Summer Budget 2015 – Landlords Reactions

Reply to the comment left by "Ros ." at "18/07/2015 - 16:31":

He seems a decent and honourable chap (doesn't claim all his MP expenses) but I don't think he likes landlords and he is not my idea of a Conservative.

http://www.dover-express.co.uk/dingy-flat-London-best-seat-country/story-24527116-detail/story.html

Dover MP Charlie Elphicke: My life story
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This was in the early 1990s. I was living in a dingy rented basement flat near Crystal Palace in South London. The ceiling fell in one day because the shower leaked in the flat above. It was pretty unglamorous.
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I don't want to paint too depressing a picture as during this time I met my wife, Natalie.

Who also has strong views on renting.

http://www.theguardian.com/society/2013/jun/25/natalie-elphicke-blueprint-social-housing-finance

Reply to the comment left by "Mark Shine" at "17/07/2015 - 20:01":

Hi Mark

I want to retire from this business and get my life back, so I have no intention of buying again. I would have sold everything by now if the credit crunch had not caused prices to go down. I am just waiting for the market to recover in order to sell the rest. However, this proposal may cause a further fall instead, which is what worries me.

If I can’t sell, I may have to put the properties into a company, as long as I don’t have to pay CGT on the transfer, and as long as I can get finance at my age.

Hi all.
Here is my next proposed letter to George Osborne, incorporating some of the ideas we have discussed over the last few days (particular thanks to Simon for the stuff regarding private versus limited company status) and I will send a similar one to the various ministers and my MP and maybe the IFS. If you can spot any glaring inaccuracies and/or have an opinion on how it can be improved, please feel free. I may or may not incorporate your suggestions, as is my privilege! Also, feel free to copy segments and incorporate them into your own letters.

Dear Mr Osborne.
I wrote to you last week expressing my shock at the decision in the Budget to introduce a new tax regime, whereby private landlords are no longer allowed to include all of our mortgage interest payments as costs in our tax return. The misleadingly termed 'tax relief' proposal would mean that for the first time in UK recent history (maybe ever) a business has been singled out in this way to be taxed on non-existent 'profits.'
Perhaps those compiling the Budget didn't think through the full ramifications (injustice, discrimination, bankruptcy, repossessions, suicides etc). I refer you to my earlier email regarding other inevitable consequences of this outrageous proposal. Indeed, I do wonder if it was a last minute idea, since it is so ill-thought out.
I would now like to add further points which clarify how this policy, as the impartial and independent IFS has said, is 'just plain wrong.' I will also indicate possible steps we will take if it is passed.
1. It seems that the stated objective of the policy is to help first time buyers. The IFS has said the policy will not achieve this. Further research is necessary if the Government truly wants to improve the ability of first time buyers to get their foot on the ladder. Dramatic and devastating policy measures against a whole business sector should not be introduced without rigorous research into their efficacy (and they shouldn't be introduced even then, if they are unfair).
2. Justification for the measure seems to stem from an assumption that Buy-to-let businesses are not businesses if they are in the name of private individuals. If they are in the name of a limited company they are immune from this measure and can continue to put all of their costs into their tax return (other self-employed people are also not being targeted; only private landlords). Please let me know the logic of this distinction as I find it baffling? If the notion is based on 'size' then this makes no sense as some limited companies have been set up to manage a few properties and some of us non-limited company landlords have large portfolios. In any case, I've never heard of a business being defined as a function of its size.
3. There also seems to be some kind of belief that BTL is a hands-off investment. This can only be based on ignorance of what we do. If you would like me to provide detailed descriptions of the business and what it entails, please let me know. I have written two e-books on this theme, focusing on the arduous nature of it and how stressful it has been. And as it is not a simple 'investment' I don't have a broker I can ring and instruct to sell my business today. It is tied up in mortgages and bricks and mortar are not a liquid investment.
4. I believe that if the worst comes to the worst and this measure receives Royal Assent, there will be awful consequences for the economy as a whole. As the IFS states, the Government through its economic policy should not introduce measures which create uncertainty, and this measure does this to an extreme degree. If such a discriminatory, illogical and unfair anti-business measure such as this can be passed, then what next? Imposing a tax where there is no profit is a dangerous and incredibly unsettling precedent for business as a whole.
5 We will also not take it lying down. As a group landlords will get together and mount a legal challenge, based on some or all of the following: discrimination law (including 'victimisation'), tax law, human rights legislation (especially as it relates to the protection of property) and employment law (this is not an exhaustive list). I believe there are some fruitful avenues for us to pursue. I hope it doesn't come to this.
As a final note, we never thought a Conservative Government (for whom the majority of us will have voted) - one whose Manifesto mentions 'one nation Government,' 'backing small businesses', and 'freeing up businesses to concentrate on expansion,' and a Government whose Ministers regularly talk about fairness and justice, could pull this thing out of the hat.
We urge you to overturn this travesty of justice.
Yours sincerely

Opening para correction, we will still put our mortgage interest on our tax return.

Needs rephrasing.
.

Today the words in my mind are: extortion , theft and belligerance.

Dear all, I’m hoping this is the right area but I’m extremely worried for me and my family regarding the changes the conservatives have recently imposed. I’m one of the groups of people who have fallen into property ownership by cicumstance and not as a business. I’m not a financial guy and get by in ignorance mainly loosing money as I have just realised by not claiming a penny for wear and tear etc. My scenario is this:

My wife and I both work and have two children. About 5 years ago we moved out of our 2 bed terraced when more space was required due to the second child. We could not sell the property so decided to rent. Mortgage is currently on a BTL and provides accommodation to a council tenant on benefits. The mortgage just about breaks even. We claim for nothing and actally pay HRMC £90 a year from an adjustment on our tax code.

