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16:40 PM, 6th August 2015, About 9 years ago 66
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I am very pleased to inform all members and readers that Mark Alexander (founder of Property118) has been invited to consult with advisers to the Treasury Select Committee on the 24th of August in regards to Budget changes.
Subject: RE: Summer Budget Property Measures Consultation
Dear Mark,
As I am sure you will be aware, at the Summer Budget 15 the Chancellor announced two new policies related to property income. Firstly the restriction to finance cost relief for individual residential landlords and secondly the reform of the wear and tear allowance. The Government announced that it would like to consult stakeholders on the detail of these measures, as an individual with an interest in the area we would therefore like to invite you to participate in a discussion on the changes. We are particularly interested in comments on the legislation in the Summer Finance Bill 2015 regarding the restriction to relief for finance costs (clause 24) and your views on the new relief that allows a deduction for actual costs that will replace the wear and tear allowance (https://www.gov.uk/government/consultations/replacing-wear-and-tear-allowance-with-tax-relief-for-replacing-furnishings-in-let-residential-dwelling-houses).
We plan on running two workshops to discuss these issues, please do let us know if you are able to attend either of these sessions. If you would like to meet to discuss this issue but none of the times above would be suitable, please let us know and we will explore arranging further meetings.
18th Aug 10.30-12.30
24th Aug 14.30-16.30
Finally, if you are not the correct person to talk to about these measures, please do forward this on to relevant colleagues.
Kind Regards
Sean Rath | Policy Advisor | Personal Tax | Personal Tax, Welfare and Pensions
HM Treasury, 1 Orange, 1 Horse Guards Road, London, SW1A 2HQ
Subject: RE: Summer Budget Property Measures Consultation
Dear Sean
I am indeed aware of the proposals and would like to comment specifically about clause 24 and the Impact Statement which has failed to consider many unintended consequences.
It is somewhat unclear what the Chancellors objectives are. Increase revenue for the treasury, cool the property market down, help first time buyers etc. There have been some very muddled comparisons offered too.
FACTS
“For every £1 invested into new build property £2.12 flows into for the economy” – source ONS.
57% of new build property has been purchased by buy to let landlords since 1992. For every four properties built for sale developers have built another for social housing in recent decades. Therefore, buy to let has been responsible for much of the property development of the last two decades. Reducing investment demand will reduce property values and the viability to build more. This will not improve the housing crisis. IFS support my views on this.
The Impact Statement suggests that clause 24 will affect 1 in 5 landlords. I have run several scenarios though a spreadsheet and arrived at the conclusion that landlords with highly geared property portfolios will be hit hardest. Based on the Pareto Principle (the 80/20 rule) it is likely the affected 20% of landlords will own 80% of the property in the PRS, many of these will be highly geared. Due to the way the proposed tax changes are to be calculated it is possible that many of these landlords will pay more tax than they make in terms of real profit, i.e. profit as calculated after all costs, which is the method used for all other businesses to calculate tax liabilities. Indeed, it is even be possible for landlords to be taxed on losses under the clause 24 proposal. Cashflow problems will get worse as interest rates rise.
Affected landlords have some stark choices to face. Should they increase rents to cover the additional tax burden in order to maintain the status quo for their finances? Do they sell and incur CGT with a view to reducing their gearing? In many cases the net proceeds of sale will be insufficient to pay CGT where a leveraging strategy has been utilised, this is likely to be applicable to the same landlords affected by the tax. The bankruptcy of many landlords is therefore inevitable if clause 24 is implemented as proposed. I am one such person. Mass repossessions are inevitable if clause 24 forces portfolio landlords to into insolvency. This will need to be factored into the recovery of lending institutions balance sheets.
Given the scenario’s outlined above it is likely that the property market will soon be flooded with sales of tenanted properties. This will impact the personal budgets of tenants for many reasons, moving costs for example. There will also be social implications, a simple example is children having to change school.
Surveys of both landlord and tenant groups have all come to the same conclusion, rents will have to rise to protect the cashflow of landlords. However, many landlords are not able to raise rents, particularly those housing LHA claimants. This group are at the greatest risk of insolvency and repossession. The knock on effect is that many LHA claimants will be seeking alternative rental accommodation at a time when availability will be shrinking.
What clause 24 fails to recognise is that over a million people have invested into the PRS over the last two decades and have based their property investment strategies on the normal business principles of taxing profit. The proposed changes affect business decisions made historically, clearly that is unfair.
As you may be aware, I run an online forum for landlords and tenants. Well over 100,000 people have subscribed to our discussion thread on this subject and over 2,000 comments have been posted. Link >>> http://www.property118.com/?p=76164
I have intentionally kept my reply brief at this stage and covered only the most important aspects of a much wider debate.
I would like to attend the workshop on 24th August 14:30 to 16:30. Please send me details, where to report to etc.
Yours sincerely
Mark Alexander – founder of Property118.com
YOUR Money, YOUR future, YOUR choice.
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Have your say on the Finance Bill 2015
Mark Shine
15:13 PM, 10th August 2015, About 9 years ago
@ Michael Barnes, you mention that you are not highly leveraged at 50%. My LTV leverage is 46.9% but will be heavily targeted by this budget.
