9:14 AM, 22nd October 2015, About 9 years ago 10
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This submission by the Property118 action group to the Finance Committee is intended to provide MPs with a summary of the comments made by landlords associations, the Council of Mortgage Lenders, the media and other key stakeholders with regard to the Summer Budget proposal to restrict finance cost relief for individual landlords.
The National Landlords Association (NLA) Chief Executive, Richard Lambert, said:
“The majority of landlords put their faith in the Conservative Party in May believing the Tories had a better understanding of private renting than the other parties. So when the Chancellor announced restrictions on the tax relief on buy-to-let mortgages, it came as a shock, with many feeling betrayed.
The Government claims the changes will create a more “level playing field” for those buying a home to live in and those buying to let. However, the overlap where a landlord and a first time buyer are going for the same homes is minimal. They are looking for different things. For example, no first time buyer would be interested in – or be able to afford – the kind of multi-unit shared house which a landlord would see as a stellar investment.
The “level playing field” is a sharp piece of political rhetoric, but it’s not founded on facts and means that the Treasury can continue to pick and choose when it treats landlords as businesses and when as investors.
Contrary to popular assumptions, buy-to-let doesn’t offer lucrative returns. On average, rental yields stay below six per cent, which is why these changes will have massive implications, especially for the 136,000 who will be pushed into the higher tax bracket when their rents are added to their other income, so that they are effectively taxed on their turnover rather than profit.
Landlords are already doing the maths and considering their options. Some will set up limited companies, others will look to sell. No doubt the Chancellor expected that, but I doubt he realised the number of people who will find themselves losing their child benefit as well as most or all of their profits, or the impact on those who have built up property portfolios to replace collapsed pensions.
Landlords should not be punished for running a business or making profits. With social housing in long-term decline and mortgages still out of reach for many, the private rented sector plays an invaluable role in housing the growing population”.
9 out of 10 private landlords do not hold their properties in the form of a limited company.
The Chancellor’s Summer Budget may push more than 136,000 of private landlords with modest incomes into a higher Income Tax.
The NLA estimates that in 2020, the year that transitional protections end, the cost to landlords will be in the region of £858,199,985. It believes that the removal of almost £900million from the PRS will endanger the viability of a great many landlords, reduce investment in both housing supply and maintenance while also increasing the likelihood of substantial rent increases as landlords seek to maintain their margins.
NLA estimates that around 106,583 properties would be released to the market (sold) as a result of the proposed tax change.
The Residential Landlords Association (RLA) has said:
Landlords paying the basic rate might feel they will be unaffected by the change; however, because tax will be applied to turnover, rather than profit, many are likely to find themselves pushed into the higher rates of income tax, despite their income not having increased. Over 60 per cent of private sector landlords face this prospect.
“With almost 90 per cent of landlords being individuals renting out just a handful of properties each, it is only by supporting this group that we will boost the supply of homes to rent. The Budget announcements risk undermining the potential for growth.
Even at this late stage we are calling on the government to pause and provide more time to assess the impact on market.”
The RLA policy director, David Smith, said:
“The findings of our survey are deeply concerning. Many landlords currently paying the basic rate of income tax face the prospect of a nasty surprise when they meet with their accountants.
Having felt that they were not affected by the Budget measures many will seriously consider whether it is worth continuing in the market when faced with this tax bombshell. It cannot be right that many landlords face seeing their income tax increase without an increase in their income.
All the evidence shows that we need more, not less, rented housing. With almost ninety per cent of landlords being individuals renting out just a handful of properties each, it is only by supporting this group that we will boost the supply of homes to rent. The Budget announcements risk undermining the potential for growth”.
Alan Ward, RLA Chairman, said:
“Based on our knowledge and experience of the private rented sector (PRS), the proposals will:
Lead to upward pressures on rents, particularly in areas of most demand for private rented properties.
Dissuade landlords from investing in purchasing properties to let which in turn will exacerbate difficulties for tenants in finding properties to rent.
