Summer Budget 2015 – Landlords Reactions

“The legislation implementing this change will be published in tomorrow’s Finance Bill. The Bill is subject to parliamentary scrutiny and so there are no guarantees as to what will become law before the Bill receives Royal Assent in Autumn.”

Royal Assent is automatically granted..have a look at Wikipedia and it is rarely withheld. I would not hold my breath on it.

If you call, Royal Assent was recently granted for “Revenge Evictions”

Hi Gary

I can assure you. What made me laugh was none of your comments that made but the financial adviser where client took proper advice.

This is such a serious situation for many I don’t find it funny at all.

Reply to the comment left by “Neil Robb” at “14/07/2015 – 15:05“:

Thanks Neil. As I said, I jumped the gun…I am such a fool….:-)

Hi all.
I have drafted my own personal letter to George Osborne and will also send it to the relevant Ministers. I have used Mark’s figures as they are nice and clear and illustrate the case simply. Feel free to use any of what I have written – although I know we all have slightly different takes on it and that is good, as it is best that they receive a range of letters. Let me know if any of you think I should change any of it, as I’ll probably send it tomorrow. Love and kisses to all.

Dear Mr Osborne
I am writing with regard to the proposals on ‘tax relief’ for landlords in the Budget. Many of us have been confused about this terminology. As the mist has cleared, we realise that what is really being proposed is that the cost of raising interest, through BTL mortgages, which is our biggest cost in running our businesses, has been re-defined as ‘income.’
This makes no sense. The proposal means that we would be taxed on a cost; whereas we should only be taxed on actual income. Is it the case, that a new principle of taxation is being introduced in Great Britain? Namely, that tax can now be levied on costs?
If so, for us as landlords, what will be next? We pay out considerable amounts of money each year, replacing kitchens, bathrooms, boilers, re-painting houses, fixing and replacing roofs and so on. On a personal note, this year we had the pleasure of discovering our tenant was a front for cannabis producers and the first we knew of it was a call from the Fire Service saying our house was on fire. The work to repair and renovate this house took four months – during which time we had to continue to pay the mortgage obviously, whilst having no rental income. According to the new proposal, we would have made a taxable profit during this time…
According to the logic of the new proposal, any or all of the costs of running our business could be re-defined as ‘income.’ Why just mortgage interest? And if our costs can be re-defined in this way, why aren’t all businesses in the UK falling under this new (and incredible) tax regime? In fact, Buy-to-let is not a simple, hands-off ‘investment’, as it is often portrayed; it is very labour-intensive and for many of us constitutes a full-time job, whereby we work and are on call 7 days a week, including evenings.
Unfortunately, the failure to understand our business (ignorance, by another word), has led to the Government becoming confused and announcing this bizarre proposal.
To illustrate with a simple example.
SCENARIO AS OF TODAY
Rental income: £300,000 per annum
Mortgage interest: £200,000
Other legitimate expenses: £100,000 (e.g. insurance, letting, management, maintenance etc.)
Taxable income = zero.

SAME SCENARIO AS OF 2020
Rental income: £300,000 per annum
Legitimate expenses excluding interest: £100,000
Net taxable income = £200,000

Net cashflow would still be zero but tax would be payable on £200,000 less a tax credit of £40,000 due to the 20% relief on the £200,000 of mortgage interest. Given that net cashflow is zero, where is the landlord expected to find the money to pay the extra tax from? And the position worsens when interest rates increase. As landlords, we have been dumbfounded this week, absorbing the shocking news. We are starting to find our voices however and we will fight this.
It truly beggars belief that such a scenario could be introduced into the tax system of Great Britain.
What’s more, even if landlords did have the funds to indefinitely prop up our businesses in this way, why should we? As Housing Associations and ‘limited companies’ are receiving favourable treatment and are excluded from this measure, where is the ‘level playing field?’ We’re all providing the same service.
To conclude, this measure, if implemented in its current guise, will be extremely injurious to a large business sector which provides an essential service to millions of renters and which also provides work for a massive amount of tradespeople, insurance brokers, letting agents and estate agents and so on.
This singling-out of landlords as a special category whose interests can be so unfairly attacked can only stem from an anti-landlord prejudice, based on outdated and offensive ideas about us as business people.
I am urging you to reconsider this draconian and retrogressive move, which frankly, we never expected a Conservative Government to even countenance, never mind seriously propose.
I look forward to a positive reply indicating that this measure is being reconsidered and preferably revoked.
Yours sincerely

Reply to the comment left by “Ros .” at “14/07/2015 – 15:24“:

Hi Ros

The final sentence of the paragraph below (in bold) is incorrect, I suggest you remove it.

“The work to repair and renovate this house took four months – during which time we had to continue to pay the mortgage obviously, whilst having no rental income. According to the new proposal, we would have made a taxable profit during this time…

You won’t pay tax on the interest under the new budget proposals, you simply wont be able offset it against income. You have already stated that you had no income from the property in between it burning down and being re-let.
.

Reply to the comment left by “Ros .” at “14/07/2015 – 15:24“:

I think there is more to discover …… low income landlords are at risk of losing carers allowance, income support, child tax credits, housing benefit, working family tax credits, child benefit, ex partners paying out csa based on % of income could also get clobbered. All these people who carefully prepared to provide btl as a pension now screwed over.

Reply to the comment left by “Ros .” at “14/07/2015 – 15:24“:

Ros,

The statements

According to the new proposal, we would have made a taxable profit during this time…
AND
According to the logic of the new proposal, any or all of the costs of running our business could be re-defined as ‘income.’

are not quite correct, what the government is changing is that they are redefining ‘financing’ as NOT A COST (note I use financing because I think they intend to include not just interest but borrowing fees and such like)
They are saying that the maximum relief that you can get on ‘financing’ cost is 20%

We are being taxed on the gross revenue and we will get limited relief on the ‘financing’ cost.

Thanks Mark. I’ll take out that sentence.
And thanks Simon – I’ll incorporate a general statement to cover these other as yet not completely thought out repercussions.

Hi James. Yes, but that’s semantics.

Reply to the comment left by “Mark Alexander” at “14/07/2015 – 15:32“:

Hi Mark
The cost was still payable during this time ie interest
and under the new system – this figure is being added to taxable income for tax purposes therefore Ros is correct in saying she was making a taxable “profit” during this time.