Summer Budget 2015 – Landlords Reactions

Reply to the comment left by "Gary Dully" at "09/10/2015 - 02:42":

This is the letter I drafted for my tenants yesterday, to go with the rent increase forms. I am increasing the rent by very small amounts £10 minimum, £25 maximum on my smaller houses. I suspect a few people will give their notice as it'll annoy them, but as a whole it will add a few thousand a year to my revenue and get them used to the idea that rents aren't going to be static anymore. If any leave, I won't have much problem charging the new rents to new tenants. I've also been doing spreadsheets on future annual rent increases. I don't think it's as easy as picking a percentage increase - I think about each one and the area, the tenant etc. before I decide what rent increase will work. With a few in very bad streets where the current tenant hasn't played up I'm still counting my blessings and not increasing those rents (including some at £320 and £325 a month - and we get accused as a whole of charging 'exorbitant rents,' and Campbell Robb every time he mentions 'private rents' puts the word 'expensive' before this.)

'Dear tenant.
We unfortunately are having to increase your rent and you will see the proposed amount of the new rent and information about this in the attached document.
Under normal circumstances we do not increase the rents - as many of you know, who have been with us for several years. However, in the Summer Budget the Chancellor of the Exchequer, George Osborne, announced that he was no longer going to allow landlords to offset the costs of our mortgage interest payments against our profit. This means that the interest we pay on mortgages each month will now count as our 'income' even though it has gone out of our account and to the mortgage lender. One journalist, Richard Dyson, in the Telegraph, has called this a 'lunatic tax.'
I have been campaigning against it ever since it was announced and have been trying to get this reversed, as it is a very unfair change to the tax system and means that landlords even if they make no money from letting out a house, after they have paid all the costs, will now receive big tax bills, regardless of their ability to pay them. Because of this, landlords throughout the UK will now be increasing rents in order to cover what will be massive tax bills.
It is for this reason that we have had to make an increase to your rent. The Government is to blame. Unfortunately, organisations such as 'Shelter' also campaigned for this decision as they like policies which are against landlords. Landlords and tenants will bear the brunt.
i have been to see the local Labour MP, Wayne David, and he has said he will discuss it with his Labour colleagues. It is important that as a tenant you also make your voice heard about this. It is quite straightforward to book an appointment to see your MP. If Wayne David is your local MP, this is the number to ring: xxxxx. You can then arrange to see him at his surgery and mention that I am your landlord and I've had to increase the rent. If you are in a different area, you should contact your own MP.
The Government has lied about this decision and said that it will only affect 'the wealthiest landlords.' In fact, it will not affect the wealthiest landlords as they do not need to take out mortgages to buy their rental houses. It will affect the landlords who have the biggest mortgage debts and it will affect millions of tenants like yourselves. The Conservative Government does not care about tenants.
You can also write to the newspapers and sign the on-line petition against this and share it on social media etc and get others to sign. This is the link: https://petition.parliament.uk/petitions/104880
If the Government reverses its decision, we will be able to reduce the rent back to what it was.
Once more, we are sorry we have to do this, but if we didn't act, our rental business would be in even more jeopardy.
Best wishes.'

I've been offline for a bit & on reading the last 24 hours comments, my concern is the dialogue is between a limited number of Landlords and although there's lots of interesting content with article links etc & sums going on (and sadly - arguments), we still have no planned solution to address:-
- there being too few landlords in this dialogue thread
- how to reach & engage the other LL's who are either blissfully unaware or ignorant of the impact on their finances
- suggestions put forward on how to move forward have been in the main ignored - I'm not saying they're good ideas but they're not even being explored eg Saeef Khan's idea of a fighting fund which only Mark Brown has responded to.
Can't we just focus our energy to pull together a fighting plan?
As I've said before, my personal concern is not the restriction on tax relief as I'm blessed with an unencumbered property portfolio BUT I am concerned that if this clause gets through with no changes, how it will effect every homeowner as a result of the likely fallout, and worse still is what tax relief for the self employed landlord will be attacked next eg tax relief on repairs restricted to 20%? Anything's possible with the Government's argument "why should an individual LL benefit from tax relief that individual homeowners don't? eg repair costs & insurance premiums etc
The picture is bigger than just clause 24 & we need to pull together in to a coherent well planned action group.

Laura, I have a problem with the fact that you do not have a problem with Clause 24, but are just worried about the next step. I don't take the view on the clause being 'okay' and I am not going to lie down and accept it. If you believe it is okay, then we have very different worldviews.
Also, regarding getting other landlords to fight, spreading the word etc., some of us have been doing this for hours every day since the Budget announcement - writing to journalists, doing submissions for the Finance Bill, getting FoI requests in, which sometimes give us revealing information, supporting the petition, visiting and writing to our MPs and much more.
Here is a comparison, posted a day or two ago (I've slightly changed it taking account of others' comments) which along with a myriad of arguments which we have put to the Treasury, The Finance Bill Committee etc. etc., clearly illustrates that clause 24 is not okay. And for me, it is a distraction having to preach to those who should be amongst the converted:

'HMRC are to change what has always been a business expense into taxable income for private landlords. The inequity this will produce is graphically illustrated below:

Under the new regime, for every £1 paid for any ‘finance charge,’ £1 will be lost against personal allowances and income will go up by a £1, moving the taxpayer in 'business 3' towards a higher tax band.

Comparing the different tax treatments of businesses under the new regime:
Business 1. Self employed B & B owner:
Makes £10,600 profit after expenses, tax bill = £nil
Finance charges are £100,000 – no tax on this.

