Summer Budget 2015 – Landlords Reactions

Still haven’t submitted an ahem ‘submission’ yet, but will do so in the next few days. I suspect the govt are asking for amendments, suggestions, alternatives rather than complaints.

My submission will focus on 3 main issues:

(1) “First, we will create a more level playing-field between those buying a home to let, and those who are buying a home to live in” (George Osborne 08/07/15). Clause 24 ONLY targets non-incorporated residential LLs who hold properties that are encumbered. Those whose rental incomes generate the lowest yields (ie rents) per borrowing level will be adversely affected the most. So am thinking about proposing alternative sensible practical solutions that will spread the burden on to ALL residential LLs if the govts genuine desire is to ‘level the playing field’.

(2) Alleged possible risk to UK financial stability as noted by BoE. Am thinking about suggesting more consultation & possible enforcement powers to BoE on an ongoing basis. If BoE conclude that BTL is a genuine risk, then phasing in of repayment only BTL mortgages for both non-incorp AND incorp LLs is surely a more sensible approach to tackle what may or may not be the problem. Although more difficult and more thought required by HMT & HMRC to achieve than the current proposal of a simple and brutal tax grab on the easiest LL target.

(3) Last but not least, given that there is (a) a guestimated £2billion per annum that the treasury loses via OO and tradesman ‘cash in hand’ deals and (b) HMT’s desire to level the playing field, am thinking about options to suggest what the govt can do to close that particular gaping hole that is very much related to property ownership. Not thought that one through in detail yet, but off the top of my head perhaps a moderate amount of CGT payable by OO’s on sales transactions which can be reduced by providing genuine maintenance receipts.

http://www.dailymail.co.uk/news/article-2623896/80-admit-pay-workmen-cash-hand-Failure-tradesmen-declare-earnings-said-cost-economy-2bn-year.html

http://www.telegraph.co.uk/finance/personalfinance/tax/9424692/Middle-class-families-doing-nothing-illegal-or-moral-by-paying-in-cash-minister-says.html

https://yougov.co.uk/news/2012/08/09/have-you-paid-cash-hand/

Reply to the comment left by “Mark Shine” at “18/09/2015 – 20:06“:

Hi Mark.
Someone found a statistic today saying that 9 out of 10 landlords are not incorporated, so spreading the load and making the ltd ones also pay might not achieve much. I wouldn’t go for that one personally.

For an amendment: I would just keep going for the ‘new purchases only.’ I think that’s the best way to go. And it could come in a lot sooner. 1st of January 2016 for instance.

For an alternative or additional amendment you might want to propose that all 2 or 3 bed houses put on the market have to only be sellable to FTBs for the first month and then to be opened up to everyone.

Reply to the comment left by “Mark Shine” at “18/09/2015 – 20:06“:

I think logical if any tax on btl that it includes ltd cos, if there is a risk it also applies to ltd cos.

If suggesting cgt on sale of main residence then should be accompanied by removal of stamp duty on next purchase.

Reply to the comment left by “Mark Shine” at “18/09/2015 – 20:06“:

I struggled with any sort of reply to this because it has not been made clear exactly what they wish to achieve, there have been comments about trying to make it fairer between FTB and BTL, also comments about the BoE worrying about people being over leveraged, Ive also heard its because there are too many people getting into the buy to let market. so the answer really depends on what exactly you are trying to achieve, what are the goals, is there also an element of increasing tax returns…

My ideas range depending on what you are trying to do…

1. Raise more tax – It seems the fairest way is to make a levy on rented residential properties as a percentage of the rental income aka a rental tax, this hits all landlords proportionally the same regardless of mortgage or not, ltd company or privately owned.

2. A fairer playing field between FTB and BTL, the clearest unfairness is the availability of the credit, in this instance I think the best way is to withdraw all new and remortgaged interest only mortgages but keep the same criteria of 125% of rent but to mortgage cost not just interest. This in my opinion is the only way to level the playing field and address the real issue which is availability of credit.

3. BoE worried about over leveraging. Cap the LTV rate to say 70% for all new borrowing and do not allow and existing borrowing to extend the mortgage beyond 70%, this will mean if there is any crash it will be rightly landlords that take the hit and not the banks.

4. Too many people getting into the BTL market. Its a known fact that for most landlords its as an alternative to pensions because people don’t feel their money is safe with pensions, create more tax intensives to put money into pensions or other investments, alternatively do any of the above measures.

Interested to hear peoples opinions of these ideas… I would also add multiple of the above could be implemented depending on what the aims are…

Is the above fair?

Reply to the comment left by “steve p” at “18/09/2015 – 20:57“:

Hi Steve. These are my thoughts:
Number 1 is still a turnover tax and very unfair. It’s not based on ability to pay.
2. If you withdraw interest-only remortgaging – i.e for properties already owned, people will be trapped in expensive mortgages.
No problem with 3 or 4.

Reply to the comment left by “Ros .” at “18/09/2015 – 21:09“:

Thanks,

I agree with you on number 1 however if they are to attack landlords to get more tax revenue from them which I think is wrong then I think this is about the fairest way. As said they really need to say what their goal is… 🙂

With 2 I can see your point, I think maybe for existing mortgages maybe having them go to repayment mortgages over a period of time say like by 2020. I think in terms of fairness its important to at least eventually make sure that everyone is on the same footing rather than giving an advantage to those that already own property.

The advantage I think with my ideas is that they could be implemented much quicker and thus have a faster reaction to reach what ever goal they are trying to achieve much faster.

Reply to the comment left by “Ros .” at “18/09/2015 – 20:29“:

@Ros

” 9 out of 10 Landlords are not incorporated”

It not the number of Landlords that’s important but the number of properties they hold. The 10% incorporated LLs could conceivably hold 30-40% of the properties.

Reply to the comment left by “Mark Shine” at “18/09/2015 – 20:06“:

I think we need to avoid suggesting too many alternatives.

If the proposal is to my modified, my strong preference is for it to apply to new purchases from 6 April 2016.

That change, together with proposals from the Bank of England which will probably result in lower LTV mortgages for BTL and higher rental coverage requirements, will achieve the Government’s policy objective of slowing down the BTL market without having a detrimental impact on existing property businesses.

We need to send a clear message about the modification that we think would be acceptable. If too many suggestions are made, it will just muddy the water.

This is a complicated tax change to understand. My guess is that many MPs won’t understand the potential consequences for our businesses. We need to keep the modification as simple as possible. I think a modification to have the tax apply to new purchases only has a chance of being successful as MPs will understand that applying the tax retrospectively is unfair and will destroy long established property businesses. That is not in anyone’s interest.

Reply to the comment left by “Barry Fitzpatrick” at “18/09/2015 – 21:52“:

I agree Barry. There are some huge landlords out there that are not as out spoken as the Wilsons. The moser family in Manchester for example own at least 4,000 houses.

Reply to the comment left by “steve p” at “18/09/2015 – 21:20“:

Hi steve

I don’t think we should volunteer for a tax on turnover.

Turning my existing mortgages into repayment ones would also be retrospective – and would bankrupt me.