Summer Budget 2015 – Landlords Reactions

Firstly individually we need to write to our local MP, Nick Boles, and George Osborne. Relaying the salient points that have been mentioned in this thread. I do not think using a template letter is the best way so a list of point wrapped in your own words is the way to go.
Secondly, I would ask anyone with any connections to/influence the NLA/RLa to find out what they are doing, and make sure efforts are co-ordinated/combined.

Together we stand - divided we fall. At the moment we fall into the latter category.

I too would like to hear about new strategies given the reality of a new dawn. I only own the one btl but the rent on that is already 30k....which pushes me right up to the point where dividend income from my consultancy is taxed at 32.5% plus 18% corporation tax

You can ask a direct question from Megan Shaw, would you be required to pay Tax on your finance even if you did not make any profits and her answer would be yes.

If by 'profit' you mean "total receipts less finance charges less other expenses", then (I believe) her answer would be YES.

If by 'profit' you mean "total receipts less expenses excluding finance charges", then (I believe) her answer would be NO.

As HMRC are redefining 'profit' as the second case, then (I believe) she would use the HMRC redefinition and say NO.

Reply to the comment left by "Mark Alexander" at "15/07/2015 - 08:52":

Hi Mark.
Yes, I slightly adapted my version I'm intending to send to the Chancellor and also now, 'Nick Boles,' the Business Minister. (is Brandon Lewis still the Housing Minister? - excuse my ignorance)
I sent the following yesterday:

Dear Wayne
Thank you for your reply to me earlier this year regarding your support of landlords. It was much appreciated. I am now writing again, this time with regard to the latest attack on landlords in the Budget, through the proposals on 'tax relief' for landlords. Many of us landlords were initially confused about the terminology 'tax relief'. As the mist has cleared, we realise that what is really being proposed is that the cost of raising interest, through BTL mortgages, which is our biggest cost in running our businesses, has been re-defined as 'income.'
Obviously, this makes no sense. How can money going out from our bank accounts be classified as 'income'? It looks like the Conservative Government wants to introduce a new principle of taxation in this country, whereby outgoings are considered to be 'income' (but only in the special case of private landlords).
On a personal note, this year we had the pleasure of discovering our tenant in a house we own was a front for cannabis producers and the first we knew of it was a call from the Fire Service saying our house was on fire. The work to repair and renovate this house took four months - during which time we had to continue to pay the mortgage obviously, whilst having no rental income.
According to this logic, any or all of the costs of running our business could be re-defined as 'income.' Why just mortgage interest? And if our costs can be re-defined in this way, why aren't all businesses in the UK falling under this new (and incredible) tax regime? In fact, Buy-to-let is not a simple, hands-off 'investment', as it is often portrayed; it is a very labour-intensive business, often very stressful and for many of us constitutes a full-time job, whereby we work and are on call 7 days a week, including evenings.
Unfortunately, the failure to understand our business (ignorance, by another word), has led to the Government becoming confused and announcing this bizarre proposal.
To illustrate with a simple example of someone with a large portfolio.
SCENARIO AS OF TODAY
Rental income: £300,000 per annum
Mortgage interest: £200,000
Other legitimate expenses: £100,000 (e.g. insurance, letting, management, maintenance etc.)
Taxable income = zero.

SAME SCENARIO AS OF 2020
Rental income: £300,000 per annum
Legitimate expenses excluding interest: £100,000
Net taxable income = £200,000

According to this, net cashflow would still be zero but tax would be payable on £200,000 of mortgage interest. Given that net cashflow is zero, where is the landlord expected to find the money to pay the extra tax from? And the position worsens when interest rates increase. As landlords, we have been dumbfounded this week, absorbing the shocking news. We are starting to find our voices however and are intending to fight this.
As Housing Associations, 'limited companies' and all other businesses are receiving favourable treatment and are excluded from this measure, and allowed to offset their loan interest as an expense, where is the 'level playing field?' We're all providing the same service.
As you know, ours is a large business sector which provides an essential service to millions of renters and which also provides work for a massive amount of tradespeople, insurance brokers, letting agents and estate agents and so on. This measure could decimate our industry.
This singling-out of landlords as a special category whose interests can be so unfairly attacked can only stem from an anti-landlord prejudice, based on outdated and offensive ideas about us as business people.
I am hoping you can use your influence and your vote to help quash this measure. I believe it is going to be published tomorrow in the Finance Bill.
Yours sincerely

Reply to the comment left by "Mark Alexander" at "15/07/2015 - 09:01":

I agree with Ros.

Mark what I suggest is more focus on the following four areas 1) Coordinating a response, 2) writing to your MP 3) Transition in LTD 4) hot new coming from the market:

1. Coordinating a response / petition so we can ensure as you have said previously that the UK community of landlords are united and working on a single partition. Mark your site holds a lot of weight in this area and I'm sure you are working on facilitating / educating.

