Summer Budget 2015 – Landlords Reactions

Reply to the comment left by "Chris Cooper" at "29/11/2015 - 17:44":

Hey Chris. I said Ian Cowie had a nerve - and that was before I saw this article, three years ago, when he was promoting BTL as an investment (what a hypocrite):

http://blogs.telegraph.co.uk/finance/ianmcowie/100020694/how-to-become-a-buy-to-let-landlord-and-boost-your-pension-with-property/

I haven't found the link to today's article yet. Is that the whole script of it above? Just checking so I get my reply right.

This decision is all well and good if you are a first time buyer, trying to get on the property ladder and finding it difficult to secure a property when they keep being snapped up by investors – however, what if you are one of the 22% of UK tenants who don’t ever expect to make it onto the property ladder?

What if you are reliant on landlords providing a stream of rental properties across the country, often in some of the priciest towns and cities? This ongoing tax on landlords is forcing many property investors to reconsider their future in the buy-to-let market, and the subsequent impact on the rental market could have huge consequences.

It is fair to assume that a significant part of the problem with today’s extreme house prices is a simple case of supply and demand. There is more people wanting to buy than there are available properties, so in turn the prices are forced up. Should landlords decide that owning a buy-to-let investment is no longer financially viable, and fewer are available on the market, the same phenomenon will surely occur? George Osborne may dream of a time when every home in the UK is owned by the occupier, but sadly it is not a likely outcome, and penalising landlords is only going to ultimately ‘tax the tenants.’

The move towards giving first time buyers a helping hand is great, it should be applauded and it will surely ease the pressure of the current property bubble, however, it is important to remember that we are not only a nation of first time buyers!

Reply to the comment left by "Ros ." at "29/11/2015 - 18:39":

Thanks Ros. There seems hardly any mention from commentators about the inequity / discrimination between the way the measures affect individuals and corporations carrying out the same activity. I suppose the general vilification can be explained by the public being able to identify with (and be somewhat envious of) individual landlords, but not corporations - amazing really.

Reply to the comment left by "Ros ." at "29/11/2015 - 19:15":

Hi Ros, yes that's the whole text. One has to subscribe to the Times to see the whole article. Luckily my Dad has a subscription, but links won't open, so he has to copy and paste it into Word etc etc.

I'll have a look at the other article you found. Will it do anything for my mood?! : )

Reply to the comment left by "Chris Cooper" at "29/11/2015 - 17:44":

I believe that Ian Cowie David smith Anne ashworth and becky sparrow of the times have been running a concerted campaign against buy to let Landlords for some now Ian Cowie admitted today he played a major role in bringing in the bonkers tax meryl somerst Webb Of moneyweek also seemed to be involved in this campaign as highlighted in this forum by the conservative stevenage councillor

Copy of an email I sent to Sir Jon Cunliffe, Deputy Governor of the Bank of England on 16 November, following comments he made - plus the response.

Dear Sir Jon,

I understand that you recently voiced concerns that a large number of landlords might seek to exit the market because of various factors, including interest rate rises.

The introduction of measures announced in clause 24 of the recent Finance Bill, which will restrict tax relief on mortgage interest is likely to have a far greater impact. It is highly likely to precipitate the very thing which I understand the Bank of England is concerned about - even without future interest rate rises.

Every organisation with knowledge of this area thinks that the new measures are unfair, will not benefit anyone and will cause (surely unintended) harm. The list includes the National Landlords Association, the Residential Landlords Association, the Council of Mortgage Lenders, and various independent organisations such as the Institute of Chartered Accountants and the Institute for Fiscal Studies, the Conservative think tank Core Policy.

I have attached a representation from the Institute of Chartered Accountants, which explains the likely effects of introducing these measures.

I have also attached a spreadsheet, prepared by my accountant, which illustrates the devastating impact the new measures will have on me. Many others will be in a similar position.

Yours sincerely, Chris Cooper.

Response
Dear Mr Cooper

Thank you for your email of 16 November to Sir Jon Cunliffe on the housing market. I have been asked to respond on his behalf. The Bank of England is always grateful to those members of the public who take the time and trouble to write with their thoughts and views.

As Deputy Governor responsible for Financial Stability and a member of the Financial Policy Committee (FPC) it is part of Sir Jon Cunliffe’s role to assess any potential upcoming threats to financial stability within the economy. This was the context for his remarks on the potential impact on house prices should there be a selloff in the buy-to-let market following a rise in the Bank Rate. The FPC will continue to monitor the situation in line with its remit of safeguarding financial stability.

With regards to tax relief, we are unable to assist as this is beyond the remit of the Bank, as these are in the first instance fiscal matters and so is the responsibility of the Government.

