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 7 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 Appalled Landlord

20:00 PM, 15th August 2015, About 7 years ago

Reply to the comment left by "Appalled Landlord" at "15/08/2015 - 19:43":

Correction - new purchases only, so that changing the lender on our existing properties would not be penalised.

by Saeef Khan

20:07 PM, 15th August 2015, About 7 years ago

I feel like I have been robbed. In day light by Osborne & Co.

by Mark Alexander

12:27 PM, 20th August 2015, About 7 years ago

Meeting at The Treasury just concluded, hence the update much earlier than expected.

The reason they changed the meeting is that they wanted to meet me personally.

The only attendees were me, Megan Shaw (HMRC), her boss and Sean Rath, Policy Adviser to The Treasury.

I did 80% of the talking, because all they were doing is justifying their own impact assessment. They still believe the OBR impact assessment, but admitted that many of our FoI requests are causing them problems.

In fairness they did listen intently and made copious notes. Nevertheless, I felt like King Canute trying to stop the tide coming in.

by Christopher Marsden

20:27 PM, 21st August 2015, About 6 years ago

Could anyone shed any light on the disparity between the number of readers of the "budget proposals " thread and the fact that less than 15000 people have responded to the petition.
Is it possible that many people have decided these proposed changes will not effect them ?

by Mark Alexander

21:48 PM, 21st August 2015, About 6 years ago

Reply to the comment left by "Christopher Marsden" at "21/08/2015 - 20:27":

It's not just the 150,000 readers on Property118 either Christopher, the petition went viral on Facebook and several other organisations have also sent out links to their client databases.

There are two words to sum this up; apathy and disbelief.

Most landlords simply refuse to believe this will happen and can't be bothered to sign the petition.

It's as if 500,000 have witnessed a mugging, most people simply walk on past, cringe a bit perhaps but then get on with their own busy lives. Very few people ever do something to stop it.

Now you might think that's a bit far fetched but if this isn't a mugging what is it?

Have you signed?

Have all of your family members signed? If not, why not?

How many people have you and your family persuaded to sign?
.

by Gary Dully

9:39 AM, 22nd August 2015, About 6 years ago

Mark, as you are my commanding officer, I should say that you have gone in there and done a splendid job.

Your scouting mission into the heart of the beast has revealed that "nobody cares" and they take notes, offer you a biscuit and a drink of tea or mineral water.

I am not being cynical, I have watched the "Thick of It", so I am concerned that all of your fantastic hard work is being ignored.
So now may be the time to consider how to deal with the apparent apathy with even some of the property118 thread readers.

The HMRC dog handler himself, Mr George Osborne. needs to have his prestige as a genius attacked.

With that in mind, I would suggest that the original spreadsheet is simplified in what is shown to the viewer.
The engine of it should be hidden and the results made the focus of attention, but you should now add the feature of inputting the number of tenancies a landlord has and a result field of the monthly rent increase required to meet the chancellors new levy on a landlords tenants per month.
Tenants need a simpler spreadsheet, where they put in their rent figure and it adds 32% over a 4 year period with a graph entitled "Clause 24".

I have only had to offer to show a spreadsheet once and they believed it, I could have put anything on it

Do not try and breakdown the figures for them - just keep it simple.
It works like a charm!

If anyone asks how it works? - just say its based on figures from the Inland Revenue.
(But nobody has asked yet)

Next, as an experiment, I personally visited 5 of my tenants and warned them of an increase of up to 32% of their rents over the next 4 years.
3 then signed the petition on the spot and 1 has written to her MP saying she has signed the petition and why?
The other 2 said they would do it later, which suggests they will be moving out soon.
But the spreadsheet just wasn't required as it just blew their RCD's by it's complexity.

Now before everybody on this thread tells me that the spreadsheet wasn't for tenants, I know that, but I wanted to see for myself what motivated them to sign and what stuck in their heads.

It was a figure of 32%, the phrase "Clause 24" and the fact that I explained that they pay all property taxes out of their rent.

