Summer Budget 2015 – Landlords Reactions

I don't know if this has been posted before but there is a great take on GOs proposal written by Paul Ashford , Comfort Lettings on their website:

http://www.comfortlettings.co.uk/blog/2015/08/29/budget-2015-buy-to-let-mortgage-interest-tax-consequences

It has a good review of your risk profile vs break even point in the event of an interest rate rise.

Well worth the read.

This is the response I received from my MP Zac Goldsmith (who aspires to be the Mayor of London), in reply to my version of Jerry's email . I'm afraid it's the usual standard nonsense ignoring the blatant unfairness of these proposals.

MC201 5/16656
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HM Treasury, 1 Horse Guards Road, London, SWIA 2HQ
Zac Goldsmith MP
House of Commons
London
SWI A OAA
1 3 AUG 2015
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Thank you for your email of 27 July to George Osborne enclosing correspondence from your constituent, about restricting finance relief for landlords and high marginal tax rates. I am replying as Minister responsible for this policy area.
Your constituent raises concerns about the high marginal income tax rate of 60 per cent paid by those earning over £100,000 year pay. This is created by the withdrawal of the personal allowance for such individuals, which was introduced by the Labour government in 2010. The withdrawal occurs gradually, with £1 of allowance lost for every £2 of income above the income limit of £100,000. This reduction continues until the personal allowance is completely withdrawn for those with incomes above £121 , 200 (for the 201 5-1 6 tax year).
The Government does recognise that because of this, taxpayers with incomes within the taper band face a higher marginal rate than individuals with higher incomes. The Government agrees that high marginal tax rates, whatever their cause, are a disincentive and negative for individuals and the wider economy.
Due to the continued pressure on public finances, the Government has been unable to remove the personal allowance taper to date. Over the last 5 years, the priority for the coalition government was reducing the deficit and providing greater support to those on low and middle incomes through increases to the personal allowance which was increased by over 60% to £10,600 this year.
Support for low and middle income individuals remains the priority for this Government, and that is why it has pledged to raise the personal allowance to £12,500 and the higher rate income tax threshold to £50,000 by the end of this Parliament. The Summer Budget took the first steps towards this commitment. In 201 6-17, the personal allowance will increase by £400 to £1 1 ,000. The higher rate income tax threshold will increase to £43,000 in 2016-17, the first time since 2010 that the higher rate threshold will go up by more than inflation alone.
However, the Government does keep all aspects of the tax system under review, including the personal allowance taper, through the annual Budget process in the context of the wider public finances.
Turning to your constituent's point regarding restricting financial relief for landlords The Government wants a fair tax system. That means ensuring that landlords with the largest incomes no longer receive the most generous tax treatment. The wealthiest landlords can get relief on finance costs at their marginal rate of income tax. This saves them 40p or 45p in tax for every £1 of finance cost they incur. By restricting finance cost relief available to the basic rate of income tax (20%) all finance costs incurred by individual landlords will be treated the same by the tax system.
This restriction will reduce the advantage landlords may have in the property market. Only around 1 in 5 (18%) of individual landlords are expected to pay more tax as a result of this measure. Furthermore, this change is being introduced gradually from April 2017 over 4 years. This ensures landlords will have time to adjust and plan for this change.
The Government does not expect this to have a large impact on either house prices or rent levels due to the small overall proportion of the housing market affected. There are 1 .6 million buy to let mortgages outstanding in the UK overall, out of a total private rented sector of 4.4 million households and total housing stock of 22.6m households in England. Only around 1 in 5 (18%) individual landlords are expected to pay more tax as a result of this measure.
Furthermore, this change is being introduced gradually from April 2017 over 4 years. This ensures landlords will have time to ådjust and plan for this change. The OBR believe the Image impact on the housing market will be small and, taking account of the other measures in the budget, have not adjusted their forecast for house prices.
Landlords will continue to get full income tax relief on the costs incurred in letting out a
property, such as letting agency fees and replacing furniture, as others do on the costs they incur in carrying out a trade. Finance costs are different as having a mortgage on a property also allows the landlord to purchase a more expensive property and incur larger gains on the investment than they would have done without the mortgage. The Government wants to rebalance relief for these finance costs and ensure that all individual landlords get finance cost relief at the same rate.
The Wear and Tear Allowance is an overly generous policy. Landlords of fully furnished properties can claim a tax deduction of 10% of their net rental income when calculating their taxable profits each year. They can do this regardless of any actual costs they incur on replacing furnishings in the property. We believe that this is unfair.
Landlords should be allowed to claim tax relief on genuine expenses that they incur, for example when replacing carpets or curtains to maintain the property on behalf of their tenants. The new renewals allowance will underpin this and will be available to landlords of furnished, part-furnished and unfurnished properties.
Please pass on my thanks to your constituent for taking the trouble to make us aware of these concerns.
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DAVID GAUKE