Lead to significantly reduced investment in repair, renovation, and improvements to rental properties causing lower standards. As a result there will be less economic activity which in turn will adversely affect receipts for the Treasury.
The Government continues to peddle the line that letting out residential property is a passive investment, while piling on new regulations and responsibilities like immigration checks, minimum energy efficiency standards and licensing. It is a false comparison. The letting of residential property needs to be recognised as the trading business it is and be allowed to offset legitimate business costs, including mortgage interest.
Equally bogus is the comparison with homeowners. As the Institute for Fiscal studies has demonstrated, buy-to-let landlords are already taxed more heavily than homeowners. Unlike homeowners, landlords pay income tax on rental profits and capital gains tax when a property is sold. If the Government is going to make these sort of comparisons they should be honest and fair.
We are disappointed that the UK Government seems to have failed to understand the damaging affect this could have on the PRS across the UK. Recent surveys confirm that over half of landlords are considering raising rents as a result of this policy, while others are considering selling properties, leaving tenants homeless. The supply of private rented housing will shrink, forcing rents up further and leave already-struggling local authorities unable to cope with housing demand.”
The Scottish Association of Landlords (SAL) Chief Executive, John Blackwood, agrees:
“The Government has failed to do its homework. It is clear that these changes will affect many more landlords than suggested, and more importantly, many more properties and therefore tenants. By taxing gross profit many small landlords will be pulled into a higher tax bracket and others will be forced to pay tax on a trading loss.
http://news.rla.org.uk/landlords-face-tax-bombshell/
Council of Mortgage Lenders:
The Council of Mortgage Lenders is warning the Government not to interfere with the buy-to -let sector in such a way that it leads to “cumulative, unintended and damaging consequences.”
In a lengthy and detailed research document the CML says that over the last 15 year buy-to-let has made an important contribution to the expansion of the private rented sector and in “helping to reverse many decades of decline.”
But it says that at the moment there is uncertainly over the impact of proposals concerning tax, regulation and mortgage availability for the private rented sector, adding:
“Lenders do, of course, accept that regulatory authorities must have the right tools to address any macro-prudential risks. But we urge the government and other authorities to consider the effects of uncertainty on the market and, in particular, the potential for a series of reforms to have cumulative, unintended and perhaps damaging consequences.”
Regarding the proposed tax relief restriction, the CML says: “The measures are likely to deter some landlords from expanding their portfolios, and may encourage others to reduce their property holdings. They could also lead landlords to seek to increase rents to cover some of their additional tax liabilities. Overall, the extent to which the measures may discourage future growth of buy to let and the private rented sector is unclear.”
https://www.lettingagenttoday.co.uk/breaking-news/2015/9/mortgage-chiefs-warns-against-lending-restrictions-damaging-buy-to-let
The CML pointed out that while buy-to-let has boomed in recent years it still far lags its historic high in 2006 and 2007.
It also pointed out that while total, outstanding buy-to-let mortgages were breaking new records, landlord lending as a proportion of total residential lending was relatively static.
The Telegraph’s coverage of the issue:
The Telegraph has launched a campaign to “Axe the Buy to Let Tax Grab: Below are extracts from various articles from their Personal Finance journalist Richard Dyson:
The Government is coming under increasing pressure to reverse draconian new taxes applying to buy-to-let investors, announced in the July 8 Summer Budget.
Landlords argue that not only will the change force them to evict tenants and sell properties en masse, but that it will also prevent the building and development of new homes – hindering the Government’s objective to increase housing supply.
The proposed tax change will only hit those landlords with mortgages. Many landlords have calculated that they will have to pay more than 100pc of their profits in tax when the change is fully implemented.
Torquay landlord Graham Chilvers owns 75 properties. None of them, he says, could have been bought by first-time buyers – because in every case he either built or restored them himself. Under the Government’s proposed tax changes, the financing of such projects would no longer stack up, he said. Potential properties would remain derelict or would have to be developed by large commercial companies who are not impacted by the proposed new tax.