So my point is, as I have mentioned before on the forum....
Stop assuming that the people you are talking to are intelligent, they probably are, when someones paying them for it.
But that's the problem with campaigning about anything, you won't win on logic.

But people react and sign petitions with an emotion, not logic.
Politicians react to headlines and emotions, not logic.

So Mark hasn't met anyone yet, who deals with emotions of voters, which is worrying, but if that is the case, we can take it for granted that our campaign should now focus on our MP's mailbag.

Get your tenants to do the work for you!
Stop being like a gentlemans club of highbrow thinkers and attack through your tenants.

It is because they are not complaining that HMRC are getting away with this travesty.

The reaction of the Government and MP's already met, shows how badly the misinformation out there is.

Attack through your tenants and the MP's will want to talk to you sooner or later.
But get on with it!

Don't get an exact percentage to worry about, just pick 32%
Use "Clause 24", "Tenant Tax" or Tenant Levy" if you cant help yourself from being technical and stop saying "reduction in landlords tax blah blah"
Use "Sign to get it stopped"

If "Clause 24", "Tenant Levy or Tax" goes viral, like "Bedroom Tax", the government will have to counter the argument and then experts will chew over the travesty on the news programmes for you.

Mr Osborne wants to be PM, he doesn't want to be the man who introduced a tenant tax of 32%

by Michael Barnes

10:10 AM, 23rd August 2015, About 6 years ago

Reply to the comment left by "Mark Alexander" at "20/08/2015 - 12:27":

Why did they want to meet you personally?

Was it because they value your insight?
Or is it because they see you as dangerous, so didn't want you in the same room as others who could rally behind you and put pressure on them?

I fear that it is ithe latter, and they are adopting a strategy of "divide and conquer"

by Mark Alexander

11:08 AM, 23rd August 2015, About 6 years ago

Reply to the comment left by "Michael Barnes" at "23/08/2015 - 10:10":

I don't know
.

by Mike W

15:59 PM, 24th August 2015, About 6 years ago

A few thoughts to add to the thread ....

The whole proposal is in fact a TAX PENALTY for BTL investors in the 40%, 45% and upper part of the 20% income tax bands.

The principle could easily be extended to all BTL finance costs whatever tax band. This is a deliberate attack on landlords to collapse the BTL market. A market that provides a significant amount of housing to students, to the mobile workforce, amongst many other sectors.

It does not apply to businesses - yet - so how can the individual BTL investor compete with the business competitor (eg Unite) in say the student market? Anti competitive legislation?

Can the affected investors get out of the problem by incorporating? No because of the CGT implications. (A possible let out for George - cgt rollover? or is that another trap?)

Why should the self self employed worry?. The principle could easily be applied to them. If finance costs are not tax deductible for property businesses, why should they be tax deductible for the local trades person, shop keeper etc? Indeed why should any business cost be tax deductible? Does the tradesman or shop keeper have finance costs?

Unintended consequences?
Elderly parent lives is unable to sell the home at a reasonable price to pay nursing home costs so rents it out. Extra tax may mean cant pay nursing home fees which will increase because of living wage ....

The mobile worker who moves around the country with family for work but does not want to sell home (or it is uneconomic to do so) so rents out home in order to afford to rent in new temporary location?

As for those who shout about unfair playing field with home owners - then give home owners the same tax break - any income derived from their own home should have the proportionate share of all costs including finance costs deducted from all the income derived from their own home. But George just gave them another break re the 'rent a room scheme'! I would like a similar allowance for each room in my BTL property ....

BTW
MIRAS was a tax INCENTIVE for home owners and its withdrawal was not a TAX PENALTY.

by Ian Narbeth

16:05 PM, 26th August 2015, About 6 years ago

Reply to the comment left by "Mike W" at "24/08/2015 - 15:59":

"As for those who shout about unfair playing field with home owners – then give home owners the same tax break – any income derived from their own home should have the proportionate share of all costs including finance costs deducted from all the income derived from their own home. "

I think this already exists. For many years I rented out a building in our back garden as a dwelling. I was able to offset a percentage of mortgage interest and buildings insurance against the rental income.


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