Summer Budget 2015 – Landlords Reactions

Reply to the comment left by "Mark Alexander" at "20/07/2015 - 11:44":

Hi Mark

It’s not just landlords who may be blissfully aware – their accountants may be too (unless they are landlords themselves).

I retired a long time ago so I am not part of any network. However, I still get the Chartered Accountants’ magazine by email. On 10 July the ICAEW published the following comment about the budget:

“Although, landlords will be subject to higher tax payable on their rental profits, it is unlikely that the buy to let market will be significantly affected by this as property investors are likely to continue to still want to invest for longer term capital growth.

For landlords themselves, particularly for those with significant portfolios that they intend to hold for the longer term, it is going to be important that the way their property portfolio is structured is looked at very closely as it may not now automatically be the case that it is more tax efficient for properties to be held personally. The dual impact of restricting income tax relief for mortgage interest and lowering corporation tax rates may mean that holding the properties in a limited company structure may be a more desirable option.”

This was written by Stephanie Levin who became a partner in April at Shelley Stock Hutter, a firm I have never heard of.

I immediately sent the editor the following email:

“Stephanie Levin's comments about the effect on home ownership are woeful.

Firstly, the chancellor is imposing a tax on something that is a cost, not an income.

Secondly, suggesting that the solution is to start a company overlooks the CGT liability that would be incurred on any transfer.

She would get a better understanding of the problem from http://www.property118.com/budget-2015-landlords-reactions/76164/#comments

I did not get a reply.

Your posting today prompted me to go back to her article, and I found that only one comment had been posted! This was on 10 July. It said:

“I am a landlord and it is going to have a big impact on Landlords and rent rental sector. Why invest in property of you will still be taxed even if you make a loss?? No one can afford to do that - this is not how businesses work. Taxes are paid when you buy and sell property. Now you will be taxed if you want to rent it out even if you make no money from it.”

I believe that you need to be an affected landlord to bother to work out the consequences of this measure.

You are right, accountants need to be made more aware of the problem.

Next up ...mortage brokers and lenders "due diligence" ....any mortgages/remortgages need to include the effects this will have within a few very short years.

Reply to the comment left by "Simon Lever" at "20/07/2015 - 11:01":

Hi Simon
Would a better proposal be to allow the financial costs as an allowable expense - and restrict the tax relief on it to 20% ie if you are a higher rate taxpayer - based on actual/real income - then add on 20/25% of the financial costs to the tax payable.
This should eliminate the problem of paying tax when there is no actual/real income.
It wouldn't have the distortionary effects that the current proposals have.

James, I disagree with you but I think a challenge is useful. Clearly a view not shared.

My brother in law runs an engineering firm with 45 employees with a working debt so was sympathetic and surprised at the impact and that I could no longer claim interest as a cost. But he was equally surprised that my main objective was not the same as his....ie generate profit and repay debt before interest rates rise.

It is now.

Okay. Draft of my 3rd letter coming up, which I intend to send to Osborne and the business ministers etc. This time, I'm trying to appeal with reference to the political effects on the Conservative Party, as well as making some additional points. Constructive suggestions welcome.