“The Government justifies its attack on buy-to-let by saying landlords have an unfair advantage over people wanting to buy their own homes,” Mr Chilvers said. “But no homebuyer was competing with me on any of these properties… Not only will this tax prevent me from undertaking further development, but it poses real risks to my business just at a time that interest rates could rise,” said Mr Chilvers.
Cathy Colston, a retired Boots executive who became a full-time landlord in 2010, owns around 20 properties in the western centres of Bath, Cardiff and Bristol.
“The real problem preventing people from buying their own homes is the lack of mortgage finance. The Government’s argument that this tax change will make a level playing field between investors and ordinary homebuyers is flaweRichard Dyson, finance journalist comments on the issues:
‘You can hate landlords and lament the rise of buy-to-let as a favoured investment of the middle classes. But even if you do, you must surely also condemn the action of a chancellor who, out of nowhere, has announced the destruction of this asset class for all except the very rich.
The mega-wealthy speculators who buy up strings of London apartments to rent them out will not be halted by Mr Osborne’s tax.
They will not even be touched by it. They will not pay a penny more to HMRC.
On the contrary, it is the parents who decide to buy a property for their child at university who will be hit; as will the newly married couple who decide to keep one of their two properties as an investment; as will the families who inherit a property on the death of a parent and decide to keep and let it.
But it will soon be untenable. It won’t be among their investment choices. Mr Osborne has killed it.
This tax change, which was called for by cynical politicians and commentators hoping to strike a populist tone, sets a new benchmark of absurdity in Britain’s already ludicrously complex tax regime.
We now have a tax that is applied at a rate of more than 100pc on investors’ returns. We now have people paying tax on zero income. We now have a tax regime that appears not to be able to distinguish between revenue and profit.
It is a tax from Alice in Wonderland, a truly bonkers tax, a tax you’d laugh at – if it were being applied in a Third World country by a lunatic dictator.”
In another article, Dyson said:
“Hundreds of thousands of landlords and their accountants are digesting the impact of George Osborne’s shock tax change.
The change was unexpected, and the new regime is highly complex, so investors and their tax advisers are only now fully grasping its effects. Many investors remain unaware of the change, or underestimate its severity.
All higher-rate taxpayers who own buy‑to‑let properties on which there is a large mortgage will pay substantially more tax. Some current basic-rate taxpayers will also be hit, because the change will push them into the higher-rate tax bracket. Those who are worst affected will see a degree of tax that pushes them into loss, making their investment financially unviable and forcing them to increase rents sharply – or sell.
What is also becoming clear is that worst hit will be those modest, middle-class savers who have prudently chosen to invest in buy‑to‑let, often alongside pensions and Isas, as a means to supplement their income and thevery wealthy landlords who do not need mortgages are untouched.”
The Guardian’s coverage of the issue:
Patrick Collinson of the Guardian has also written an article about rents in the private rented sector increasing as a result of the proposed tax change:
Fergus Wilson, Britain’s most controversial buy-to-let landlord, is increasing rents across his 900 houses in Kent by up to 33% and filling his properties with eastern European migrants – while at the same time saying that Britain is heading for a “housing disaster”.
When asked why he has to increase rents, he says landlords have no choice in response to budget tax changes that will slash the amount of tax that can be offset against mortgage interest paid. “Many landlords are saying they simply will have to charge more rent. It is the distinct shortage of houses that is fuelling the rent increases. If the government wish to control rents, it must supply more houses, and quickly.”
Other Stakeholders:
One in five landlords are forecast to be out of business within the next two years, according to the annual Landlord Report from legal firm Access Legal.
Landlords are losing billions every year, the study suggests, as rent arrears, damages and repairs are costing close to £10bn annually.
