Email to Prime Minister et al

Email to Prime Minister et al

9:39 AM, 26th February 2019, About 3 years ago 39

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I sent the following email to the Prime Minister et al and would welcome comments from members:

Dear Prime Minister, Leader of HM’s Opposition, Chancellor and Shadow, Housing Ministers and Shadow, Mayor and Hon MPs,

As a single HMO-property landlord in Brent, I am writing this email because you, ladies and gentlemen, potentially have influence on rules, regulations and legislation that affect the private residential sector.

I thought you may like to hear the views of someone who has been at the coalface for over 42 years.

I started letting in London in 1976, because in 1977 I went away to Germany to work (in my profession as a chemical engineer in the oil industry – now retired) and was away for nearly 10 years.

During this time, I managed my London property from Germany. On a forthcoming ending of a tenancy I would, like everyone else in those days, advertise in the Friday edition of the Evening Standard and then drive from Duesseldorf to Ostend after work, take the night ferry from Ostend to Dover and arrive at my house in West London early Saturday morning.

During the course of that weekend I would take over from the last tenants, interview new tenants, select one, sign the tenancy agreement, etc, and then be back at Victoria station on Sunday night. Ferry back from Dover to Ostend, drive to Duesseldorf and arrive just in time for office on Monday morning!

But the key point I wish to draw to your attention is that during the whole of that weekend THE TELEPHONE WOULD JUST NOT STOP RINGING! Such was the DESPERATION of tenants looking for a place to rent.

This was because we were in the dark days of the Rent Acts 1974/1977, which had driven landlords almost completely from the market and DECIMATED AVAILABILITY for tenants.

As those of us old enough will know, the Rent Act 1977 was a draconian reaction by the Wilson government to the antics of a certain Mr Peter Rachman. But the end result was that it hurt the very people it was meant to help. The law of unintended consequences.

This tyranny continued until Mrs Thatcher liberated the market with the Housing Act 1988. Gradually landlords began trickling back into the market and tenants once again started to have AVAILABILITY and CHOICE!

That trickle eventually turned into a flood. However, all the good work that Mrs Thatcher did is progressively being undone with ever more stultifying regulation, carried out no less by successive Tory governments playing to the gallery.

One cannot raise standards by legislation or council-imposed conditions, only the market can do that. One interferes with the market at one’s peril.

The only areas that Councils need to concern themselves with are fire safety, electrical safety, gas safety, conditions such as mould, and overcrowding. The rest is up to the market and the courts. Anything else brings absolutely no benefit to tenants, merely increases ineffectual, burdensome bureaucracy.

In fact, during the initial registration of my HMO, this was all that the Council concerned itself with. Unfortunately, registration was replaced by licensing as a result of the Housing Act 2004 under Mr Blair’s regime and we have seen ever more intrusive interference into the minutiae of letting by the Council.

With unlimited power granted by this Act, we are now also witnessing bizarre rules being imposed, rules not founded on facts or logic. For example, landlords across the board being told to fit window restrictors such that windows cannot open more than 100mm to prevent grown up adults falling out of windows! We appear to be well on course to turning ourselves into the laughing stock of the world.

Legislation in most cases caters to the lowest common denominator, lumping the good landlords with the bad. The end effect will be that good landlords will abandon the market leaving only the bad. The legislation is unfair on the councils too, because it is asking individual officers to exercise what are effectively subjective judgements, besides leaving room for abuse of power. In many verifiable instances it actually disadvantages tenants, and vulnerable ones at that.

It is time to clip the Councils’ wings by repealing, or at the very least severely curtailing, Section 67(1)A of the Housing Act 2004.

The main reason why Britain’s housing market is structurally defective and young people are unable to get a foot on the ladder is FISCAL. Whereas landlords are able to set off their mortgage interest payment against tax, home owners cannot. This is blatantly unfair and means that even if the supply/demand dis-equilibrium is rectified, landlords will always be able to hoover up the most affordable properties to the detriment of young buyers – and renters will remain in servitude to landlords.

When MIRAS was progressively reduced and then finally abolished, exactly the same tax regimen should have applied to landlords. No Chancellor has ever addressed this built-in structural distortion, nor any newspaper to my knowledge raised this issue.

