Summer Budget 2015 – Landlords Reactions

Reply to the comment left by "Roger Rabbit" at "21/09/2015 - 22:10":

Any difference in land and construction prices and purchases for letting, I wonder? No point building if you can't sell them. Many new builds here are completed and immediately show To Let signs - so it seems that the BTL market does have an influence.

Does it take into account properties knocked down and replaced or is it total extra dwellings. I ask because our council knocks down whole neighbourhoods and then takes several years to rebuild them.

I'm tired right now so can't check the exact data but Newham council has pushed hard to register its landlords and from memory something like 32,000 properties were registered by 22,000 landlords. So if this is typical it shows that the vast majority of landlords own just one property.

This must mean they have other jobs. A tax change of £20 a week isn't going to see them sell up in my view.

So while this turnover tax is unwelcome and silly I don't think there will be a mass Exodus from the rental market by landlords.

In fact I think the rental sector in five years time will be larger than it is today by at least 500,000 properties

However I do fear that this continued expansion could lead to very negative changes like rent controls. If new York city the heart if capatilism has rent caps then its not impossible that they could happen here especially under a corybn victory

Reply to the comment left by "Roger Rabbit" at "21/09/2015 - 20:56":

Hi Roger

You wrote: “There is little to no link between BTL and house building." This is wrong.

City A M http://www.cityam.com/220861/bashing-buy-let-landlords-will-push-rents-and-hit-uk-economy-hard
quotes the chairman of the RLA saying:

“Between 1986 and 2012, 57 per cent of all new dwellings created were private homes to rent, the majority of which were by individual landlords providing vital houses for those requiring accommodation, especially those needing to move for work or study. These homes were not “taken” from those who wished to buy.”

Reply to the comment left by "Ian Simpson" at "21/09/2015 - 22:19":

Yes, of course you can use the letter Ian. These are always collaborative efforts - for example, the last paragraph was supplied by Appalled Landlord and the first paragraph with some stats was also dug up by either Appalled or BTL or Kathy... I can't remember now!

Reply to the comment left by "Roger Rabbit" at "21/09/2015 - 22:28":

Roger. In a 2010 report it was found that 5% of landlords owned 39% of the rental property in the UK. It is therefore likely that the 20% of landlords who own the greatest number of properties will be way above 50%. One might guess maybe 80% (neatly tying in with the Pareto principle.) So one can therefore assume that the Government's 1 in 5 (cue the UB40 song) means that the vast majority of households in rented properties in the UK will be affected by this tax - either by having their rent go up and/or by being evicted prior to selling or during bankruptcy. And HMRC's impact statement regarding 'impacted groups' does not even mention tenants.

Reply to the comment left by "BTL INVESTOR SCOTLAND" at "21/09/2015 - 21:49":

Hi BTL I S

I hope Committee does not take notice of this submission.

All they are suggesting, and only for an (undefined) transitional period, is that:

5.4.1 the levy should not be significantly more than 20% of the disallowed finance costs, and

5.4.2 the levy should not exceed 100% of the real rental profit.

After a transitional period, the sky’s the limit, as far as The Association of Taxation Technicians is concerned, and to hell with their clients.

Reply to the comment left by "Kathy Evans" at "21/09/2015 - 22:26":

Hi Kathy,

Looking at different councils within England shows a huge range of build rates. Its not just one council vs another. Some build a good deal less than half the national average while others a good deal more than the national average.

There is little to no correlation to prices. Telford is one of the cheapest areas of England yet it builds almost 3x as many homes.

After having done lots of research into this I'm fairly confident to say that in the UK our new build sector is quota driven not price or mortgage availiblity driven etc.

There are secondary factors for example some areas charge very high community infrastructure levy while others are a lot cheaper and some councils demand a lot more social homes along side new builds while some councils ask for much less. However these secondary factors are influenced by the primary factor of quota driven supply.

Its too long to explain here just believe me when I say that the UK new build industry is primarily quota driven not anything else.

Hundreds of thousands of flats were built pre recession on the sole premise that landlords with buy to let mortgages would buy them. Have you noticed that very few flats are built anymore? This is mostly due to buy to let lenders restricting the maximum loan to value to 50-60% on new build flats, thus making the development non-viable. FTB's rarely want to buy flats (outside of London) and therefore builders have stopped building them in great numbers. I'm afraid the first to file for bankruptcy due to the tax change will be the many people who bought lots of city centre flats on very low yields... And who will buy them from the receivers at a huge discount? Limited company landlords who will still be able to offset all of their finance costs to arrive at profit.

