Summer Budget 2015 – Landlords Reactions

Reply to the comment left by "Ian Simpson" at "17/07/2015 - 11:54":

Well done, Ian!

Reply to the comment left by "Mark Shine" at "16/07/2015 - 21:00":

Hi Mark

Adding £81k interest back to the rental profit of £72k makes £154k. That means you have lost the nil rate band of £11k because your “income” exceeds £121k. At £150k you enter the 45% band.

I have been calculating tax for this forum on the back of an envelope, (I don’t particularly relish it, Mark!) but I would not attempt this for an income exceeding £100k (where you start to lose the nil rate band). I do not have any tax software.

As a broad brush estimate I would have expected your tax to go up by at least 20%
of the interest, or £16k, plus a bit more because your marginal rate will be 45%.

That alone would just about double your tax liability.

However, Jason’s software has calculated an increase of £21k. This makes the new tax £39k, which is 54% of your income. Currently your effective tax rate is 25%.

This is a real world example of the proposed change, and thank you for sharing the
figures.

May I ask what you do will in the light of this loss of after-tax income as regards:

buying new-builds,

reducing your portfolio, or

using a company?

And this letter has gone to my local MP and to George Osborne :

Following your proposed reduction in interest relief for private landlords (whilst exempting those who have a Ltd company structure) the unfortunate full implication of this is that many buy-to-let landlords will end up paying more tax than they are actually making in profit, even paying tax after having experienced a loss!!

The other effect will be that many highly geared landlords (i.e. those with over 75% gearing on their portfolios) will face bankruptcy due to this measure and the double tax whammy of CGT hitting them as well, as they sell out.

Please also bear in mind the mass of distressed sales which will result, not to mention the thousands of rental homes which will become unavailable as a direct result of this measure, just at the time when government is seeking to provide more homes, not less.

I would like you to please reconsider this measure which is grossly unfair and discriminatory to these small business owners, (Buy to Let is without doubt a business , (and a very labour intensive one at that) and not a passive investment.

Some Positive Ideas to improve things going forwards:
1. Full U-turn on the measure
2. if not a U Turn, then an amnesty on SDLT/CGT charging for a one-off move to Ltd structure for landlords who register with a scheme within a set time frame.
3. Apply the measures only to purchases subsequent to 2017

I have spoken to Ann Milton , MP for Guildford this morning at a Conservative party breakfast, and she agrees that many ramifications of proposed new laws are often not thought through fully, and open forums like this morning are very important in deciding how to proceed and also advised me to write to you, and to Mr Howarth, hence the email

I do hope you will decide to help

Reply to the comment left by "Ian Simpson" at "17/07/2015 - 12:36":

Magnificent, marvellous, superb, fantastic, awesome - need I say, I love it 😀
.

Yes, great work Ian.
We all have to play our part and I hope others will now also get on with acting outside of just this forum's discussion. We can only be sure when someone reports back on what they have done, as you have. Please can others who have written to MPs etc., let us know they have done so?

Regarding my earlier question this morning about an e-petition: I will go ahead and write to the DPS and ask that they offer us their support (I was given a special email address to write to and not offered the opportunity to speak to someone in person yet). As no-one has given me any suggestions regarding how to persuade the DPS, I'll just have to make something up independently (maybe not many people saw my request).
I just googled the NLA and had a brief look at their website. They appear to be doing nothing about this and have even misunderstood it - swallowing the terminology regarding 'tax relief' and not understanding we will not be able to claim 100% of our mortgage interest costs. The RLA also doesn't seem to have begun an e-petition. Obviously, it is important that there is only one - I'll have to see what the DPS says. They may say they are not a campaigning organisation.... I shall keep you all informed.
My initial draft of the e-petition is:
We, the undersigned, completely oppose the decision in the Budget to abolish landlords' right to put 100% of their finance costs in their tax return, as an expense of running their business. All other businesses in the UK will continue to enjoy this right. As such, this measure constitutes a discriminatory, unjust and illogical attack on private landlords. We urge the Government to overturn this decision.'
Let me know what you all think - obviously we won't all agree, but since no-one else is doing this, I've had to take the lead for the moment.

Reply to the comment left by "Mark Shine" at "16/07/2015 - 21:00":

Hi Mark

I have been playing with some of your numbers and have also made a few assumptions. In real life it is not reasonable to assume for example that the 40% band would not increase especially as George O said in the budget that this objective was have the personal allowance rise to £12,500 and for no one to have to pay higher rate of tax until they earned over £50,000.

