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

by Neil Patterson

16:40 PM, 6th August 2015
About 6 years ago

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

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

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.

 


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Comments

Fiona Macintyre

9:25 AM, 30th August 2015
About 5 years ago

Is there an update from the workshop? Is there any hope of room for manoeuvre on any of the proposed tax changes?

Mark Alexander

9:29 AM, 30th August 2015
About 5 years ago

Reply to the comment left by "Fiona Macintyre" at "30/08/2015 - 09:25":

Yes, please see my comment on the previous page of this discussion thread.
.

Fiona Macintyre

22:17 PM, 30th August 2015
About 5 years ago

I have come to the party late - never believing the new tax would ever be implemented retrospectively- oh how wrong can a person be! I have signed the petition and am lobbying all tenants , agencies and friends I am astounded we can't get anywhere close to 100,000 and appalled at the apathy - I've hardly slept since realising the full implications. I have had one thought that I haven't seen raised as yet. Since it it such a punitive tax is there any case at all with the European Courts of it being so unfair and prejudiciary or am I being ridiculous.? Is it legal for them to introduce it retrospectively?
Do any of you believe there is a chance of it being reformed to apply to debt from April 2016 onwards?

Dr Rosalind Beck

22:27 PM, 30th August 2015
About 5 years ago

Reply to the comment left by "Fiona Macintyre" at "30/08/2015 - 22:17":

Hi Fiona.
Yes, it is shocking when you fully understand it. The best way to deal with it, I've found, is to channel the anger into action.
Some of us are interested in a legal challenge at a later date, but the priority now is to get it scrapped before it starts. In addition to the petition we are encouraging people to write to and go and see their MPs - and there are loads of useful ideas in the linked articles. (if you look at 'LINK' above.)

Fiona Macintyre

23:25 PM, 30th August 2015
About 5 years ago

Reply to the comment left by "Ros ." at "30/08/2015 - 22:27":

Thank you Ros yes I've read all the links. My properties are all in London and the South East but I live in East Lothian, I am writing to my SNP MP & will definitely try to see him in person to express my deep feelings of betrayal by a party I've spent my adult life supporting and hopefully give him something to get his teeth into. I'm also spreading the word among all my well connected Scottish friends, who as you know are not lovers of this government. I am going to do all I can to get the no.s up on the petition, I can not understand why the no is so low. I am also going to write to the Daily Mail, although a Tory paper they usually stand up for the individuals who have worked hard all their lives to support themselves and grow investments. I'm surprised they've not run with any article to date. So don't worry I shall be doing anything I can think of to try to stop it becoming legislation, but I think we must also have a plan in place for November, is it legal to pass such a punitive tax ??

Dr Rosalind Beck

23:29 PM, 30th August 2015
About 5 years ago

Reply to the comment left by "Fiona Macintyre" at "30/08/2015 - 23:25":

Hi Fiona. It is a good idea to write to the Mail. I have written numerous emails to them - with very little result so far, but I see it as a process of attrition, so if you write too that would be great. One journalist today -quite deeply embedded in his column - mentioned the tax grab and called it 'shameful.' That's the best thing I've seen from the Mail so far, but it's a good sign.

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