Business 2. Landlord, but is incorporated:
Makes £10,600 profit after expenses, tax bill, @20% = £2,120
Finance charges are £100,000 – no tax on this

Business 3. Landlord (self employed):
Makes £10,600 profit after expenses, tax bill. = £15,763
Finance charges are £100,000, and are now taxable.
Landlords tax relief is eaten up, he is a higher rate taxpayer now and he owes HMRC £5,163 more than he has earned in profit.
His tax rate is now about 150%

Summary:
All three business have provided very similar and sometimes identical services, they have made the same actual profit, however they are taxed completely differently to each other.
The self employed B & B owner has no tax to pay.
The incorporated landlord has a tax bill of £2,120
The self-employed landlord has tax bill of: £15,763.

And the Government says that the tax change is being introduced because it is 'fair.''

‘Rents in the private sector have been falling in real terms according to an independent study published today.’

http://news.rla.org.uk/rents-falling-says-new-study/

Commenting on the findings, David Smith, Policy Director for the Residential Landlords Association said:
“Today’s report bursts the myth, peddled by some that rents are spiralling out of control.”

Reply to the comment left by "Ros ." at "09/10/2015 - 10:00":

Ros - You start by saying in your response:-
"Laura, I have a problem with the fact that you do not have a problem with Clause 24, but are just worried about the next step........then we have very different worldviews"
Ros - of course I have a problem with the "next step" which I elucidate on below, but first I want to say that I thought the whole purpose of an open forum is to allow everyone to voice their opinion & healthily debate.
If you read my previous postings along with my last posting, I am saying my "personal" concern is not the restriction on tax relief as I’m blessed with an unencumbered property portfolio. This means
"I am" not directly effected but it has not stopped me wanting to help existing landlords caught in this terrible trap.
Additionally my concern "is the next step" ie the precedence this Clause sets for other possible future restrictions on tax relief - in GO's words in the Summer Budget & I quote; " The Current Tax System supports Landlords over & above ordinary homeowners. Landlords can deduct costs they incur when calculating the tax they pay on their rental income. A large portion of these costs are interest payments on mortgages" ....It goes on a bit more but the key thing for me in GO's announcement is that he says relief on the mortgage interest cost being just "part" of the costs a landlord gets tax relief on which a homeowner does not & therefore begs the question; does he feel the tax system unfairly supports landlords over homeowners on "all" costs & if so, will a future budget go so far as to include a restriction of tax relief on repair costs & insurance premiums too? One would hope not on repairs at least, as this would surely end up with landlords spending less on maintaining their properties, but I can't be complacent relying upon this belief.
In signing off, I would stress that I am not belittling the efforts made by the forum members. I am impressed by what is collectively going on. Very. BUT my biggest concern remains that we've still only engaged so few landlords to sign the e-petition. If we were over 100,000 signed up it means our message would be "considered" for debate in Parliament. But "considered" is too loose a word for me & therefore I feel if we could get many more than 100,000 signed up, we stand a good chance in forcing the debate back on to the floor. Hence why I bang my drum on focusing today on other Landlords first, second & last as a 100,000 + landlords signed up to the e-petition will then hopefully join in writing to MP's, Councillors, Journalists, which will increase the number of communications exponentially.
But heh - that's just my opinion!

Just had a pretty sensible meeting with my MP, John Penrose. He had identified that the biggest problem is the difficulty of the transition to a limited company structure and proposes to discuss with the Chancellor whether something can be done to enable Incorporation Relief and to remove the linked transaction trap for Stamp Duty.

Reply to the comment left by "Jerry Jones" at "09/10/2015 - 13:42":

Hi Jerry.
That could be useful for some landlords - although there are also the complications of CGT and mortgage companies allowing the change, without the need to remortgage (both of which could stop this from being viable). It's so annoying and unnecessary though. Before they assume it is somehow preferable to own properties in limited companies rather than in private names, I'd like to see the explanation of why the one is superior to the other. And of course there can be no such explanation, as the idea is stupid and without any basis in reason or logic.
And of course, we should like a promise from the Chancellor that he won't do the same to limited companies in a couple of years, to 'level the playing field' again, but this time between categories of landlord. And we can really trust the word of GO, can't we?

Reply to the comment left by "Mark Shine" at "09/10/2015 - 11:07":

Yes Mark ,if you look at how many landlords have said they have not increased rents for tenants housed average 8years ,it is quite a few..

But this clause will change this now as landlords fight to survive.

Unfortunately its the lowest band of tenants that will struggle the most, the government has not stopped dishing it out to them with benefit caps UC etc....

Its very very sad that we now have to have food banks in this country because people cannot afford to feed themselves.

Reply to the comment left by "Jerry Jones" at "09/10/2015 - 13:42":

Well done Jerry, can you get him to find out whether they intend targeting Ltd companies next.?

Reply to the comment left by "Gary Dully" at "09/10/2015 - 02:42":

Hi Gary

I saw that you had posted the incorrect description of the tax change on the John McDonnell thread as well recently.

If one of us took this to an MP, as you encouraged Jerry to do, the MP would be told by Gauke that this was completely wrong, and that we did not know what we were talking about. It would be an open goal for Gauke, and would undermine our credibility.

Apart from that, I thought your comparison of the three types of taxpayer was brilliant.

The 20% “relief” will not be deducted from the finance costs, it will be deducted from the tax that is calculated in the new way. And the new way is to pretend that we have no finance costs when working out our profits.

The change could be explained to tenants by saying that HMRC are going to pretend that the money which we pay to the lender as interest is somehow still in our bank account as well. Then HMRC will tax us on it at 20% (or 25% for additional rate taxpayers). The tenants will say that it doesn’t make sense, and you will agree.

Alex Caravello’s spreadsheet is completely reliable, that has never been questioned. Its calculations are transparent. Whenever you change a figure in a red box, black figures will change. You can check they are right with a calculator. At no stage does it deduct 20% from the finance costs.