Summer Budget 2015 – Landlords Reactions

Reply to the comment left by "shakeel ahmad" at "27/08/2015 - 19:04":

my blood pressure is fine thanks - not much moves it these days in fact!

whilst I am not a supporter of the proposed budget changes, I can see the logic in restricting the level of tax allowance to the basic rate (or any other rate that would apply to everyone including companies)

more debt being used to create more income to create a larger tax relief - at a higher rate - has been a pretty big advantage for higher rate taxpayers for some time

What ever business one gets into it has its own risk, returns, market, demand & supply, labour hours etc. It is for this reason that we all chose the different sector of the economy that we enter i.e. holiday lets, corner shop, pharmacy, legal firm, restaurant, wine bar etc.

The Buy to let Landlord decided to get into this sector according to the legislations & his business model was designed accordingly. If he does well or not that is the risk that he took. If later he sells his property & make a gain. Why should he not be compared with people who entered another sector of economy & sold the business at a higher price than his out lay.. ( In fact he will gets retirement relief.)

On GO, logic why should they be given an advantage as other people who retire just gets a clock if they are lucky.

On the other hand GO should have come up with where people who do not pay mortgage should pay higher rate of tax to have even playing field.

In order for GO to create even playing for all & sundry than we need to convert this island into a Cuba in the northern hemisphere..

The reasoning/excuse is totally flawed and is politically motivated.

THe landlord does not live in the property nor does his family to

I met with my MP David Gauke for about 35 mins. A few notes from the meeting, nothing new I’m afraid:

- I explained how it would impact me and what I anticipated would be the wider market impacts in the PRS. Mid sized LL businesses will be affected substantially in low yielding yet high demand areas like London. Discussed geographical differences.
- He mentioned a few times that the rationale is to level playing field between OOs and LLs.
- He did not think there would be a HPC or create chaos in the PRS / tenants (in London, SE in my case). I agreed with the former and no explanation to the latter.
- There is unlikely to be a change at this time, but he kept reminding that the policy is being phased in over 5 years.
- I explained that 14 years ago I was advised by my accountant to go sole trader route for this and other small businesses of mine, although there was there was not much in it vs using a company (which can be set up fairly easily on the internet). Now there will be.
- He did not agree it was retrospective, but he accepted that in my and many other cases it might ‘feel’ like it was retrospective.
- There are no plans to apply this withdrawal of the majority of finance costs to incorporated LLs. There are also no plans to target LLs (whether sole trader or companies) borrowing costs in commercial sector (eg retail, leisure, office, industrial..).
- I asked whether they would spread the burden by applying to all LLs regardless of sector and how the property is owned. Too complicated.
- I asked whether they would consider taxing all LLs at 20%. Again too complicated. I agreed it would be complicated although pointed out that would be fair as there is no difference in function whether I or many others had decided to go ltd or sole trader.
- He agreed that although I am not incorporated, I run a business (but many don’t).
- I asked if they had looked at how LL’s are taxed in other countries, to which he said that they had considered various options and decided that restricting the relief to 20% was what they believed was the fairest.
- I asked whether the plan was for institutions to take over the PRS. He said there was no plan to. I didn’t push that line.
- I mentioned the IFS comments on the budget. He had not seen this, but will take a look.

We parted company agreeing to disagree.

Legislation changes and it affects participants in industries in different ways - some good, some bad

I could give you a long list of examples but will settle with just a few that coincide with some that you mention in your list

corner shop - out of town planning for supermarkets, sunday opening, minimum wage

pharmacy - allowed in supermarkets, some reduced restrictions on otc medicine sales and online sales allowed

legal firm - legal aid budget reductions and restrictions on cases where it can be used

etc. etc.

None of which were fair to everyone in those industries, none of which were widely consulted on and most of which happened almost instantly - no 4 year notice period.

Expecting legislation not to change is a mistake. When it happens and it is in one's favour, it is very nice. When it happens and it is against one, it is hard.

The way I see it is this. We have been fortunate to have had 45% tax relief on finance costs for a while; we have been fortunate to have had a mechanism of extracting capital gains from our properties without triggering a CGT liability; we have been fortunate to enjoy a prolonged period of really low borrowing costs and we have been fortunate to enjoy a period of relatively benign tenants' rights.

Something from that list was bound to change for the worse. I was expecting it to be interest rate rises rather than the proposed budget changes. But the budget changes came first.

Given that we have seen real examples of large landlords paying a marginal rate of tax well below the basic rate on incomes that, under other circumstances, would be taxed much higher, there is indeed a political element to the changes. Some landlords were paying tax rates that would have made the Starbucks CFO raise half an eyebrow!

It isn't for me to judge anyone else's business model, but mine has been very conservative wrt debt (I like to be the majority owner of every asset), but I have always been able to make a strong case against high leverage in any business, even this one.

If nothing more, then at least we have a few years notice before it comes in.

Maybe there is a chance the the proposed changes will be modified to be easier for those affected to cope with; maybe there is time to sell out and bank a profit; maybe there is time to implement a tax exile escape; maybe there is an incorporation or partnership escape; maybe there is time to get debt levels down to levels that make the portfolio viable; maybe prices or rents will rise sufficiently that it is OK anyway.