Thank you once again for taking the time to write to the Bank and to share your views with us. I am sorry that we cannot be of assistance to you on this occasion.

Yours Sincerely

Roger Beaton
Public Enquiries Group | SCSD | TS-Mz (D-C)
Bank of England | Threadneedle Street | London EC2R 8AH | +44 20 7601 4878
enquiries@bankofengland.co.uk

I'm sure the tax relief restriction measures were never discussed between the Government and the BoE, as a means to slow BTL investment....

Below is a copy of an email I sent to a law firm, today. Please can I encourage other landlords here to write to law firms as well, so that we can get an initial opinion?

You are welcome to use my wording, or similar:

I am writing to you because a piece of recent legislation, which has been introduced by the Government, discriminates against a group of people carrying out the same activities as another, to whom the legislation will not apply.

George Osborne announced, in his Summer Budget, that he will restrict the tax relief on mortgage interest on buy to let mortgages. However, this measure will only affect individual, non incorporated, owners of buy to let properties.

Also, because of the way the new measure will be applied, it will penalise those individuals far more than many realise. The 20% relief is applied after the tax has been calculated on gross rents, minus allowable expenses, plus any income derived from employment. This means that many lower rate tax payers will be moved into a higher rate and some, like myself, will progressively lose their personal tax allowance - without actually receiving the income in reality. Tax will be payable, in some cases, on net losses. Additionally, this measure is being applied retrospectively, in as much that it penalises landlords who made (necessarily) long term business / investment decisions under different tax rules.

Many landlords in a similar position to me are keen to know, and willing to contribute financially, to mounting a legal challenge to this measure.

Please could you let me know if it might be possible to take legal action on any grounds to have the measure amended?

I have attached a spread sheet, prepared by my accountant, which illustrates the devastating impact this new measure will have on me.

Regards, Chris Cooper.

Reply to the comment left by "Chris Cooper" at "29/11/2015 - 17:44":

Hi Chris.
Well I've had a stab at the reply to Ian Cowie's article, if you would like to take a look before I send it off. Apologies to everyone for my cut and paste job of my personal tax situation (think how boring it is for me to keep reading it). Having said that, I did make some changes, so if anyone spots any mistakes with my maths, please let me know.