Almost half of landlords surveyed had experience of tenants not paying rent, and unpaid rent costs some £900m a year. But damages and repairs are the biggest cost, as each costs landlords some £4.5bn a year.
Jon Sparkes, Chief Executive of Crisis said: “Homelessness rose by 5% between April and June compared to the same time last year. Nearly a third of these people became homeless following the ending of a private tenancy.
Gavin Smart, deputy chief executive of the Chartered Institute of Housing, said:
“The end of a private tenancy continues to be most common reason for homelessness”.
As landlords sell up or have properties repossessed as a result of the tax change, it is likely that homelessness will increase.
A Mortgage Strategy poll of 192 mortgage professionals shows 58 per cent believe George Osborne should scrap plans to limit the tax relief landlords can claim on property finance.
http://www.mortgagestrategy.co.uk/news-and-features/sectors/buy-to-let/buy-to-let-news/most-brokers-want-osborne-to-scrap-unfair-btl-tax-relief-cut/2023662.article
44 percent of UK landlords plan to increase the rent they charge to offset the losses incurred from tax changes announced at the Summer Budget, according to a survey by accommodation website EasyRoommate.
Karim Goudiaby, EasyRoommate’s Chief Executive Officer, said: “I believe that the buy-to-let tax changes will make investments a less appealing proposition for landlords and discourage investors. This increase in tax will drive landlords to recoup their losses, and what a better way of doing that other than by increasing rent.”
He also fears that the reforms “could drive some landlords out of the property market given it will no longer be the profitable business it once was. Many landlords may now see fit to sell their property for let, resulting in tenants evicted from their rented accommodation.”
The Chief executive of Zoopla has thrown his weight behind opposition to the measure:
Alex Chesterman, in a question and answer session with readers of Letting Agent Today and Estate Agent Today, says the proposals announced by Chancellor George Osborne in July’s budget are “troubling.”
“The recent changes to tax breaks available to private landlords are not well thought out in my view and could have a negative effect on both the number of properties available in the private rented sector and on the rents that need to be charged to achieve the desired return on investment”
A firm of specialist solicitors claims that one in five landlords say they will be “out of business due to government tax break cuts” announced in the Budget by Chancellor George Osborne.
Based on the above evidence, the proposal should be scrapped or modified to reduce its impact on individual landlords and the private rented sector.
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Gary Dully
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Sign Up10:29 AM, 22nd October 2015, About 9 years ago
It's nice to see bulletins like this, but our fight must continue.
The only thing that will make the government rethink this, is the screaming and knashing of teeth from our tenants and their MP's.
Also would the corporates like to comment on what their policy will be on housing ex offenders on electronic tags amongst the normal population as their insurance companies start to sweat as they do their arithmetic on what risks they are prepared to underwrite in their nice shiny new housing units?
Private Landlords manage risks that the local authorities can't and vise versa.
I know that my mortgage interest payments are a business expense.
So, does every fair minded accountant in the UK.
I also know that George Osborne has pandered to the armchair critics and readers that are full of sympathy for the needy, but would run a mile if they had to deal with some of the tenants I deal with every day.
I wouldn't want them roaming the streets, they are a frightening bunch at times, (woman included)
They will be the first I will have to evict to pay my tax bill or enable the sale of my property. They have nowhere else to go!
I deal with smack heads, alcoholics, fraudsters and I just about break even on their housing costs at times.
They get broadband, heating, maintenance and shelter and they still can cause havoc and I like to think I know what I'm doing.
I thought I was providing a service, but apparently I am a greedy git.
Clause 24 is so bad in its design, I can't believe anyone could have dreamt it up.
Gary Lee
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Sign Up11:10 AM, 22nd October 2015, About 9 years ago
Referring to the statement “The Government justifies its attack on buy-to-let by saying landlords have an unfair advantage over people wanting to buy their own homes,” a landlord using a "buy to let" mortgage would normally have to put a far more substantial deposit down (usually 25 - 30%) as a minimum compared to 0 - 10% deposits required for a person wishing to buy a home. If a level playing field is the objective maybe Buy to Let mortgages should also have the same mortgage deposit requirements?
