Summer Budget 2015 – Landlords Reactions

I am very disappointed by the telegraph article today by Dyson.

Nobody is going to care that a landlord makes less than the FTB they are instead going to concentrate on the Landlord makes £577,434 part.

It really is a silly and ignorant article full of terrible assumptions. 6% annual HPI over 25 years is absurd and there is no indexation or any voids or any bad tenants or the need to spend lots of money on maintenance and repair or mortgage fees.

It is in my view a very unhelpful and silly article.

As I have repeatedly said here, fighting the tax changes as unfair as we have less advantages over FTB or trying to do long winded articles with detailed (often silly and wrong) sums will help no one.

The changes should be fought on the simple grounds of, why punish small sole trader landlords and push the market towards mega-corporations owning hundreds of thousands of properties paying 18% tax instead of the current system of a very competitive rental market with most landlords paying 40% tax

Long term this is going to be bad for the market and bad for the government. Corporates owning hundreds of thousands of homes paying just 18% after all costs and also getting indexation relief on sale.

Not to mention these megacorps simply wont ever sell unlike human landlords who can only hold onto property for a very finite time before they have to sell (retirement, death, etc).

It is simply illogical for the government long term.

So far I haven't seen any articles like that.
Maybe someone needs to tell Mr Dyson to stop pleading with the government and highlight the long term negative consequences

Reply to the comment left by "Roger Rabbit" at "15/09/2015 - 14:16":

I thought it was a very good article.
.

Reply to the comment left by "Mark Alexander" at "15/09/2015 - 14:30":

I agree it was a very helpful article. There are so many angles that can be taken on this issue that it is good to single out and simplify the issues as Richard is doing. This was a particularly important one (well they have all been important - the 'death of buy to let,' 'the Alice in Wonderland tax,' the focus on the disastrous effect on portfolio landlords).
I'd now especially like an article on the link between house-building rates and the attack on landlords - with examples of how landlords have now ceased expanding as we would be mad to take out any new finance. I think this is the key issue that should be pushed.
I would also like one which shows OOs push up prices more than landlords and also something on the likely impact for tenants, but making it clear the Government is pushing landlords into a corner and the fault will lie squarely with the Government when rents rise, house--building stalls and the evictions start. I'm hopeful that a few other journalists will take up some of these angles. The Times has started to shift in our favour.

The recent tax changes will transform the rental market

Agree or disagree with the recent changes to taxation of the BTL market it’s certain that the changes are going to have a long term impact. The rental market will slowly but surely transform from being owned by ‘humans’ to being owned by corporations and the implications have not be fully thought through.

With a considerable tax advantage for corporations to become landlords (18% tax on rental after all costs and indexation relief on sale) over ‘human’ landlords who have to often pay 40% or more in tax on rental income its clear that the long term future for the private rental stock is corporate ownership.

There are some possible advantages to corporate ownership of the rental stock. It is likely to be more professional and skilled than small landlords (but not necessarily compared to larger ‘human’ landlords.). There may also be some ‘build to let’ activity from corporate landlords but there is ‘build to let’ activity by ‘human’ landlords too.

However there are many long term negatives which I would wager have not been considered by the government.

18% corporate tax VS 40-45% income tax:
If corporates owned most the rental stock there would be a clear and large reduction in income tax and only a much smaller increase in corporate tax. 40-45% vs 18%

Capital gains. 18% or less corporate tax VS 28% CGT for human landlords
On sale of a property a human landlord pays 28% as CGT whereas a corporate landlord will pay just 18% and also receive indexation relief. What this means is if a property is held for a long period then the human landlord will pay 28% of the gain whereas a corporate landlord might pay nothing (if the property price increased by inflation which should be the most likely case in the long term)

Then there is the unforeseen changes to transaction levels.
A corporation can hold onto a property for a thousand years whereas human landlords would have to sell and resell 30+ times in the same period. That means the human landlords would pay 30+ times as many times in agent fees in legal fees and in stamp duty taxes. The human landlords and their higher transaction levels mean more economic activity more jobs and more taxes than the same property held long term (very long term) by a corporate landlord.

Corporate landlords will also fix the private rental stock at a higher proportion of the overall stock. Once a residential property is bought by corporate LTD it might be the case that they never wish to sell the property again. So while they buy property they wont sell any as no director wants to shrink their business especially to nothing (firing themselves and the colleagues in the process). There will of course be large scale sales and purchase between the corporate of thousands of units a go but no FTB or upsizer or downsizer can get a look in at those transactions. Long term this means the rental sector will grow. Whereas humans put their stock up for sale once they retire or die and anyone can buy them including other humans. The corporate will only sell to other corporate.

So I ask the government to pause and think. What is better long term? Human landlords paying higher taxes and their finite capacity to keep property? Or corporate landlords paying a lot less tax and owning homes for hundreds or thousands of years and selling only to other corporate landlords?

Im not a very good writer but an article along the lines of the one i just posted above (condensed a little and improved) would imo do a lot more. I simply cant see arguing that landlords will make 'only' make £577,434 from a BTL as gaining any sympathy or understanding.

not to mention the figure is totally crazy and unrepresentative of a tpical BTL and uses a crazy 6% inflation over 25 years

Crying about our own situations or that we are not making enough money (especially when a silly article suggests we will make over half a million pounds from a single BTL) wont do any good in my view

Highlighting that a change from a million human landlords to a much smaller number of megacorp landlords as being bad for society in the long run (which i believe is true) would be something everyone should ponder about. Renters landlords and government. Especially the fact that corporates will buy and never sell (apart from block sales to other corporates)

Im not sure how Mr landlord buying a property and holding for 20 years and then selling (possibly to a renter/FTB) is worse than Landlord LTD buying a property and never selling and paying a lot less tax. Something which renters and the gov probably have never considered

Do we have ann e-mail address for Richard Dyson

Reply to the comment left by "Barry Fitzpatrick" at "15/09/2015 - 12:01":

I am having trouble with the calculations in the telegraph article, I don’t think they are accurate and I don’t think doing comparisons on profits help the landlords’ cause.

Looking at the figures in the telegraph I think it wrong to deduct the interest paid on the btl as this has been paid from the rent and not the landlord's own funds. It also ignores future rent increases which further increases the landlord’s profit.

Using the telegraph’s assumptions I make the figures

Value of property after 25 years £1,339,491
Less purchase price -£ 300,000
Gross Profit £1,039,491
Less CGT at 28% -£ 291,057
Net proceeds after repaying mortgage and withdrawing deposit
£ 748,434
Add net rental income £ 54,000
Net profit £ 802,434

Increases in rents to be added.

I am happy for anybody to check the figures and come up with a different conclusion.

All the calculations ignore the work that is associated with being a landlord, as well as the money spent on repairs and decorating etc.

I think the focus should remain on the amount of work involved with being a landlord and stay away from the cost and profit comparisons, they are all guesswork anyway.

Also what is the difference between profits being made by an individual and a limited company?

Reply to the comment left by "S.E. Landlord" at "15/09/2015 - 16:17":

Another point worth making is that rents have come down in real terms due to the increase in the number of btl landlords. 15-20 years ago the return on a let property was circa 12%, now it is circa 5% and would fall further if btl continued to attract new landlords.