief on part of your expenses to 20%, using the same mechanism that is proposed for landlords. Because mortgage finance is often the major expense in property,

Let us treat your staffing costs in the same way - MPs expenses are no more of a sacred cow to the Great

British Public than landlords' income, so the parallel is rather appropriate - nobody will be rushing to the barricades to defend either of us.

Your taxable income is now deemed as £185000, comprising your salary and that part of your expenses that you use to pay staffing costs. The tax liability on that level of income is £69400. "But wait", I hear you cry, "what about the 20% tax relief due on my staffing cost?" Quite right, 20% of £111000 is £22200 so we can deduct that from the raw figure - your tax liability is now reduced to just £47200, which, because all of

your staffing cost expenses are actually paid out again, you must pay out of your £74000 salary, leaving you a net income of £26800, around half of your previous take-home pay.

The figures are actually far worse than that for many landlords, who will be expected to pay substantial tax out of a negative cashflow. Do you now understand the reason for our concerns?

Reply to the comment left by "Jerry Jones" at "21/08/2015 - 12:48":

Hmm, but companies only pay tax on their profits at the corporation tax rate as well. has he not noticed this? So no possibility of suddenly paying tax on a loss.

Petition is still disseminating (slowly) Got this from Property Hawk today:

"Petition against changes to landlords tax
The petition to reverse the Government's planned changes to restrict tax relief for ‘individual’ landlords has hit the 14,000 figure.

The petition argues -

"We operate as sole traders and incur costs in the course of running our business. The planned restriction will unfairly target us by preventing us from offsetting costs in the same manner as other sole traders. We ask that the planned restriction be reconsidered as it has unfair implications.More details

The Institute for Fiscal Studies has stated, in response to the Budget, individual landlords are already taxed more heavily than other homeowners.

The private rented sector is heavily reliant on individual landlords. The planned change is likely to result in higher rents due to landlords looking to offset higher tax liabilities.

In some cases, employed individuals own buy to let properties as investments for retirement. The planned restriction would adversely and unfairly affect them."

Sign the petition to - Reverse the planned tax relief restriction on ‘individual’ landlords link to petition"

Reply to the comment left by "Jerry Jones" at "21/08/2015 - 12:48":

And you could add that reducing the tax relief on his staffing costs will "level the playing field" between MPs and ordinary citizens who don't get tax relief for employing nannies, cleaners, gardeners and the other staff hey need ...

Reply to the comment left by "Jerry Jones" at "21/08/2015 - 12:50":

nice ! i would also pass comment on the

"protecting hard-working people who have saved and invested in property and are dependent on the rental income they get."

and include the example of this hard working person, who has ALL of his BTL profit removed, along with a bill for £840 to be paid for from another income source and is taxed at a rate of 170% on his "real profit" ,and ask him to comment on how fair and balanced that is ? to be sure there is no misunderstanding point out that this is HMRC OWN eg

http://www.property118.com/only-1-btl-and-hmrc-tax-me-out-of-business/77297/

Reply to the comment left by "Jerry Jones" at "21/08/2015 - 12:50":

Jerry can I steal that please?

Reply to the comment left by "Jerry Jones" at "21/08/2015 - 12:50":

Brilliant Jerry, I love it 🙂

I'm really looking forward to you publishing his reply to that.
.

Reply to the comment left by "John McKay" at "21/08/2015 - 13:17":

Please feel free to nick and modify it with your own MP's figures.

Reply to the comment left by "Mark Alexander" at "21/08/2015 - 13:45":

Mark: please feel free to use it in whatever way you wish. Mine's a pint of Cisk 🙂