Summer Budget 2015 – Landlords Reactions

Reply to the comment left by "Manchester Landlord" at "05/10/2015 - 21:42":

Count me in on that ML!

Reply to the comment left by "Steven O'Neill" at "05/10/2015 - 21:46":

I've written an article for my local letting agents. You can adapt that or take some bits out if you like - the example in it was provided by John McKay, but you can put your own in and instead of writing about Sally and Jim, just say 'this is my situation'. Here it is (it hasn't been sent out by the agents yet, but when it is I'll post a link - and I aim to get other letting agents to send it out too if possible): Unfortunately the table format for the figures won't come out here.

'Landlords demand reversal of outrageous tax decision in Summer Budget'

“Landlords from across Wales and, indeed, the whole of the UK are furious with George Osborne,” says Cardiff landlord, Sally Morse, who has been in buy-to-let for 20 years.

She is referring to the decision the Chancellor has described as simply “restricting tax relief” for landlords.

But while the Government may have made it sound innocuous, Sally says it will in fact bankrupt many landlords and make buy-to-let an unviable option for others. As a result, she has been campaigning against the decision ever since it was announced.

“The Chancellor made it sound as if landlords have been given some kind of benefit up to now, which is now being taken away. In actual fact, landlords just offset the cost of their mortgages like all businesses. He’s now decided we can't do that. What's more, he's redefining our costs as ‘profit’. It's bizarre!”

The impact on landlord pockets

To help demonstrate the difference these changes are going to make to a landlord’s income, let’s take Jim, a higher rate 40% taxpayer and an owner of one buy-to-let property worth £200k, as an example.

Now

Post change

Post change and with 1% interest rate rise

Rental income

£10,000

£10,000

£10,000

General landlord costs

£2,000

£2,000

£2,000

Mortgage interest

£6,000

£6,000

£7,500

Gross profit

£2,000

£2,000

£500

Taxable profit

£2,000

£8,000

£8,000

40% tax on taxable profit

£800

£3,200

£3,200

Mortgage interest tax relief (20%)

N/A

-£1,200

-£1,500

Net tax bill

£800

£2,000

£1,700

Net profit for landlord

£1,200

Nil

-£1,200

Jim has a 75% loan-to-value mortgage with an interest rate of 4%, meaning he pays £6k per year in mortgage interest. His property brings in £10k per year (£833 per month) – a gross yield of 5% – and his general landlord costs including maintenance, safety certification and letting agent fees amount to £2k. Right now, all this results in a taxable profit of £2k, of which HMRC gets £800 (40% of £2k), while Jim pockets £1,200.

When the Government’s tax change is implemented fully, the picture will change greatly because Jim’s £6k mortgage interest payments will be added to his taxable profit. Suddenly, he owes £2k to HMRC, rather than the £800 he used to pay. This is because 40% of his new £8k taxable profit totals £3,200, less a 20% mortgage interest tax relief of £1,200 the Government have ‘kindly’ put in place for landlords.

Finally, let’s throw a 1% rise in Jim’s mortgage interest rate into the mix, taking it to 5%. As you’ll see from the table above, instead of making the £1,200 net profit he does currently, he’ll now have to find the same amount in order to pay his tax bill. His buy-to-let venture has gone from earning him £1,200 per year to costing him £1,200 per year.

‘Alice in Wonderland tax’

The Government’s changes will also mean some landlords go from paying the basic tax rate of 20% to the higher tax rate of 40%, or the higher tax rate to the additional tax rate of 45%.

In Jim’s situation above, for example, the £6k he pays in mortgage interest doesn’t currently count towards his taxable income, but it will in the future. When you take into account what somebody might also earn from their standard 9-5 job, this additional £6k may be enough to tip them over the £31,785 taxable income threshold between basic and higher rate taxpayers.