The property we are currently in is for sale as we have found our resting place home, or at least until the kids leave. Again, due to the area we live in houses are not selling but are renting. Within two days we have found tenants and they are due to move in next month. We have the mortgage secured to purchase the new property and all seemed good…until I started reading comments on here regarding the budget. I have a contacted my current mortgage provider and they have agreed to a consent to let for 6 months, then they introduce an extra 1% interest taking it to 4.99%. My plan is to swap to a BTL once the tenants are in to hopefully have the rental income cover the mortgage and insurance costs.

We get £435 pcm from one and will get £550 from our current property. My job pushes me into the 40% tax bracket, the wife hardly earns anything.

I really don’t understand where we are going to be with all these changes, I doubt I can lift the rents to cover any increase in costs due to the areas the houses are locates (north east and still poverty stricken).

All I want it to provide quality property until we retire and either sell or pass to the kids. Am I likely to go bankrupt or is there nothing to worry about?

Reply to the comment left by "Ros ." at "18/07/2015 - 18:09":

Hi Ros

End of para 3. "Bricks and mortar are not a liquid investment." You are saying that they are an investment - only not liquid. We want to avoid the term investment and perhaps say “cannot be sold instantly”.

Reply to the comment left by "Appalled Landlord" at "18/07/2015 - 17:00":

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In the light of your reply today, I will re-phrase my second question: Do you think our interest should stop being deductible just because we hold the properties in our own names?
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Hello Appalled

I do not know how you have arranged your tax affairs, but of course how you arrange them is up to you.

Briefly, while interest payments might well be tax deductible for my business, I pay both employer's (13.8%) and employee's (2%-12%) national insurance on salary, as well as 40% income tax. The company then pays corporation tax of 20% on profit, and I pay further tax on dividends. Without profit, no dividend is possible, so over-leveraging to create a tax-loss would mean no dividends - as well as a bad business credit rating, and an overall risk to my business. The company also pays business rates.

Does that sound preferable to you?

As for property investment, I have unencumbered, capital repayment and interest only mortgage properties.

Perhaps I am a more cautious investor; I avoid over-leveraging as to me it is risky - gambling on interest rates, house prices, tenant behaviour, government, all sorts of things, including tax legislation. As they say, never let tax avoidance be the tail that wags the dog, as tax legislation tends to change with the times.

My capital repayment mortgages have never been tax deductible - I collect the rent, I pay the tax. My current interest only mortgage is currently 100% tax deductible, great. I still pay tax, as I do not buy loss making properties, nor release equity from them to make them loss making.

This will slowly change, so that by 2021 instead of a 40% tax rebate on the interest only mortgages, I will get a 20% rebate (40% marginal rate). I expect I can live with that; if not, then I will review my model.

Landlords without mortgages should be unaffected.
Landlords with capital repayment mortgages should only be mildly affected.

Means tested benefits recipients are not allowed to own investment properties, it's part of the means testing, so they should not be affected.

I am aware of courses teaching to buy property then revalue, take equity out "tax free", use that money to buy another property, claim interest for the released equity as a tax deduction, then do it all again.
I think this leads to over-leveraging, and is risky.

The increased equity is not "tax free", it is tax deferred, this increase is actually a capital gain and capital gains tax is due on this money, crystalized if/when the property is sold. So, students are taught to spend the increased equity on another property, without putting aside the capital gains tax, or allowing for possible decrease in property value - what goes up, can go down, as has been proven.

Fast forward... the mortgage is already over-leveraged, then interest rates increase making the investment unviable, the property value may even have decreased, selling results in either a loss and/or a capital gains tax bill but the capital gain (equity) was already spent...

I do expect these students may hit problems, not just with interest rate increases and tax legislation changes, but generally - particularly as I feel they do not really understand the legislation in full, they are just following instructions. They may even be penniless, and have been taught to "JV" on the deposit, or use a credit card.
Interest only mortgages allow property purchases that may be unaffordable on capital repayment terms; is this inviting students to get in over their heads?

I remember years ago seeing a billionaire's portfolio collapse like a stack of cards, because he was over-leveraged and his interest rates increased to 15%.
He was bankrupted almost overnight.
Perhaps that is why I am cautious, and don't put all my eggs in one basket.

I expect that may answer your question more fully.

Kind regards, Vero

Yes, Appalled Landlord. Thanks. You're right. I will change that.

Reply to the comment left by "Appalled Landlord" at "18/07/2015 - 17:57":

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Reply to the comment left by “Mark Shine” at “17/07/2015 – 20:01“:
Hi Mark
I want to retire from this business and get my life back, so I have no intention of buying again.
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Dear Appalled

I've just seen your post and am sorry to hear you feel this way.
I was genuine when I repeated Simon's advice of "DON'T PANIC", so please don't.
Life is too short.

This legislation is in the consultation stage, and is sure to be tweaked before it goes live - if it does - in 2017. There are items from previous budgets which have not been implemented yet, as details and suitability are still being thrashed out.

Even so, Mark (Alexander) already had a few good ideas, and I'm sure he has more to come! I expect by 2017 a whole new business model will have sprouted up around this (and selling courses, no doubt!)

In hindsight, I apologise if the tone in my previous post lacked understanding of your situation, I hope it works out as best as possible for you.

Please, enjoy the weekend and the beautiful weather.

Take care, Vero