Mark Alexander invited to consult with Chancellor’s advisers on Budget Tax proposals affecting private landlords

Mark Alexander invited to consult with Chancellor’s advisers on Budget Tax proposals affecting private landlords

16:40 PM, 6th August 2015, About 6 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.

The Invitation LetterMark Alexander

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

The reply sent by Mark Alexander

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

Related articles – LINK

http://www.property118.com/category/budget-2015-campaign/

Join The Landlord Tax Levy Campaign Group

YOUR Money, YOUR future, YOUR choice.

 



Comments

by Mark Alexander

12:35 PM, 13th August 2015, About 6 years ago

Reply to the comment left by "Ros ." at "13/08/2015 - 12:31":

Hi Ros

I already feel prepared, I wish the meeting was today.

I've already been gathering a lot of information for them, at their request, have the comments, articles, evidence that has been linked in these forums has been incredibly useful.

I expect to have no more than around 10 minutes (maximum) of 'air time' during the meeting so I have planned for that.

Thanks for the offer though, just keep doing what you're doing already 😀
.

by Mark Shine

21:13 PM, 13th August 2015, About 6 years ago

@ Mark – other than the next paragraph, the rest of the below is something you might need to keep in mind for your meeting with the Chancellors advisers.

I am sure many of us remember the very bizarre recent article (31/7/15) by the Portsmouth & District Landlords Association (http://pdpla.com/) which did a huge disservice to all its members by grossly misreporting the facts. So much so that it gained support from that well known anti-landlord anarchic website, who encouraged its members to award the article 5 stars, which they did. Amongst other inaccuracies that article inaccurately included: ‘UK is the only country to allow finance charges to be claimed against tax’.

In reality the current 100% finance relief is to be cut to 20% by 2020/21 tax year, whilst in many other functional countries that don’t offer full relief it is 70/75% that is allowed.

As much as I realise that others don’t want to consider negotiation with the Treasury, I think we should at least be prepared for it? When I say ‘we’ I mean every non incorporated residential landlord in the UK.

‘Proposals for regulation of the private rented sector: an analysis’ is a report by LSE in June 2015.
http://www.landlords.org.uk/sites/default/files/NLA%20Final%20Interim%20Report.pdf

The report concluding in pages 17 to 19 ‘International experience: tax relief’ is perhaps something we should consider in our ‘defence’?

by Michael Barnes

22:13 PM, 13th August 2015, About 6 years ago

Reply to the comment left by "Mark Alexander" at "13/08/2015 - 12:35":

I hope you can find out what they intended to achieve from the change, in particulr was bankruptcy part of their aims.

by Appalled Landlord

22:19 PM, 13th August 2015, About 6 years ago

Reply to the comment left by "Mark Shine" at "13/08/2015 - 21:13":

Hi Mark

Thanks for the link, the report is very interesting.

Their summary of the political manifestos for the election in May on pages 5 to 7 shows that only the Green Party “pledged to remove tax relief on mortgage interest payments for private landlords “.

The authors, from the London School of Economics, wrote on page 17: “ In the UK, the activities of private landlords are treated and taxed as businesses (rather than investments). Landlords, like other business owners, are therefore permitted to deduct those expenditures related to the operation of their business from their business income. In the case of landlords as well as other types of business this includes interest payments on loans”.

That’s what we thought, but the Treasury are pretending otherwise.

by Dr Rosalind Beck

23:13 PM, 13th August 2015, About 6 years ago

Reply to the comment left by "Mark Shine" at "13/08/2015 - 21:13":

One of the references in the article is of a report by Crisis. I've only glimpsed at it but found some statements very much in support of the PRS, including talking about the importance of accommodation for students, migrants, unemployed, low waged and also high waged. The importance of incentivising landlords is stressed and they are also against rent caps. We really should have Crisis on our side as their big priority is to avoid homelessness. This is the link:

http://www.crisis.org.uk/data/files/publications/1301%20Crisis%20response%20to%20the%20CLG%20committee%20PRS%20inquiry.pdf

by Appalled Landlord

1:23 AM, 14th August 2015, About 6 years ago

Reply to the comment left by "Ros ." at "13/08/2015 - 23:13":

Hi Ros

I am not sure that Crisis is our natural ally.

Paragraph 8.1 states: “Crisis is the national charity for single homeless people.”

They want greater regulation, as they wrote in 2013:

“1.5 There is very little regulation in the PRS. By comparison, a licence is required to run a café or be a childminder, but there are no official checks, sanctions or permits needed to provide a home for another household. “

So they want us to be licensed, as if we were feeding the general public, or looking after children.

In the same paragraph:

“It is often cited that the majority of tenancies are ended at the behest of the tenant. However, this may be because people feel forced to end their tenancies due to rent increases, poor landlord behaviour or low physical standards.”

This is just guesswork. Most of my tenants left because it suited them, not because of my behaviour or physical standards, and only one pair left because I put the rent up in line with inflation (as per the AST) when interest rates were turning my business into a loss-maker.

“Greater regulation has the potential to make the market work better for all tenants.”

That’s something to look forward to!

Paragraph 1.6 is illogical. “At the sharpest end, the PRS is increasingly becoming a cause of homelessness. In the past two years there has been a 39% increase in the number of households becoming homeless when an Assured Shorthold Tenancy (AST) came to an end.”

It is nonsense to suggest that the PRS is causing homelessness through the termination of tenancies. Where would they have been living up to that moment if there were no PRS? Would these single homeless people have been FTB’s?

