16:18 PM, 21st December 2015, About 9 years ago 74
Text Size
Researchers from a landlord tax campaign group, who joined forces via the Property118 online forum, believe they have located the source documents behind the discriminatory taxation policies targeting private landlords which are being implemented by Chancellor George Osborne.
The landlord tax grab, which will make the housing crisis worse, was proposed by David Kingman, a non-economist, in a deeply flawed report which he wrote in 2013, the year he left university with a degree in – Geography!
In the Summer Budget the Chancellor (a graduate in History) implemented a recommendation that was in a report from the Intergenerational Foundation, written by David Kingman.
On his Linkedin profile, David Kingman states: “I was the lead author on a research project looking at the tax treatment of buy-to-let property which led to major policy changes in the 2015 Budget”.
He claims that his top skills are Urban Planning and Politics. However, he claims no skill in Economics, Taxation, or Business.
It is understandable therefore that his report displays a lamentable ignorance of the subject throughout, from the foreword to the conclusion.
A retired member of the ICAEW (who wishes to remain anonymous) has dissected the Kingman report and commented as follows.
FOREWORD
His colleague Ed Howker wrote the foreword. He claimed “MIRAS remains for buy-to-let landlords who deduct mortgage interest payments from their tax bills”. This is not true.
Landlords do not deduct interest from tax. They deduct it from income received and pay tax on the result, just like any other enterprise in the country.
Then he stated “Indeed, economically, buy-to-let investors should not imagine they are small-business owners. They are much less useful to the economy, rarely employing anyone who would not be employed by owner-occupiers to service their homes and deriving their income from gambling on house price rises.”
This raises several points:
Ed Howker goes on “Worse, the special treatment of landlords places first-time buyers at a disadvantage. This paper reveals good evidence that first-time buyers are losing out – paying more tax, enduring weaker mortgage terms and finding that buy-to-let investors are not encouraging more house building but pushing up the price of housing and skewing the types of homes that are built. Britain is getting good at building investment flats and worse at building family homes.”
This is more nonsense. Landlords pay tax on rental income and capital gains; owner-occupiers do not. Landlords do not decide what type of property will be built – developers and councils do that. He seems to be suggesting that landlords should buy more houses from developers – instead of owner-occupiers.
Building flats on brownfield sites in towns and cities is a very productive way of using land in areas that would not attract house buyers.
And that was just the foreword. Should tax policy be based nonsense like this?
EXECUTIVE SUMMARY
David Kingman’s Executive Summary starts with “Landlords receive a public subsidy worth up to £5 billion in tax relief per year. This is relief that they are able to claim for their business expenses, including interest relief on mortgages.”
If this is a public subsidy, then every enterprise in the country that pays interest gets a public subsidy. It is absurd to call it a subsidy. Deducting interest from income to find the profit is just normal accounting
He states “The growth of buy-to-let hasn’t significantly increased the overall supply of housing. The “BTL boom” has mostly just led to increased competition between landlords and first time buyers for our existing housing stock instead.” This is just not true. 2.5 million out of the 3 million increase in the number of dwellings in England from 1996 to 2013 was due to the PRS. That is 83%
He continues “BTL pushes up prices. There is clear evidence showing that the growth of BTL increases overall house prices for everyone, including first-time buyers.” He doesn’t produce any evidence for this in the Executive Summary.
MAIN BODY
In the main body of his report, David Kingman states: “A study published by the National Housing and Planning Advice Unit (NHPAU) in 2008 argued that, based on their model of UK house price inflation, the BTL sector was responsible for increasing average house prices by up to 7% between 1996 and 2007 through the additional competition which BTL landlords added to the market. The authors note that average house prices would probably still have risen by 130% in real terms during this period for a range of different reasons.”
In fact the NHPAU study stated, on page 20, “For instance, since 1996 Q3 house prices increased in real terms by 150 per cent and, even without the estimated effect of BTL, they would still have been expected to increase by more than 130 per cent.” It also said “In term of affordability it is an open question as to whether a 7 per cent increase in house prices in 2007 Q2 represents a significant additional cost.” Indeed. 7 percentage points out of 150 is less than one-twentieth of the total increase.
It also stated “There is some evidence to suggest that BTL has increased the size of the private rental (PRS).”
In the very next paragraph of his report, David Kingman acknowledges that landlords have increased the supply of housing – but he only does so to complain that too much of it (in his opinion) consists of flats!
He writes: “Proponents of BTL often claim that it provides a social good by increasing the overall supply of housing which is available. However, there is evidence to suggest that this view is misguided; instead, the growth of BTL has skewed the supply of new housing towards the particular type of properties which are more likely to appeal to property investors, without having a substantial impact upon the overall amount of new housing which is being built.” So, in his opinion, financing new-build property developments does not increase the number of dwellings!
He continues “Nationwide, the BTL housing stock mainly consists of older properties, with only around 20% of BTL properties in new-build developments. Most new-build BTL developments consist of large complexes of one- and two-bedroom flats, often located on brownfield sites in formerly rundown parts of cities in the north and midlands of England, which have been built specifically for the purpose of letting by property investors.” Presumably, as these flats are not in London or the south east then they do not count towards increasing the supply, in his opinion.