Income tax rates

Tax rate

Taxable income above your Personal Allowance of £10,600

Basic rate 20%

£0 to £31,785

Higher rate 40%

£31,786 to £150,000

Additional rate 45%

Over £150,000

Is it any wonder that Telegraph journalist, Richard Dyson, has called this the 'Alice in Wonderland tax’? He’s been campaigning against the ‘tax grab’ and his articles highlight the implications for landlords who have high mortgage interest payments.

What’s clear is that many landlords, including those who are ‘accidental’ landlords or have relocated for a new job but let out their old home, are going to be adversely affected.

Petitioning for reversal

Feelings are running so high that a petition against the changes was launched at the beginning of August, which has already surpassed 30,000 signatures.

“Everyone who believes in justice should sign it because this tax is unfair, illogical and discriminatory, and it’s going to have a terrible impact on the private rented sector,” Sally says.

With the country’s top economists saying the idea is “plain wrong” (The Institute for Fiscal Studies) and “doesn't make sense” (The Institute of Economic Affairs), it remains to be seen how much expert opinion the Chancellor can ignore.

Sally is urging landlords and tenants to act now in a bid to try and reverse the Government's decision. As well as signing the petition, she suggests writing to both local MPs and newspapers.

“Everyone needs to stand up, be counted and make some noise to try and prevent this dreadful decision from going ahead. So many people, including MPs, don’t realise the implications, so please – visit them and explain it.”

If you’d like to know how the tax changes will affect you as a landlord, you can input your basic figures (rental income, mortgage interest payments, etc) via this handy calculator and view the result.

Hi Steven, I may be wrong but I think writing in your own style is always good, and getting across your own personal circumstances. how it will affect you personally, your tenants, and the wider rental market. I would also include some alternatives i.e. That the policy should only be applied to new purchases so people can therefore make an informed decision about whether to become a landlord or not. You could even sign post various online stories from the telegraph etc

Yeh probably right thinkin about it

Reply to the comment left by "Barry Fitzpatrick" at "05/10/2015 - 09:30":

You said...."Here is the link to Ranjan Bhattacharya’s report..."

Thank you Barry

Reply to the comment left by "billy bob" at "05/10/2015 - 15:40":

I agree. NLA and RLA need to stand up here and demonstrate they are worth being in existence and worthy of our membership fees.

As it stands unless they run a course on "How to be a good accredited bankrupt" they are of little use to any of us.

They have the sprouts of the ability to dissent, but can they grow and meet the challenge??? I have yet to see proof but I am at a NLA meeting on Wednesday and I will report back after that on what the speel is from them on the Tenant Tax.

Reply to the comment left by "Jon Pipllman" at "05/10/2015 - 21:28":

'I don’t recognise your description of ‘my’ other forum'

^ In the words of a very skilful yet occasionally delusional US tennis player from the 80s: 'You CANNOT be serious!'.

On the whole you seem a sensible chap, so I suggest you take a closer look (many posts contain blatant & bitter vitriol) there?

I'm wondering if it would be worth someone going through the list of MPs and finding out which ones are landlords. I don't know if there would be a quick way of doing that. It could be laborious. Would it be useful? Could we then divide the task and if there are 150 for example, 15 of us could write to 10 each... some may be incorporated and not care but we could include a few sentences about the dangers of them being next and how anyway they should be on the side of reason and justice. What do people think?
And/or is there any other way we could be targeting certain categories of MPs? Early on, we targeted anyone with any supposed role in 'business' in the Government. I'm not aware of one of them replying. We need the ones who are willing to stand out from the crowd and not behave like pathetic sheep (sorry for insulting sheep).
At some point we are also likely to have start lobbying the Lords, so if anyone wants to start the preparations for that, that would be good. Mark A suggested thinking about the Lords at one point and although they allegedly have no say on Finance Bills, my MP also suggested they might have some influence.

Yes there is blatant and bitter vitriol in many posts on hpc. No shortage of it here, just with a different target

If you don't like it, don't read it. I like it so I read it and post there too

Reply to the comment left by "Jon Pipllman" at "05/10/2015 - 23:18":

Why are you here?