The intentional or unintentional (?) effects of the budget proposal will be greater in locations where rental accommodation is needed most yet where yields are comparatively low. These are areas where LL bankruptcies will be more prevalent, greater temporary or long term homelessness and upward price correction in rental values likely to ensue. I’m not the conspiracy theorist type, but a few theories do spring to mind as to why some wealthy Tory party donors may have influenced this…
S.E. Landlord
19:51 PM, 10th August 2015, About 9 years ago
It is likely that the government is also asking mortgage lenders for their thoughts on the changes in the budget and therefore I thought this of interest -
http://www.sharesmagazine.co.uk/news/paragons-buy-to-let-booming-despite-budget#.VcjcWPlViko
I consider Paragon to be one of the main btl lenders - it seems that they do not think the changes in the budget will have a major impact on their business levels.
I assume part of the reason for their positive outlook is that they also offer mortgages to limited companies.
If you want more people to invest in btl you will be positive about it irrespective of changes that may adversely affect the returns. There is a similar problem with Estate Agents, Letting Agents and many other organisations promoting BTL in that it is not in their interest to focus on the negative effects of the budget.
Cash investors will still look at btl but returns for the mortgaged landlord will decrease and as interest rates rise btl becomes less attractive anyway.
Appalled Landlord
21:21 PM, 10th August 2015, About 9 years ago
Reply to the comment left by "S.E. Landlord" at "10/08/2015 - 19:51":
“But proposed reductions in tax reliefs for buy-to-let borrowers should not impact the business too much, according to [Paragon’s] chief executive Nigel Terrington.”
So in public he doesn’t think that a levy on the annual finance costs of up to 25% will put anybody off taking out a loan from Paragon to buy a property in his own name, or else he thinks that we will all start companies to do so.
S.E. Landlord
8:58 AM, 11th August 2015, About 9 years ago
Reply to the comment left by "Appalled Landlord" at "10/08/2015 - 21:21":
I included the link as I think Paragon will be one of the lenders the government will consult with about the changes and it useful to know what comments other organisation were likely to be making to the government. Paragon were one of the original lenders when ARLA started the BTL scheme and have been / are a key player in BTL mortgage lending.
Appalled Landlord
10:16 AM, 11th August 2015, About 9 years ago
Reply to the comment left by "S.E. Landlord" at "11/08/2015 - 08:58":
Hi S E L
I know, Paragon has been one of my lenders since 2002. His public stance is worrying. I hope he is not so complacent behind the scenes.
Mike W
15:29 PM, 11th August 2015, About 9 years ago
Mark,
Well done for getting the invite.
I will not repeat what many others have said but highlight one area I have seen little discussion about.:The mobile family who move to keep in employment.
Buying and selling costs preclude the mobile worker from buying and selling a house everytime the worker has to move location so, I like many others, would rent out my own home in the area of the country I saw as my base, and rent a home in my new employment location for 1-3 years. Being in the 40% band already by employment, this 'super tax' on finance costs on renting out my own home is a fundamental blocker for the mobile worker.
An unintended consequence? Who was it who said 'get on yer bike to find work....?'
Accidental Landlord
10:47 AM, 12th August 2015, About 9 years ago
Congratulations Mark for creating such a fantastic landlord forum and for obtaining the opportunity to discuss the proposed Bill which is simply WRONG and will destroy what many of us have worked so hard to achieve over the years in addition to our day jobs - there goes the idea of providing ourselves pensions or paying our kids university fees (so much for hard work always pay offs)! The failure of Government over the last two decades to build enough houses whilst selling off council homes faster than the speed of lightening is the real reason for our country's housing crisis, not the greedy landlord hyped press. My alternative proposal is this - as we are all in this austerity crisis together (she says having watched Conservative MPs take a 10% pay increase upon each election, whilst civil service colleagues have remained on frozen pay, depreciating in real terms due to higher pension costs and the higher cost of living with raised VAT, fuel and heating costs) isn't it time they put their money where their mouth is. Simply purchase our BTLs directly from us, with the exemption of us not having to pay CGT to them and they don't have to pay Stamp Duty to themselves and both parties can avoid estate agency fees, so LLs across the nation whose properties in real terms have not budged in value (Wales, NI, up North) and who really don't want the ongoing headache of tenants, poor rents and all these new rules that keep popping up (or god help us if we fail to notice the new rules, as we face the threat of jail and £000s of fines, if of course we ever get past the new goal of dooming bankrupcty). The vulnerable in our society need protecting as homelessness should not be seen in a Western country in this age and with reduced government spending LHAs will not be able to afford to build the promised new homes. Their counter argument is they have no money, so I would additionally propose a Land Tax to raise the much needed revenue. Going FORWARD any NEW purchases by BTL LLs and ALL foreign homeowners (surely to do this in London alone with all the Russians buying in would produce sufficient monies) and return it to the pot to provide social housing for the very vulnerable in our society. The old system which we have build our models around simply needs regulating like the residential market, but bar that leave it alone, do not go BACKWARD and instead take a common sense approach to our housing crisis which will otherwise collapse.
NewYorkie
11:47 AM, 12th August 2015, About 9 years ago
Well done Mark. Maybe a chink of light in the Government's misguided thinking!
Mark Alexander - Founder of Property118
9:43 AM, 13th August 2015, About 9 years ago
My consultation with The Treasury has been moved to 11:30 am on the 20th August.
.
Dr Rosalind Beck
12:31 PM, 13th August 2015, About 9 years ago
Mark, let us know how we can help - e.g. in doing some research, finding statistics etc. - whatever you feel you need.