In fact, “complexes of one- and two-bedroom flats, often located on brownfield sites in formerly rundown parts” were built specifically for the purpose of selling to whoever wanted to buy them, be they owner-occupiers, shared-ownership owners/renters, second-home owners, holiday-let owners or ordinary landlords. And of course, the developer also had to build affordable housing for housing associations, as the price of obtaining planning permission.
It does not seem to occur to David Kingman to wonder what would have happened to house/flat prices (and rents) if landlords had not increased the supply of new dwellings by 2.5 million in the period 1996 to 2013. Both would have gone up by more than they actually did if BTL had not increased the supply. So BTL has had a restraining influence on prices and rents. To claim that BTL has pushed up prices is a gross distortion of the facts.
Also in the body of David Kingman’s report is a list of revenue expenses, “meaning that landlords are able to claim tax relief against them.” He states “As the figures presented below will show, the most significant of these forms of tax relief is that on mortgage interest.” In that sentence he purports to convert a legitimate and normal business expense into a tax relief.
It is pure sophistry to say that we can claim tax relief for interest just because it is deducted from receipts to find the taxable profit, like it is in every type of enterprise in the country. It is politically motivated nonsense to select one of these legitimate business expenses and say it should be disallowed for people who bought property in their own names, as a punishment for borrowing to provide decent accommodation for those who need it.
RECOMMENDATIONS
Among David Kingman’s recommendations are:
“Reduce the ability of landlords to deduct their mortgage interest against tax, because this allowance is regressive and distortive” and
“Build more housing to reduce housing costs for young people”
It is no surprise in such a poor piece of work that no thought was given to the predictable effects of the first recommendation. Apart from increases in rents and/or eviction notices, which have already started, the first recommendation will have a negative effect on financing the last one.
CONCLUSION
David Kingman’s conclusion starts “This report has demonstrated conclusively that the generous tax relief which is given to private landlords causes serious distortions within the UK housing market.”
This is the opposite of the truth. The correct conclusions are:
BTL has increased housing stock by 2.5 million between 1996 and 2013.
BTL was only responsible for one-twentieth of the 150% price increase between 1996 and 2007, which is insignificant. Prices would have gone up even more if BTL had not financed the 2.5 million increase in supply – and so would homelessness.
Deducting finance costs is not a tax relief, it is normal accounting practice everywhere. Disallowing them for existing businesses is iniquitous and will be damaging for the economy. Rents will rise. Tenants who cannot afford the rises will be made homeless, to be put in temporary accommodation in whichever part of the country that it can be found, at greater cost.
A flawed report has resulted in a flawed Finance Act.
So there you have it!
You can download the full report produced by David Kingman HERE. Note some of the familiar phrasing used in both this report and the Chancellors Budget speech, e.g. “level playing field”
A group of landlords are looking into Crowd Funding a Judicial Review to consider the legality of Clause 24 of the Finance Act 2015 based on a variety of legal arguments, further details of which we are unable to report on until 26th December 2015 due to an official embargo. Apparently Boxing Day is one of the busiest days in the year for property related online searches.
Previous Article
Changing Tenants under a Periodic TenancyNext Article
New flat conversion - electric or gas?
Angela Bryant
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up8:54 AM, 26th December 2015, About 9 years ago
Reply to the comment left by "Ros ." at "26/12/2015 - 08:49":
Yes well done Ros and all involved.
I have pledged and shared - looking forward to this.
It's so important that we ALL put our money where our mouths are NOW!
Angela
Gareth Wilson
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up14:24 PM, 26th December 2015, About 9 years ago
Don't stop now everyone!
The Crowd-Funding site has already adjusted to take further pledges beyond the first £15'000 target, for funding of the additional costs associated with the judicial review:
https://www.crowdjustice.co.uk/case/clause24/
Let's keep the momentum going!
Gareth Wilson
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up23:11 PM, 27th December 2015, About 9 years ago
Here is a surprisingly simple and efficient way for members of Property118 to boost the campaign against Clause 24. I did this yesterday and it took me about 2 hours.
We have a problem in that lots of landlords are not a part of online communities like this. But we know that lots of landlords advertise their property online.
What you do is type a message in Word consisting of the following:
1) An initial intro to make the recipient read the rest of the message like this: “Dear Sir/Madam, Though I am not writing to you regarding your property vacancy, this message concerns a matter likely of even greater importance to yourself.”
2) The briefest possible explanation of what Clause 24 is and the danger it poses to landlords, with an invitation to visit the Summer Budget 2015 – Landlords Reactions page on Property118 for the full information and to download the included spreadsheet. You won’t be able put the page’s URL, just describe where they need to go. Also, your explanation of Clause 24 needs to be sharp and to the point, so it makes them find Property118 and the full information for themselves.
3) A request that they sign the petition. Again you can’t put its URL, so instead tell them how to find it using Google: “buy to let petition”
4) A request that they pledge a donation towards the legal action to overturn Clause 24. They can find this page via Google by inputting “clause 24 crowd justice”.