As I see it, we all have to place our bets on the outcome that we think is most likely and act to maximise our own positions (as we have been doing all along I suppose).

I found a great little article here from last September, in The Telegraph - this time by 'Matthew Lynn.' So we have another good contact here regarding writing supportive articles. The link is;

http://www.telegraph.co.uk/finance/newsbysector/constructionandproperty/11085099/Landlords-are-entrepreneurs-who-should-be-encouraged.html

We might be able to also use some of the content. He ends the article with this;

'Most [landlords] are doing it in a small way, and with little more ambition than supplementing their pension. There is nothing wrong with that – people looking after themselves and their families are to be admired. But a few will go to create bigger business. If they were doing anything else – making clothes, or running websites, or opening restaurants - we would be encouraging them. Landlords shouldn’t be treated any worse than any other small business.

The only thing that needs cracking down on is the crackdowns'.'

Like every coin it has two side. Both sides can be looked at in a different blinkered view.

Ask Michael Clarke the ex Australian cricket Capitan what disaster can be caused for calling the wrong side.

GO has spun the coin & he knows that if the call is incorrect he will not be affected as he will always have some argument ( like Tony Blair for killing thousands ) that in his opinion that was the right decision.

In the process the treasury will take in £600million and is not concerned with the fall financial or human fall out.

Apology, to those who do not understand cricket. Come to think of GO this just not cricket.

@ROS, that is my point.
It like a little coffee shop is not allowed to offset their interest cost by Starbucks can.

GO, argument would be that non coffee restaurant owners i.e. public is not having a playing field.

Reply to the comment left by "Mark Shine" at "27/08/2015 - 20:51":

Well done, Mark. It must have been a difficult meeting. I wonder if you think it would be a good idea to send him a note thanking him for the meeting and saying you want to give him a few more details - such as the specific quotes from the IFS - how the tax system is unfair when you compare owner-occupiers with landlords, but how the unfairness runs in the opposite direction and also how we will stand alone as the only country in the civilised world who tax landlords on turnover and not profit - you could then link him to the Telegraph article about it being a bonkers tax etc. You could also mention regarding impact that 4 surveys so far (from the RLA, NLA, Rentify and SAL) all suggest landlords will increase rents. You could also say that if the Government were right about only 18% of private landlords being affected and it is the ones with the largest portfolios who will bear the brunt (not 'the wealthiest'; those who, rather, owe the most!) then the number of properties and households affected will be huge.
Sorry to bombard you with all this. Obviously, only write if you want to. It's just that I find these people such a wind-up. But on the other hand, I believe if you can persuade one of these hard-liners, through dogged persistence, you will achieve a great deal indeed.

Thanks Ros. Yes I had already planned to follow up with a letter. He said he would write to me, so I will wait a short while for that first.

1. If being a LL is just a hands-off investment (and it might be for some) then if the primary objective is to ‘level the playing field’ between OO/FTBs and LLs, then they should consider offering a temporary amnesty on CGT.

2. If a LL is a business, then they need to ‘level the playing field’ between existing private landlord businesses whether they are currently incorporated or not, by either taxing them similarly or offering a temporary amnesty on CGT and SDLT for incorporating.

Reply to the comment left by "Mark Shine" at "27/08/2015 - 23:07":

I think the hands-on/hands-off argument is yet another red herring. Although my business partner and I completely manage our houses - doing the advertising, responding to queries, conducting the viewings (including the waste-of-time no-shows), drawing up the tenancy agreements (that's always nerve-wracking because you screw up on one little thing and you can pay big time), being on-call for the lock-outs, leaks, electricity failures, water ingresses, roof leaks (had one today), maintenance liaison where we can't fix the things ourselves and so on, I don't see why it is any different if you pay someone else to do this.
My friend and her husband emigrated to New Zealand and ran their UK clothing business from there, appointing a manager. They didn't get accused of that heinous crime of 'not running a business'. I don't think Richard Branson and Alan Sugar are 'hands-on' at all their businesses either So, if they aren't devoting 20 hours a week to each individual one, is it for them an 'investment' and not a business?
As I said, they're engaging in what Orwell called 'doublespeak' - a way of distorting meaning and confusing the listener. ('1984' was my favourite book for years - so much so, that I read it in Spanish and German to practise my languages!). We have to cut through that crap - it's one reason I was so pleased with Richard Dyson's article as he did just that. It's why Connie and I have often be really mad about the talk of 'tax relief.' I don't care that it has been called that in the tax system; what is the tax system? It's not some God-given and immutable truth; just something that a few guys (mostly, I imagine) made up; I know it is really 'offsetting my costs', so that is what I will call it. And the comparisons between us and owner-occupiers is a similar ruse - as we keep saying if they want us to have an identical tax system to owner-occupiers, brilliant! I'll handle not being able to offset my finance costs because I won't have to declare my rental income or pay CGT. Roll on the level playing field..