Summer Budget 2015 – Landlords Reactions

Reply to the comment left by "James Tallis" at "19/07/2015 - 15:18":

Gary….serving section13 already???

The new tax doesn’t kick in until 2017….with full implementation 2021.

I notified my tenants in March, (not via section 13 as IMHO, if it is not by mutual consent, the agreement is over anyway).
Annual rent reviews will now be the norm.
Gary is being sensible, if landlords wait til 2017 or 2021 they will suffer or go under.

A tax crunching question to all the accountants on this forum.

My understanding is that when this kicks in fully...all interest incurred will have to be excluded from allowable costs when calculation taxable income. For all property investors not operating through a limited company, the inland revenue will treat this as part of the investors overall income. (ie PAYE and divedend). Is my understanding correct that, for those of us on the forum, who receive significant income outside of property rentals, the disallowed finance cost on the mortgage will also be treated as taxable income when it comes to working out at what level other income is taxed at the higher rate?

Hypothetical example.

Rent 33.5 thousand
Finance costs 33.5k

What rate would I pay on any dividends I pay myself over and above the new 5k tax free limit. Would I be paying the higher rate 32.5% dividend tax,(on assumption mortgage finance costs are not allowed) or just the 7.5% dividend tax (on assumption that mortgage finance costs are not allowed only when calculating tax on rental income)

Reply to the comment left by "James Tallis" at "19/07/2015 - 15:18":

..as alread pointed out James , Landlords need to prepare and and plan ahead. Gary, like the rest of us, has some huge extra expenses to attept to offset ..get cracking i say !

Reply to the comment left by "Monty Bodkin" at "19/07/2015 - 13:18":

I have mentioned a few times the impact of 'the method' this is calculated is probably one of the biggest reasons the government may look at again. But the underlying change is likely to remain. There are so many areas a larger 'taxable income' impacts upon. Student grants is a great call.

Crime, robbery, suicides, human rights v's greedy BTL'rs, tax perks for the rich, housing crisis, shelter....will be all the noise and will feed the media and MPs profiles as it all is discussed.

I look at the changes in pensions and with property I will prepare for the very worst scenario's - knowing the direction this is going . I expect a change to include Ltd Co's and ANY form of residential property investment.

Reply to the comment left by "Monty Bodkin" at "19/07/2015 - 15:20":

Hi Monty.
My MP has said he is supportive of landlords, so it's obviously worth writing to him. I have also now just sent off my second letters this week to: George Osborne (public.enquiries@hm-treasury.gov.uk); Anna Soubry (enquiries@bis.gsi.gov.uk); Nick Boles (same email address at Ms Soubry); Sajid Javid (sajid.javid.mp@parliament.uk) and had one bounced back which I tried to send to Brandon Lewis. I adapt each letter and address it individually to each one.
I'm not sure how I would go about writing to all of the MPs and what point there would be. When I initially addressed my email to Anna Soubry's constituency email address by mistake, I was told to contact my own MP. I then re-sent it to her departmental email address. I have also sent off my second letter to the IFS asking if there is anything they can do to help us, either by lobbying Government directly or by giving us some of their expert advice and opinion (mailbox@ifs.org.uk).
I have copied these addresses above, as well as providing the general link where one can get ministers' email addresses (https://www.gov.uk/government/ministers) as well.
I am only one person, have a household to manage, teenagers to see to, and a business to run - I'm doing my best in my spare time. What I'd really like is to hear that more people are also doing this, just as Anne, above, has done. We need to have MPs and Ministers noticing that they're getting a lot of mail from landlords this week. I have pasted several of my letters as I have gone along so that others can have a far easier job than me as they don't have to write them from scratch - they can even be replicated completely and be sent off by members of this site. In fact, that would be great.

Reply to the comment left by "Ros ." at "19/07/2015 - 15:01":

Hi Ros,

You're right about David Cameron's email address not being available - I searched everywhere for it, but luckily my daughter lives in his constituency of Witney and she sent an email for me to him as her local MP.

I will also send my email to Sajid Javid and Anna Soubry - good suggestion!

Looking in my sent messages I also sent one to:-

public.enquiries@hmtreasury.gsi.gov.uk as well

Reply to the comment left by "Ros ." at "19/07/2015 - 16:10":

I am only one person, have a household to manage, teenagers to see to, and a business to run – I’m doing my best in my spare time. What I’d really like is to hear that more people are also doing this

I'm not knocking you Ros, just saying to email every MP for the time it takes to post a comment on here.
I am already doing this and I am also actively lobbying business friendly MP's and councillors.
I have also been increasing my rents for good long term tenants (something I don't usually do) and will be reviewing increases on an annual basis.