Dear Ian Cowie.
You seem to be rather pleased with yourself at the moment and seem to be taking credit for the moves against landlords by the Chancellor. I wanted to see this article so I did a search on your name and the first article that came up was one you wrote in 2012 encouraging people to invest in buy-to-let. For how long did you think buy-to-let was okay and when did you discover that it wasn't? I'm just wondering, as a portfolio landlord myself.
In your article that I did then find, you quote Sir David Hendry, professor of economics at Nuffield College, Oxford, predicting that 'landlords’ tax breaks could cost taxpayers £10bn a year if the chancellor failed to act.'
Why didn't you quote the other chief economists of the country, notably Paul Johnson at the IFS, Professor Philip Booth of the Institute of Economic Affairs and also the Policy Exchange? These have all said that disallowing the offsetting of private landlords' finance costs to arrive at the taxable income is a nonsense and 'doesn't make sense.' Professor Michael Devereux, a professor of taxation at Oxford University has pointed out the obvious fact that you cannot tax someone on a profit, without allowing them to offset the costs of producing that profit. It's patent nonsense. Why are you also referring to this as a perk? Is it a perk when an incorporated business does it? Or when a multi-national company does it? Can you explain why private landlords - ranging from those with one property to large portfolios which they manage full-time - are to be singled out in this way?
You compare us with owner-occupiers. Why? We are housing providers. Most of us are also owner-occupiers, but that is irrelevant. We don't occupy our rental houses as owner-occupiers do; we don't get to pay no tax on rental income we make from letting out our property as owner-occupiers do if they take on a lodger; we don't get to sell our houses later on without paying any capital gains tax. We don't get to decide whether we want smoke alarms or locks on windows or fire extinguishers etc., as owner-occupiers do. The whole comparison is ridiculous.
You also mention the tax regime shifting against landlords and in favour of owner-occupiers; well the facts speak for themselves that this has been the case already for many years. Landlords were taxed far more heavily than owner-occupiers before the recent vicious attacks on our businesses by the Chancellor. Why do you think this gross imbalance should be made even worse?
You make no mention of the 'lunatic' nature of the so-called 'tax relief restriction.' Perhaps you haven't fully understood it. I'll give you my example, using the method suggested by HMRC, comparing 2015 with 2021, when the rules are expected to be fully in place.
Last year, my gross rental income was £130,000, mortgage interest payments came to £40,000 and other costs came to £40,000. This left a net annual income of £50,000 (the most I have ever earned). Under the new tax regime, I will no longer be able to include the £40,000 as a cost, but I must also place this amount into the column marked 'income' as though it were still in my possession, rather than it having been paid to the mortgage lender (at this point we are entering 'Alice in Wonderland' territory).
In both years I would have the personal allowance (nil rate band) of £11,000 and the tax calculated in the 20% band would be £6,400. In the 40% band the tax would be £2,800 this year but go to £18,800 in 2020/21, from which “relief” of £8,000 would be deducted (so where I previously could claim on 100% of my finance costs, I would only now be able to claim on 20%). The effective rate on real income goes up from 18.4% to 34.4%.
Tax payable for me in 2015 is £9,200 but in 2020/21 would be £17,200, an increase of £8,000. So my £50,000 income would be effectively further taxed to bring it down from £40,800 to £32,800. NB. I have no problem with paying a higher rate of tax, as long as it is applied to everyone (and doesn't single me out and discriminate against me for working in one specific field) and also as long as the tax is applied on my actual income; obviously, neither are the case here.
What is really worrying though is what will happen if interest rates go up at any point by, say 3%. I always knew this would happen and would handle it as necessary - BTL is a risky business and I expect that. But, under the current rules, if the interest rate went up by 3% and I was therefore paying an extra £45,000 mortgage interest pa (on a mortgage debt of 1.5 million), my actual income would go down from £50,000 to £5,000 pa. A few years back I was in a situation where my income was not quite as low as that, but low enough for me to qualify for tax credits, free dental treatment and so on.
Under the new rules though, although my actual income would be £5,000 pa (my residential mortgage payments are £900 per month, by the way), HMRC would not accept that that was my real income. They would now say that my real income was £50,000 plus £45,000, making a total of £95,000 pa and tax me on this fictitious/imaginary 'income.'
I wouldn't be entitled to tax credits and would have to find tens of thousands of pounds each year to live on and to pay 'income' tax, including higher rate income tax (!) on my non-income. (Similar scenarios will be faced by more than half a million landlords. And the first resort they will have to try and build savings to be ready for this new tax and delay bankruptcy will be to raise rents - although this would only help slightly as the amounts demanded by HMRC could be so huge, depending on the individual's mortgage interest liability).
If interest rates went even higher, with each increase and as I paid more in costs to run my business I would be deemed to be 'earning' even more and have nothing to live on but be expected to pay a phenomenal amount of tax. Basically, the sky is the limit regarding what I could potentially be asked to pay by HMRC.
So I bring you to the question: Do you think that this is fair? If so, why does it specifically only apply to non-incorporated, encumbered landlords? Why are you celebrating this as some kind of victory for you and for first time buyers?
First time buyers are 'priced out' by current owner-occupiers, sitting on vast sums of equity, more than by landlords, but no-one is attacking them. It is also current owner-occupiers who lodge the vociferous objections to any housing developments near them, which might affect their precious house values. Why do you not mention them?
The fact is that only 7% of the 150% rise in property prices between 1996 and 2007 was attributable to increased lending to landlords. My personal experience of buying mostly terraced houses in the South Wales valleys is that they are cheap and available to first time buyers and usually spend a considerable amount of time on the market. Landlords and first time buyers are not scuffling in the street like some mad American shoppers on Black Friday to try and outbid each other for these properties.
So why do you blame us and attack us and applaud the discriminatory singling out of us for apparent annihilation? Is it for the reason Richard Dyson suggested this week in the Telegraph? Is it the politics of envy? Is it because you are one of those who wish you also had invested in property and because you didn't you now want to annihilate those of us who did (taking considerable risks and incurring massive stress in the process; even more so with this awful, unexpected attack on us as though we are the devil incarnate)?
I think you need to look again at your approach to this. It's full of holes.
Yours sincerely

Reply to the comment left by "Chris Cooper" at "29/11/2015 - 19:46":

Chris

The reason for the vilification could be for the reason that you mention (basically schadenfreude). But it could also be as simple as: many folk including tenants, LL haters and journalists don't actually fully realise the different tax treatment being proposed for a LL who is not incorporated vs one who is?

I am sure GO & most of his crew do appreciate the difference, even if the rhetoric repeatedly given to the electorate did not convey that they did. As I said before on this thread, I wouldn't be surprised if it was actually larger corporate BTLers who played a part in the wording of C24.

Well done on your letter to lawyers. I will do similarly.

Reply to the comment left by "Ros ." at "29/11/2015 - 21:09":

Hi Ros, I like it - very powerful. It will probably fall on deaf ears though, because he clearly feels comfortable writing the kind of clap trap he writes, which is economical with the truth and omits crucial information - just to make his point. I think you have probably hit the nail on the head regarding his motivation here i.e. wish I had done it...