Dear Mr Osborne
To continue my correspondence (one-way at the moment) about the attack on private landlords in theBudget, I have some further very important points to make regarding the political fall-out of this measure.
As business people, many of us private landlords are natural Conservative supporters and we helped to vote you into office, having no idea you were going to back-stab us almost immediately. You may believe that this tactic of acting swiftly so soon after the Budget means we will have forgotten by the next election and continue to vote Conservative. Obviously we won't.
You will lose our votes, as landlords who haven't yet realised what you've proposed, soon will. They will understand how talk of 'tax relief' and higher-rate tax payers only being able to claim 20% 'tax relief' instead etc., is not what has really been proposed.
There are an estimated 1.5 million landlords in this country and your statement that only 1 in 5 will be affected was either a lie or just plain erroneous. Most landlords are likely to effectively be paying a higher rate of income tax on our actual income, as all landlords with mortgages will be adversely affected (some of us to an extreme degree).
None of us will ever vote Conservative again (and many of your MPs will have to look for alternative employment). In addition, many people will withdraw support for the Conservatives, in sympathy with us. We may be a stigmatised and stereotyped group (and considered as an easy target), but our partners, spouses, children (who will be disinherited as we pay extortionate amounts each year out of any reserves we have; and/or are made bankrupt and our dependent children thrown into poverty), our parents and brothers and sisters and uncles and aunts - all those who see the misery and distress (and inevitable suicides, even) that this outrageous proposal will lead to, will desert you; as will other business people who see you cannot be trusted.
I am not exaggerating. I will be supplying you with some figures in due course, to demonstrate the widespread impact of the measure.
This could be the biggest political blunder made by the Conservative party in recent history. How ironic that it should be due to come into force exactly one hundred years after the 1917 Russian Revolution, part of whose aim was also to confiscate the assets of property owners.
How could you have pandered to the propaganda of groups such as Shelter, who have campaigned against us and demonised us in an awful, one-sided way for years? And how could you betray us after portraying yourselves throughout the election campaign as the 'pro-business party'?
I recently saw a clip of David Cameron talking about how the Conservative Government would not introduce a wealth tax if elected. We all know it is very unfair to tax people on assets, regardless of ability to pay. How do you think the outcome of this nefarious proposal is any different? You aim to tax us, regardless of our actual income and ability to pay.
I also see similarities between this and constructive dismissal, in that we will be constructively dismissed from our occupations gradually (some will go bankrupt before others), as we are forced to find money we don't have, to give to the Government; being driven out of our businesses as they are made unviable because of this measure.
The ostensible justification for this was to somehow enable first time buyers to buy. You need to clarify how attacking private landlords as a group and massively raising the percentage of tax on our actual incomes will have this causal effect. It would raise some revenue for the Government in the short-term, but the devastating impact on housing and the subsequent knock-on effects for the economy as a whole, will more than outweigh any benefits for the Government's coffers.
You really need to explain how it will benefit first time buyers, though. No-one has so far, as far as I am aware. Attacking one group (private landlords) does not automatically benefit another group (first time buyers). The way to help first time buyers is to help first time buyers.
In sum, you have strayed into very dangerous political territory and endangered trust in the Government. A U-turn may be embarrassing politically, but it is the only way out of this political morass. The sooner you do this the better for trust to be restored in the Government. Also, the sooner you do it, the less likely it is that you will face a media storm about this. Personally, I have respect for people who can admit it when they are wrong.
Please respond to this letter. It is my third. I want to know my voice is being heard.

Reply to the comment left by "Simon Roads" at "20/07/2015 - 12:39":

Hi Simon

Your comparison is different from mine. You have compared the tax he would pay under the new rules if he had 1 and 2 properties. As the first one puts him into the 40% band, the second one is also is taxed at 40%, less 20% relief on the interest. As you say, the tax on it would be £2,640, or 220% of its real income!
Your comparison shows what happens with each extra property once you are a higher rate payer.

My comparison was different. I calculated how much extra tax he would pay under the new rules compared to the current rules if he had 2 properties now. The extra tax that he would pay because of the change in rules, £4,200, is 175% of the real profit of £2,400.

Reply to the comment left by "Ros ." at "20/07/2015 - 13:49":

Ros

I hardly think that calling him a backstabber and a liar is going to help your cause.

I understand your frustration but if you are reasonable and calm you are far more likely to get a response.

Reply to the comment left by "Ros ." at "20/07/2015 - 13:49":

Brilliant!

The government did help FTB's financially to buy new builds, but then stopped the scheme because it was too successful, I seem to remember.

A great example of how not to explain the "real" effect of the changes:
http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/10946303/How-to-maximise-your-buy-to-let-profits-by-paying-less-tax.html

Reply to the comment left by "Mark Alexander" at "20/07/2015 - 11:44":

Hi Mark

I came across Property118 when the West Bromwich BS increased the tracker margins for some borrowers.

This budget proposal is much more important as it affects everyone who borrowed to buy in his own name.

Several affected borrowers were regular contributors to the WB topic, and one of them was featured twice in the Telegraph. So I am very surprised that their names have not appeared on this thread. Even they may be unaware. Do you have a way of bringing it to their attention?