Reply to the comment left by "Ros ." at "21/09/2015 - 22:52":

Hi ros.

If Newham council is typical its 32,000 properties registered by 22,000 landlords (assuming I've remembered correctly someone please check) shows us that most properties won't be impacted

To take the extreme view in Newham. 22,000 landlords own just one property and 1 landlord owns 11,000 properties. Even in this impossible extreme two thirds are owned by small landlords. Its of course quite likely that there will be quite a lot of 2 or 3 property labdlords too.

So I think the portion of homes owned by highly leveraged landlords isn't that high.

In fact I recall reading the annual statement of one of the big banks and it listed its BTL book by LTV. I'm too tired to dig it up now but a lot of the book (I think more than half where below 70% LTV and the majority if them were below 60%)

Reply to the comment left by "Roger Rabbit" at "21/09/2015 - 22:28":

All those BTL with just 1 property ... who have jobs as well...
"A tax change of £20 a week isn’t going to see them sell up in my view."

Hmmmm these are the very people who WILL be selling up - Why ?

Take a look ..

Only 1 BTL and HMRC Tax me out of business!

This is direct from Megan Shaw Product Owner HMRC, contact details are on the bottom so this can be confirmed very quickly should you feel it is incorrect.one

Observations from this very simple example below we can see that :

1. A 20% tax rate payer is pushed into the 40% band with the new proposals
2. The taxable property profit Of £1,200 will be deemed by HMRC to be £12,000
3. The “real profit” of £1200 was initially taxed @20% making tax due £240
4. The tax payable increases by £1800 making a total of £2040
5. The tax liability completely wipes out the profit and leaves a further liability of £840. 6. In percentage terms £2,040/£1,200 x 100 is 170%, the effective rate at which tax will be paid.
7. This simple model is no longer viable, the landlord must sell up, pay down borrowings or increase rent.

Example:

Prop rental income is £15,300, or £1,275 pcm (a 3, 4 or 5 bed HMO maybe depending on location)
Prop Val £275K
Expenses: 10% agent fees (£1,530) and a few repairs, gas safe, insurance etc =£3,300
Finance on a loan of £216k (78.5%LTV) @ 5% = £10,800
Net profit £1,200

These figures are very realistic and common place for individual Landlords, this example represents a large number of landlord positions.

If the landlord had a second property, also with a profit of £1,200, his tax in 2020/21 would go up by £2,640 compared to his liability if he only had one. The effective tax rate on this second property would be £2,640/£1,200 x 100, or 220% of the rent.

Under the current system this landlord would have remained a basic rate taxpayer even with 2 properties. Under the proposed system he will very much be a higher rate taxpayer.

After April 2020 (when the restriction will be fully implemented) landlords who incur interest (and other associated finance costs) on residential properties that they let will need to calculate their tax differently. You will no longer be able to deduct interest from your rental income to arrive at your taxable profits, you will instead receive a reduction from your income tax liability equivalent to 20% of those interest costs. If that means you become a higher rate taxpayer (or you were anyway) then you will have to pay more tax as a result of this change.

Please see the example below. This comparison is designed to show the effect of the change, not to calculate someone’s exact tax liability. The tax bands were rounded off for simplicity, and applied to both years so as not to confuse the result of the calculation.
Before restriction 2016-17 £ After restriction 2020-21 £
Salary 40,000 Salary 40,000
Property income 15,300 Property income 15,300
Less Other costs (3,300) Less Other costs (3,300)
Less Finance costs (10,800) Less Fin costs (0)
Property profits 1,200 Property profits 12,000
Taxable income 41,200 Taxable Income 52,000
Less Personal Allowance (11,000) Less Personal Allowance(11,000)
Tax due on 30,200 Tax due on 41,000
Tax at 40% 3,600
Tax @ 20% 6,040 Tax @ 20% 6,400
Total Tax 6,040 Total Tax 10,000
Less Finance Costs @ 20% (2,160)
Final Tax 6,040 Final Tax 7,840

Please do get in touch if that doesn’t clarify the mechanism.
The Bill is subject to parliamentary scrutiny and so there are no guarantees as to what will become law before the Bill receives Royal Assent in Autumn.
Megan Shaw
Product Owner – Property Income & REITs
HMRC, Room 3/64, 100 Parliament Street, London, SW1A 2BQ
03000 585628

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