2. Writing to your MP, I have written to my local MP who is unfortunately SNP and therefore would likely take sadistic pleasure in imagining a so called rich greedy land lord with higher taxes. I recommend you think carefully about the type of MP you are appealing to, if it is a blue blooded MP who shoots foxes on the weekends from his 4th weekend home I suggest you focus on the business aspect. In my case because I am appealing to an SNP I am going to focus on the social impact to my tenants more so than my pocket.
I have laid out example of a person who earns just enough to be tipped into the 40% bracket and then assumed that they have 3 BTL properties all which currently break even. I have laid out the case as of today and the case as of 2020 showing how the properties will need to be subsidized by other employment to set the scene for why I am about to take the action I am going to take. I have then gone on to explain what action I intend to take as of today:
• I have never raised rents before and some of my tenants have been in place for 3 years, as of today that will change, I will raise rents in order to deleverage faster I will not do this is 2020 I will do this as of now! I will ensure my tenants and MP know this is driven by new legislation.
• On the property that is leveraged highest I will sell it in the next 2 years and I will be kicking out the family that have resided there for the last 3 years. I will use the small amount of equity to de-leverage on my other two properties.
• I will cease looking to investing in new renovation / building projects until the tax situation is more clear if this legislation does come into effect as it is currently described I will invest outside of BTL and believe this be negative drag on housing supply in my local area.
• The question for my MP is, if I do this and other landlords do this how will rents be kept affordable and how will housing stock increase?
Now be clear and re-iterate I am not doing this because I am a greedy landlord I am doing this because I earn a modest amount of income and will be at serious risk of bankruptcy if I do not take action today that will allow be to responsibly service my debts. We all know what happens when large numbers of people don’t service debts!

3. More discussion on how we avoid actually having to pay this, I am no expert at all in this area but what I need help understanding is if putting my properties into an Ltd is workable. My biggest concern over this is the financing / re-financing aspect. How can I mortgage and re-mortgage my properties if they are in a limited company? Who are the lenders to this segment? Can I be a guarantor for the Ltd company to allow it to borrow? These are all questions I need to consider before selling the property mentioned in point 2.

4. More discussion on any hot topics being circulated in the industry, especially around lenders. For example; is rental coverage going to go up to 1.4 from 1.25. Is LTV going to increase from 20% to 40%, are rates rumored to go up for BTL etc etc. This is all news we need to keep up to date with especially if you are just about to re-mortgage.

For me the biggest focus right now would be point number 3, maybe this is something we can open an additional thread for.

Gary.

Reply to the comment left by "Jason E" at "15/07/2015 - 09:05":

There’s been a fire and the house was empty for the whole year. Rental income is £0, interest 75K, other costs 25K. I believe your actual profit is now -£100K and your taxable profit is -25K, there is no tax to pay. Getting into the finer detail I guess here you have an actual loss for tax purposes that you use against profits in a latter year?

Your actual profit is £50k not £-£75k.... I am sure you in it for shock if legislation gets implemented.

You will reclaim 20% of £50k and pay 20% of £50k assuming you are higher rate tax payer your liability would be £10000

I meant to say not £-100k

Sorry ignore above

Reply to the comment left by "Mark Alexander" at "15/07/2015 - 09:01":

It seems to me that the underlying problem is that BTL is treated as an investment and not as a business. It is this that we need to attack and correct is we are to get reasonable tax treatment (they have already taken away the Renewals allowance for us but for no other business).

Consider the position of someone borrowing £100,000 to invest in shares.
Would you consider it reasonable for them to get tax relief on the interest?
Most people would not.

We are portrayed as doing essentially the same thing: borrow money to invest in a residential property.

However, unlike the investment in shares:

1. We provide a service to members of the public.

2. We have day-to-day management of the property and the tenants in that property.

3. We have significant legislation with which we have to comply as part of the day-to-day management of property.

4. We have a duty of care associated with the generation of an income from the property.

To my mind, the above points make it a business and not simply an investment.

Furthermore:

A. If we were to borrow to purchase and let commercial property, then (I believe) we would be considered to be a business and all expenses would be allowable.

B. If we were to do exactly the same as at present, but put the properties in the shell of a company, then (I believe) we would be considered to be a business and all expenses would be allowable.

Any ideas on how we can mount a campaign to change the perception of BTL in the government's eyes, based on the above (plus other salient points that I have not considered but others surely will), so that we are treated as a business (probably as a sole trader with NI implications, but that seems to me a small price to pay)?

I would suggest that emails to MPs include some arguments that we are in fact businesses and should receive expense treatment in the same way as other businesses.

There’s been a fire and the house was empty for the whole year. Rental income is £0, interest 75K, other costs 25K. I believe your actual profit is now -£100K and your taxable profit is -25K, there is no tax to pay. Getting into the finer detail I guess here you have an actual loss for tax purposes that you use against profits in a latter year?

So £75k - £25k loss = £50k taxable assuming you are higher rate tax payer your tax liability would be £10000 after you have reclaimed tax relief.