I have finally found the time to finish my submission. I have sent the following email, with copies to Anna Soubry Nick Boles and Sajid Javid

Dear Mr Osborne

I am most concerned about the proposals, for the following reasons:

Landlords who bought in their own names will pay tax on their interest expense, rather than on real income. Interest is a legitimate cost of our business, just as it is for any other form of enterprise in the country which borrows money to buy assets that generate taxable income.

Rental property is not a hands-off investment like buying gold bars. Being a landlord requires work. They can be called upon any day, at any hour, to deal with problems. For some of them it is a full-time job maintaining their properties and dealing with tenants and agents and the administrative and accounting work that is entailed.

If this proposal is applied to existing mortgages you will be changing the rules for people who bought 20 years ago or more. You will undermine the concept of certainty which businesses of all types of rely on.

The illustrative example from Megan Shaw, Product Owner – Property Income & REITs at HMRC, of the effect of the proposed change shows a man with a salary of £40,000 and a real rental income from one property of £1,200 after deducting interest of £10,800. Currently he is a basic rate payer.

When the interest is disallowed, he becomes a higher rate payer. His tax goes up by £1,800. So after spending his time and money looking after this property for a year he has to hand over the real profit of £1,200 to the government, plus 50%. out of his net salary. If he had a second property with the same figures, he would hand over 175% of the real profit.

This is not taxation, it is confiscation of assets by the State. The communist party would be delighted.

Even if the landlord makes a loss he will have to pay tax on the interest, out of his other resources.

If landlords have no other source of income then HMRC, a branch of the government, will make them bankrupt. The result will be divorces, suicides (single and double), and an increased burden on the state.

Lenders will lose money in the bankruptcies.

Landlords who bought in their own names will exit the sector on masse, causing a
house price crash. Lenders will lose money in the crash.

Affected landlords will not start companies to buy the new-builds, so fewer homes will be built, fewer sites will be developed, so less affordable housing will be built as well. This announcement may already have had the effect of deterring purchasers.

For both reasons the amount of rented accommodation will fall, reducing the mobility of labour both within the country and from outside, and rents in the remaining properties will rise.

The IFS says the measure is wrong.

You are attacking your party’s natural supporters.

Please do not apply this confiscatory measure to existing mortgages.

Yours sincerely

Reply to the comment left by "Appalled Landlord" at "19/07/2015 - 18:24":

Excellent Appalled Landlord! I really liked your letter - and loved the bit about the communist party especially. That was inspired.
Is it also worth sending a copy to your local MP?

Reply to the comment left by "Appalled Landlord" at "19/07/2015 - 18:24":

Excellent, well done 'Appalled'!

Here's mine:-

I am writing to you to express my dismay and consternation at the proposed changes to the allowances on taxation for small landlord businesses like my own.

I have tried to provide an income for my retirement to avoid relying solely on the state pension and a meagre pension from my employer and have chosen to do without luxuries in order to build up a small portfolio of properties to provide that income and the proposed changes will destroy those plans.

As with any other small business, finance and loan interest costs are a direct running cost and the treatment of any other business in the same way as that proposed is inconceivable (a plumber not having an allowance for purchase of van etc).

If these measures are adopted a landlord having a long void due to a maintenance problem eg a fire or a non paying tenant, would still have his mortgage interest to pay but would have no income to set it against. Not only may he have no income due to the above circumstances but he would still receive a tax bill for interest he has paid on his mortgage.

Large property owning corporations and wealthy investors who have no borrowings will not be affected by these changes, it will hit hardest landlords, including basic tax payers incidentally, who have invested as individuals and who have planned their businesses from day one around the current allowances.

It is vital that a business letting property is seen as just that - A BUSINESS. Running this type of business is as complicated and time consuming as any running any other. It takes long term planning, it has overheads, it is affected by late paying and non paying customers as is any other - it cannot be right or fair that there are totally discriminatory rules for only this kind of business.

The assertion given by the chancellor that landlords paying the basic rate of tax will be unaffected by the changes has now been shown in calculations to be patently untrue, including by HMRC themselves.

Along with the extreme financial hardship caused to hard working business people - most of whom helped to put the Conservatives in office, ultimately this will inevitably also cause a reduction in the supply of privately rented housing and an associated escalation of rents for the tenants, as landlords decide the diminishing margins make letting property no longer a viable proposition.

I sincerely hope that you are able to look again at these proposals and hopefully ditch them altogether or if not then make them apply only to new investments thus not affecting businesses built on a certain previous business model.

Yours sincerely