The requirement to have a larger cash deposit for a Buy to Let already deals with the "unfair advantage"
money manager
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Sign Up13:56 PM, 22nd October 2015, About 9 years ago
"No taxation without representation" That phrase, best known from the lead up to the American Reolution seems incredibly apt. As a lifelong supporter of first) this country and second) the Conservatives, I find myself increasingly alienated and effectively disenfanchised. What does the Party stand for if it is not the concepts of thrift, hard work and personal responsibility? It was under Labour that we had investment income surcharge and what an unholy mess that was. Acknowledging that the Country has to reduce not only it's GDP/debt ratio but also it's accumulated debt it can only do that by shrinking it's expenditure and increasing it's revenue. Shrinking the tax base and raising housing demand on the public purse seems a strange way to achive that objective.
Dr Monty Drawbridge
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Sign Up14:37 PM, 22nd October 2015, About 9 years ago
I'd add to this list the Institute of Chartered Accountants who have said:
"the Chancellor’s controversial new tax on buy-to-let tax as “unfair and unreasonable”.
It condemns the legislation as "unthought-through" and predicts it will cause "extreme confusion", as well as forcing some landlords out of business, distorting the market - and even making life harder for first-time buyers."
http://www.telegraph.co.uk/finance/personalfinance/11933496/Top-accounting-body-buy-to-let-tax-is-unfair-unreasonable-unworkable.html
Mike W
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Sign Up17:20 PM, 22nd October 2015, About 9 years ago
Totally support this excellent summary.
Food for thought: read PIM1020. Someone has a lot of rewriting to do and it will be interesting to see the new wording particularly explaining why IT income is different to CT income.
http://www.hmrc.gov.uk/manuals/pimmanual/PIM1020.htm
Hope I copied it correctly.
Quote:
The broad scheme is that the rental business profits are computed using the same principles as for trades but the taxpayer is not treated as if they are trading.
Don't think GO read that bit. Perhaps there should be examinations for chancellors?
Dave Driver
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Sign Up19:07 PM, 22nd October 2015, About 9 years ago
We landlords have only ourselves to blame for this situation for rashly squandering our profits on mortgage payments.
money manager
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Sign Up19:50 PM, 22nd October 2015, About 9 years ago
Foreclosure. It's just occured to me that all mortages, and most banking arrangements for that matter, have a "we want our umbrella back" clause in the even that the lender considers their position at risk. If that's the case have the lenders considered their position when faced with the prospect of mass negative cashflow debt?
Jon Pipllman
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Sign Up20:18 PM, 22nd October 2015, About 9 years ago
>money manager
probably not yet is the answer to that!
lenders have two other potentially similar sized fish to fit in their frying pan too
1. Basel III
2. BoE taking responsibility of BTL affordability
I don't which of the three they will try to fry first tbh
Dr Monty Drawbridge
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Sign Up20:25 PM, 22nd October 2015, About 9 years ago
Reply to the comment left by "money manager" at "22/10/2015 - 19:50":
Yes Money Manager - this is a worry. Being unable to find alternative finance when the lender wants its cash back was the downfall of many during the recession. And the banks are quite ruthless about it.
Pete Lindley
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Sign Up17:40 PM, 23rd October 2015, About 9 years ago
I think the government HAS thought this through. They are forcing landlords to sell up, this will flood the market with properties and therefore drive the down cost of properties. This in turn will allow renters the ability to find the required deposit money to buy their own homes.
I know of people who say landlords are snaffling up all the properties, but when asked what properties these public folk are looking for, they say a new build! The majority of landlords don't deal with new builds, so how come we're snaffling them up!?!?!
If we offered the public some of the properties we do purchase, they would really turn their noses up at them, the state they are usually in when we buy is typically dated and or run down.