Summer Budget 2015 – Landlords Reactions

>Mark S

I agree with some of your earlier post: C24 is clearly designed to stop the high leverage:yield model being used so widely in BTL by unincorporated LLs; the government doesn't want a house price crash and has thrown everything but the kitchen sink at preventing it so far

So yes, by design, unincorporated LLs that have employed the high leverage:yield model will lose out.

I don't agree that C24 in isolation makes winners out of incorporated / unencumbered LLs.

Currently yields are too low in most areas to be attractive to many (see the reference I made to starwoodwaypoint previously which was working on a 10.58% yield in Q3 of this year). I don't see rent increases alone pushing up yields to sufficiently attractive levels to encourage further participation.

I don't know what is left in the government's bag of tricks to prop up / push up house prices (a normally functioning market doesn't need this lot https://www.ownyourhome.gov.uk/schemes-all/ ). At some point, as happens in all markets, the government intervention will stop / fail and true price discovery will occur. That might involve prices falling.

As for tenants. Some will become OO, some will pay higher rents, some will have to move at a time other than they might otherwise choose. It is worth remembering though that C24 doesn't lead to any houses being knocked down. I don't believe there will be mass homelessness as a result of C24. There will be disruption to some tenants' lives as they seek alternative housing - some of which will be severe disruption, but I can't see long term homelessness increasing significantly.

On careful comparison of your earlier post with the views on HPC, I don't see massive differences really. There are likely big differences between how some HPC people view the impact of C24 compared to some here, but in 'mechanics' terms, your post sets things out very similarly to how many HPC posters set it out.

As for being thrown under a bus for being a BTLer, yes some HPCers might. That said, some 118ers might throw someone under a bus for saying C24 isn't all bad. There are extremes on both sides of the divide.

Just doom mongering here but how about this scenario...

- C24 goes ahead
- Pension contributions relief is also capped at 20%
- NI and tax is merged with an initial rate of 30% (down from the current effective 32%) and a higher rate of 50% (up from the current effective 42%) but meaning property profit rate will increase by 10% for all.

Personally if all those happen as a well into 40% tax payer my effective rate of tax will be 70% plus and ill give up work and live off the property income as it just wont pay to actually work any more.

The scary thing is the above scenario doesn't seem all that fanciful.

Reply to the comment left by "Lou Valdini" at "12/10/2015 - 15:45":

You are right that holiday lets are unaffected.

I think the treasury thinking is "holiday lets are a trade, becasuse there are frequent contracts per property; residential lets are not a trade because there are infrequent contracts per property; both are businesses".

Reply to the comment left by "Michael Barnes" at "13/10/2015 - 07:45":

Hi Michael.
I have both residential and holiday lets. My residential lets are my main business, take up most of the time, are on a much bigger scale, and pay me enough to keep a roof over my head and that of my children. My holiday lets are just an add-on, hardly worth doing for the amount of money they make and the hassle. They also provide non-essential accommodation for people who already have a roof over their heads, but just fancy a different one for a few nights. The same could be said of hotels (apart from when the guests have to travel for business, for example). So the real essential business of providing housing services is seen as the non-business, in effect (treating our houses and the expenses incurred in buying them and looking after them, as our 'personal' affair in one way; but as a business when it comes to taxing us on the rent and capital gain).
The so-called thinking of the Treasury is completely contradictory. I think they're actually thinking like a bunch of gangsters. And the results of their stratagems is an immoral and evil attack on landlords.

Reply to the comment left by "Jon Pipllman" at "12/10/2015 - 20:58":

You say ‘C24 is clearly designed to stop the high leverage:yield model being used so widely in BTL by unincorporated LLs’. Agreed. So do you agree that GO’s headline ‘levelling the playing field’ rhetoric which was then repeated by his underlings and also @ HMRC parrot fashion was primarily nothing more than spin? Possibly because they heard the rumblings from Labour and so wanted to discourage the left side of the Tory voting massive thinking about switching allegiance to Corbyn, who at the time was odds on favourite to become the next Labour leader.

As to your ‘It is worth remembering though that C24 doesn’t lead to any houses being knocked down.’ Yes obviously, however many City/Town professionals actively choose to live in a flat share while renting, as I did myself for cost saving and equally importantly for social reasons. I don’t know any OO’s who feel the same way when buying.

Clause 24 was discussed in committee this morning and passed unanimously

In the debate, it was stated that 94% of landlords will have to pay more tax as a result of clause 24

Reply to the comment left by "Jon Pipllman" at "13/10/2015 - 11:09":

Last time i looked "1 in 5" was 20% ....not 94% . Some Guy called Fawkes needs to re appear , just crazy.

I haven't seen the full transcript yet to put it in proper context, but it was certainly stated.

http://www.parliamentlive.tv/Event/Index/3d8b1335-1eda-4e8d-8323-3cdd64569d09

C24 discussed from around 10:05:45

The bit about 94% that DG mentioned has not changed and was mentioned on this thread in July after Megan Shaw @ HMRC was including it in some of her emails:

'The government expects around 94% of landlords who will have to pay more tax will have a taxable of income over £35,000'

So 94% of the 1 in 5 (or 18% whichever it is) that are affected...