I would have thought that a landlord would be happy for an AST to become periodic as long as the tenant paid the rent and treated the property, and the people in and around it, properly. The only people whose tenancies I prevented from becoming periodic either did not pay the rent, or adversely affected the well-being of their housemates. In other words, their (temporary) homelessness was self-inflicted.

by Dr Rosalind Beck

8:20 AM, 14th August 2015, About 6 years ago

Reply to the comment left by "Appalled Landlord" at "14/08/2015 - 01:23":

Hi Appalled.
Point taken. And when I have more time I'll look more closely at it. Similarly to the newspaper articles on the subject, I'm trying to 'see the good,' see the openings where we have common ground, even when some of what they write is inaccurate, lazy and untrue.
However, I definitely found some good material we can use in our reports to the Public Committee on the Finance Bill and I still do think we could get them as a partial ally at least. The last thing they want is for rents to go up and people to be evicted. It's in their interests for landlords not to be scapegoated, but to be incentivised to expand the PRS - whether they have personal prejudices against us or not. They need to receive that message (but more diplomatically). They might be a better bet than Shelter. My understanding is that they are much more hands-on and provide actual 'shelter' to those in need. That gets my vote (in contrast to Shelter's one-sided 'all landlords bad; all tenants good' approach (and even then, an attempt to bring Shelter partly on side should be made)).
I wonder if either or both of these charities will be going to the Treasury to discuss the proposal...
Mark: do you have any idea who else is going?
I think a persuasive email or two to Crisis in particular asap would be a good idea. Not sure I'm the person, but I'll give it a go if no-one else wants to.

by Mark Alexander

8:26 AM, 14th August 2015, About 6 years ago

Reply to the comment left by "Ros ." at "14/08/2015 - 08:20":

I know RLA and NLA are consulting too but I haven't been given a list of the rest.
.

by Gary Dully

19:05 PM, 15th August 2015, About 6 years ago

I was having a gas safety check done this morning. The gas engineer has just become a landlord 2 weeks ago and wasn't aware of the changes proposed. he is now, and obviously now wants to sign the petition.
He only got into property because he thinks that landlords make buckets of cash from property.
I thought he was already wealthy as a Gas Safety Engineer and he said I was bonkers.

I asked him how many he would buy in the future, now he knows the tax implications - he was left looking nervous and said he would now think about not bothering if the Government don't change their mind.
That is the tragedy of rumour and uncertainty in business.

My HMO tenants have now received a request to read up about the Governments "Clause 24", Tory Tenant Levy.....broken down into a 32% "levy" or new tax that might have to be applied to ALL Their Rents over the next 4 years.

They have also been given a link to the petition and I have promoted the fact that their MP should be told of the petition and told why they have signed it.
My own local MP Helen Jones (Warrington North- Labour) has also been Bcc'd each batch of emails sent.

I am frustrated that in my part of the World, my representative is not a Tory MP, but we now have a gas engineer on board with a Tory MP in Crewe.

Oh whoopee I here you sarcastically cry, yes I know, but it's going to be a long war.

I have looked at the comments made since my last comment about a week ago and I am worried that we are putting to much emphasis on Marks meeting, vital as it is.

Best of luck Mark, I hope they listen to you and do a sensible U turn, but just in case they don't, we still need all of you to fight for the cause.

Now in response to some of the responses to my previous comments, i accept what you say, the criticism and the compliments are all noted and i repeat that my sole purpose was to keep it simple and so should you.

I am aware of the fact that the figure may not be 32%. however, in my calculations it wont be far from that amount. But then again the chancellor said only 1 in 5 landlords might be affected, so any slight variation in figures are the same on both sides.

What is a certainty is that 100% of my tenants will be affected, as they pay ALL my bills and I don't print money to pay my taxes.

You have to campaign with something more than the financial mumbo jumbo that as landlords we can easily produce at the drop of a hat.

A bullet is a small pointy shaped object that when fired can kill you or a politician stone dead.
When it hits you, you don't need to know the calibre, how it's made or if it fitted in the barrel properly. That's for others to discover when they carry out the post-mortem.

My point is this, for God's sake keep it simple for the rent paying public and their politicians.

That way, you won't lose them on your second breath.

When Mark goes into that room and talks about Mark Carneys BOE objectives, you will have probably blown it.

Mark will have a captive audience of at best 20 people that are all trying their best not to look stupid in front of their peers, thinking about what's for lunch or trying to fart without the microphone picking up the sound.

if we are lucky, 1 of them might be a press agent.

Talk to them about Thousands of Scottish Tenants being evicted by English Banks if landlords go bust.
Talk to them about Welsh disabled peoples rents rising by 32% over the next 4 years.

Talk to them about sex offenders not finding accommodation in large corporate landlord businesses.

Talk to them about at least 800,000 forced evictions in the Pareto Principal is applied and just 20% of landlords go bust.

Non of it is proven, yet! - but you are dealing with people with people to answer to
It's a bit like "Fracking" , we have only had one well sunk in Lancashire and half the country is having the 'vapours'

But headlines like that will be listened to.

How many tenants will Mark have to evict?

I would have to evict all my LHA claimants which is 9 at the moment.

42 households in Warrington will have to have a rent rise just from me.

These are the consequences you have got to speak about at that meeting.

Offer them a solution to that problem:
Change of rules for new debt only or tax amnesty for incorporation and allow transfers of existing loans.

I won't comment any further on this matter, as I know my place, well at least until after Marks meeting, but I know what politicians crave is a cause to scream about that the public understand.

Stick to a horrible headline for "One Nation" Cameron and he will soon give up on George. He doesn't need a Thatcher Legacy such as the Poll Tax.

by Appalled Landlord

19:43 PM, 15th August 2015, About 6 years ago

Reply to the comment left by "Gary Dully" at "15/08/2015 - 19:05":

Hi Gary

Let’s keep it really simple - just change of rules for new debt only. Incorporation is no good for Ros, for me and perhaps for many other people.


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