5) A recommendation that they arrange a face-to-face meeting with their MP or write to him/her if that is not possible, describing the impact of Clause 24 upon their financial position and tenants.
6) A recommendation that they write to George Osborne and David Gauke also describing the impact of Clause 24 upon their financial position and tenants.
7) A request that they send the above instructions to every landlord, letting agent and mortgage broker that they know.
I recommend that you number and space out the action list so that it is clear.
When your message is typed, go on to Gumtree and bring up a list of all properties/rooms to rent in your county. You can do this by specifying the location and leaving all of the property criteria blank.
Then you simply reply to every single advert, pasting in the message described above. In-paste-out, in-paste-out, in-paste-out. In a couple of hours you’ll have powered through every advert (leaving those repeated by the same advertiser) and sent a message to every landlord/agent advertising on Gumtree at this present moment.
If someone sends you a reply, you will be able follow-up with the actual URLs of the above or further actions (i.e. e-mailing members of the press). That’s because by that stage you’ll be messaging through your regular e-mail app instead of Gumtree itself.
If every member of Property118 were to do this, we could increase awareness of Clause 24 and the campaign exponentially.
STEVE HOLDEN
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up12:46 PM, 28th December 2015, About 9 years ago
Has anybody actually asked George Osborne where he got his "Facts" from and did he use David Kingman’s research? If not then perhaps somebody should, in an open letter to him via a newspaper?
Anon
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up15:27 PM, 11th January 2016, About 9 years ago
I know my views sound perverse, but this tax needs to come into force. If they don't bring this tax change, they will bring in something else just as unpleasant.
I know it will drive some landlords out of business. Let there me be blood on the streets. Those who campaigned for this tax change don't have a clue about business.
Those Landlords who have sense will be selling up now, rather then waiting for the stampede next year. Shelter say there are 11 million renters, their campaigning is strong. It resonates with MPs.
Landlords are undervalued, so there has to be a decline in the PRS. It we end up with say 80% owners occupied and 20% rental, then it will be hard in future for them to bring in laws to decimate the PRS even further.
As for anyone who thinks landlords are getting some sort of special tax relief on mortgage payments. I say to you : You need to get an education in basic accounting. You don't have a clue about business and probably have never done a real job in your life (I include people who write 'policy papers' as an occupation).
Demented Landlord
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up20:39 PM, 20th January 2016, About 9 years ago
David Kingman what planet are you from, what are you smoking!!!!
You and "Osbourne" need your heads looking at if either of you think this crazy tax will resolve the housing market problems.
You`re trying to tax landlords debts so were will the money come from?
No one in there right mind would invest in the BTL again after this!
I always believed we lived in a democracy not a dictatorship !!!
Please join the fight and sign this petition https://petition.parliament.uk/petitions/104880/
before its to late
John Mcgowan
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up13:56 PM, 7th February 2016, About 9 years ago
I applaud the action being taken against clause 24 and the way that ignorant George Osborne who has a history degree is being uncovered as using an inaccurate biased Geography degree project from David kingman . Neither of these 2 people have any qualifications in economics or law and its a case of the blind leading the blind. The Chancellor is also an incompetent risk taker as his previous errors on hot pasties,bedroom tax,child benefit restrictions and tax credits prove. I believe this Alice in Wonderland tax should be and will be declared illegal on the basis that it treats interest on mortgages as if it is profit rather than a cost . If this was written into an economics degree project it would be rejected as idiotic. Lets hope the legal eagles who review this agree for the sake of all the good decent landlords, tenants and the letting agents.
Gareth Wilson
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up18:12 PM, 1st March 2016, About 9 years ago
"George Osborne: Labour chose Yanis Varoufakis and Paul Mason because 'Chairman Mao was dead and Mickey Mouse was busy'"
http://home.bt.com/news/news-extra/george-osborne-labour-chose-yanis-varoufakis-and-paul-mason-because-chairman-mao-was-dead-and-mickey-mouse-was-busy-11364043652231
This coming from Gideon: a man who looks to 20-something Geography graduates for economic policy ideas... oh and party donors. Total hypocrite.
Gareth Wilson
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up19:22 PM, 25th November 2016, About 8 years ago
Ladies & gents... have you seen this?
https://www.property118.com/92625-2/92625/#comment-84306
The comments section has triggered some interesting parallels to be realised...
John Kingman => Group Chairman of Legal and General plc & Former Treasury Civil Servant => L & G is an Institutional Investor in the PRS => L & G is sponsor of the Intergenerational Foundation
Kingman? Now where have we heard that name before? Oh yes!
David Kingman => Works for the Intergenerational Foundation => Left university with a degree in Geography => Wrote a report calling for the end of landlord "tax breaks" => Credits himself for changes introduced via the Finance Act 2015.
Gareth Wilson
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up19:28 PM, 25th November 2016, About 8 years ago
Reply to the comment left by "Gareth Wilson" at "25/11/2016 - 19:22":
http://www.if.org.uk/wp-content/uploads/2016/09/Generations-Apart-Brochure.pdf