Thanks Barry for quoting the blog article.

Interestingly, responses to it have mainly been from 'accidental Landords' which is exactly what I would expect.

They are recent buyers, on average at a greater LTV and without a defined investment plan. The thought of it costing money on a monthly basis to own a profit making asset has caused a lot of thought. Mostly saying, 'should I therefore sell it?'

Reply to the comment left by "Phil Ashford" at "02/09/2015 - 16:22":

It was indeed a very well written piece Phil.

What advice do you offer to people when they ask whether they should sell?

Do you also do estate agency?
.

Hi Dom

I loved the response for the MP Zac Goldsmith .

Do they really not understand all the other checks and costs they have put on landlords.

I especially like the generous fair wear and tear allowance we get of 10% taking the rent is four or five thousand pounds the four hundred barley cover the cost of stolen items that the police refuse to accept as theft.

Non paying tenants that believe it is ok not to pay rent. Then the courts take a live time to evict that again cost thousands.

Damage that would be classed as criminal if done anywhere else not when btl.

Stress sleepless nights.

I know the wear and tear allowance is not for this but these MPs don't seem to understand what is involved as a landlord.

Most landlords get by and no more.

The rich ones they talk about have all there in trust or in a very tax efficent plan that means they pay little or no tax.

Reply to the comment left by "Mark Alexander" at "02/09/2015 - 16:26":

I would be careful with advice per se. I would outline the factual circumstances and apply some 'what if' type analysis to their situation. I would then present that back. I might go so far as to say, "if this was my situation then I might strongly consider x".

In terms of estate agency, we focus on independent Lettings and investment opportunities in that arena in our local market.

Someone should ask the representatives in the treasury what they think will happen to owner occupiers with corporate landlords taking over sole traders.

Corporates (eg in Germany one listed corporate owns 300,000 homes) can hold onto property for a thousand years. A sole trader can only hold onto a prproperty for a finite time often less thab 20 years. So in the same time frame a sole trader could have sold up 50x and paid 50x as much stamp duty and legals and fees and given 50 opertunities for an owner to buy it.

with big corporates once they buy thats probably it for hundreds of years. No stamp duty no churn helping agents and solicitors and no chance for a rental to become an owner property.

This will in my view slowly take the UK to less and less owners when the big corporates build up 100,000 plus residential lets like in Germany

Reply to the comment left by "Neil Robb" at "02/09/2015 - 17:04":

Hi Neil,
Sadly, I suspect very, very few people understand what is involved in being the average PRS landlord. We can try to enlighten them, but I suspect the anti landlord sentiment is now so engrained in the general public's mind we will be fighting a losing battle.
However, that by means we should give up fighting this injustice.

Reply to the comment left by "Neil Robb" at "02/09/2015 - 17:04":

Hi Neil

Why not invest in a residential (or commercial and residential mix) REIT if you find dealing with tenants stressful and not worthwhile?

I suspect going forward that might be the UK model. Big companies that own 100,000 plus properties and people invest in buying their shares rather than investing in property directly.

Reply to the comment left by "Dom " at "02/09/2015 - 17:44":

Dom the problem is there are some terrible landlords who give the whole sector a bad name. In many ways a consolidation from a million landlords to maybe twenty large corporate landlords might be for the better.

the big negative of it though imo would be that this sector would reduce owner occupier numbers