In my calcualtions I have therefore increased the personal allowances and tax bands to his level by 2020/21. If I had not the tax due would be higher than estimated below.

It is also not reasonable to assume your figures would not change between now and 2021 but for comparisons I have had to assume there are no changes.

Your taxable profit is £71,748 but you have to accept that the true profit of income less expenses is £93,258 as the wear and tear allowance is an allowance (!). Yes, I know it is to cover replacements etc. but you have over £20,000 of repairs etc as well in your figures.

I calculate the tax due for 2015/16 at £18,102 on these figures with take home income after tax of £75,156. The tax would be marginally lower than the tax actually due in 2013/14 of £18,521 due to increases in the personal allowances.

Going forward I would estimate the net tax due to be as follows:

2016/17 - £26,503
2017/18 - £33,210
2018/19 - £38,779
2019/20 - £42,796
2020/21 - £47,406

I hope this gives you good indication of how deeply these changes will bite. By the time you get to 2021 you will have no personal allowances and will be paying tax at a marginal rate of 45%, assuming that does not change either!

Hi all.
I have now emailed the DPS and asked whether they will be willing to circulate the link to the e-petition, once I have set it up. If anyone hears of anyone else doing this, please let me know as we don't want replication. Thanks.

Reply to the comment left by "Simon Lever" at "17/07/2015 - 13:39":

Hi Simon

Repairs and maintenance are different from the costs that are covered by the Wear and Tear allowance. The latter is given instead of allowing the deduction of the cost of replacement contents in furnished lettings. The cost of anything covered by this allowance cannot also be claimed as a separate deduction.

Ironically, when I started furnished lettings 30 years ago, the Inland Revenue preferred us to claim the W & T allowance rather than the actual costs. Now HMRC has reversed this, and we will claim actual replacement costs. We cannot oppose this, it seems eminently reasonable.

As Jason pointed out, Mark will have some replacement costs. As we are trying to work out the effect of another change in rules, regarding interest, I think it confuses things by adding back the W & T allowance.

Would you please assume that the actual cost of replacements is the same as the current figure for the W & T allowance, and calculate the tax on £71,748 currently and for 2020/21.

Then we will see the effect of the change relating to interest, which is what we need to oppose.

By the way, I was surprised at the current tax amount, £18,102 that you calculated on an income of £93,258. This is very close to Jason’s figure of £17,900, and my rough manual calculation of £18,110, on the lower income of £71,748.

Reply to the comment left by "Appalled Landlord" at "17/07/2015 - 14:34":

Hi Appalled

The tax for 2015/16 is on taxable income of £71,748. The W&T allowance does not drop out until the 2016/17 tax year.

Adding back the W&T to 2020/21 gives tax due for the year of £37,727. Still no PA and marginal tax at 45%

Whilst I appreciate you just wish to compare like with like in practice things will be different.

Having taken the next step regarding the e-petition - I will now await the reply. I have moved on to another tack. Namely, the law. I've looked at summaries of Discrimination laws and not come up with anything yet, but I have also looked at the Human Rights Act and found the following:

'Protection of property

You have the right to enjoy your property peacefully.

Property can include things like land, houses, shares, licences, leases, patents, money, a pension and certain types of welfare benefits.

A public authority cannot take away property or place restrictions on your use of your property without very good reason.

This right applies to companies as well as individuals.
Example

If a public authority plans to build a road over someone’s land, it must have laws in place to let it do this. It must also have a procedure to check that a fair balance has been struck between the public interest in building the road and the individual’s right to their land.

(Example taken from Human rights, human lives, Department for Constitutional Affairs, 2006.)
Restrictions

In some situations, public authorities may interfere with your right to peaceful enjoyment of your property, for example by restricting your use of it or by taking it away.

This is only possible where the authority can show that its action has a proper basis in law and is necessary in the public interest.

The government must strike a fair balance between your interests as a property owner and the general interests of society as a whole.

If your property is taken away you should be entitled to compensation.

This right does not affect the ability of public authorities to enforce taxes or fines.
What the law says
Protocol 1, Article 1: Protection of property

Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of the State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure payment of taxes or other contributions or penalties.'

Maybe we could argue against the measure on the grounds that it would inevitably lead to the loss of our property? Also, I believe, using what the IFS has also said, we could show that it is not in the public interest for landlords to be attacked in this way with all the consequences which will follow.
I'm not a lawyer, but I think we need to educate ourselves about any law which could be relevant to this campaign.