Restoring parity in the tax treatment of mortgage interest between landlords and property owners will be a far more effective method of empowering tenants than bureaucratic means such as rent controls. Renting should only be a temporary option for people in transition, with property ownership the ultimate goal for all, even if this is by way of low-cost micro-studios as starter homes for singletons. PEOPLES’ HOMES – for the many, not just the few

Fight the tenants’ corner by fiscal means and by unleashing market forces in their favour, not by futile knee-jerk legislation and certainly not by giving Councils powers that should not be in their remit*. Nearly all post Housing Act 1988 legislation should be repealed and fed to the bonfire.

There are many examples one could give of what is going wrong in housing, and improvements that can be made, but this suffices for the time being.

I appreciate that the political establishment is currently consumed and paralysed by Brexit, but problems of state must still be addressed.

Kind regards
Frederick BSc Eng (Hons) CEng MIChemE (retired chartered chemical engineer – so hopefully endowed with a bit of analytical, logical and rational thinking)

To:,,,,, james.brokenshire.,,,,,
18 Jan at 21:53


Frederick Morrow-Ahmed

17:01 PM, 25th March 2019, About 3 years ago

Reply to the comment left by Mark Alexander at 25/03/2019 - 13:20
Mark, first of all, thank you for your comment. Every comment is valuable. I wasn’t trying to avoid answering it, it was simply a matter of finding the time. There is a considerable backlog of comments before yours that I have not had the time to respond to. After the initial few comments I did not receive any further intimation that people had commented until Victoria’s, for some reason.

Rent-a-Room allowance is for a single lodger and is limited to, I think, £7500 pa. I think landlords would be doing themselves a disfavour if they could only claim this on each of their properties and nothing else. If they had a far bigger rental profit, they would only be able to claim £7500 tax free. But if this is what they want, then I agree. There will be a lot of very unhappy landlords.

Stamp Duty. Yes. I agree that there should be no difference in stamp duty for home owners and landlords when buying a property. Level playing field.

Same rules on fire and gas safety as owner occupiers. You have got me stumped here. I think new-build houses have to meet these fire safety rules but you are right, I think existing houses should also have the same safety standards. But you win on this one, since the argument goes that if you are looking after someone elses’ safety you have a higher duty of care. But, as I mentioned in another thread, it’s not as if landlords are not getting allowances to set off against tax, which an oo is not.

Pay no licensing fees. I think licensing is an abomination and should be abolished. Mrs Thatcher’s Housing Act 1988 brought in a very simple registration process and councils restricted their interference to objectively prescribed safety measures and a few other items. It was Mr Blair’s Housing Act 2004, which opened a can of worms, giving councils unrestrained power, and is of the greatest danger to landlords.

Insurance premiums. I think there is a wide range on offer and in some cases landlords and oo’s premiums may be comparable. But landlords can set off their premiums against tax, while an oo cannot.

Rates for mortgages. If there was no MIR available for landlords (level playing field with oo’s) landlords would have a much reduced gearing (LTV) in order for their sums to add up. With lower LTVs, reduced risk for lenders, hence probably lower rates.

CGT. I have already stated in response to an earlier comment that virtually every UK landlord will also be an oo. So the landlord will be getting this when he puts on his oo hat. It would be nice if there was no CGT at all, but the state needs money. In fact, this is a prime example where the state does not consider landlording to be a business. In most other businesses if you sell the business asset you can roll over CGT. In other words, if you buy another asset with the proceeds of the first sale and continue in business you will not be subject to CGT until you finally sell for the last time.

I think the far greater threat to landlords is the non-ending legislation and the dictatorial powers given to councils.

My apologies in advance if, due to time pressure, I am unable to respond further.

But thank you again for your most valuable comments.

Kathy Evans

17:22 PM, 25th March 2019, About 3 years ago

"Whereas landlords are able to set off their mortgage interest payment against tax, home owners cannot. This is blatantly unfair and means that even if the supply/demand dis-equilibrium is rectified, landlords will always be able to hoover up the most affordable properties to the detriment of young buyers – and renters will remain in servitude to landlords"

That's rubbish! Businesses are allowed to offset the costs of doing business - including loan and mortgage charges against tax. Landlords are a business. Yes, I'm sure the abolition of MIRAS did make it more difficult for some people to pay their mortgages, but really, the sharp increase of house prices relative to wages was caused by stupid lending policies and encourage people top buy who would have been lifetime council renters (Right ot Buy and so on). Best way to get landlords back in the market and stop rise in rents would be to build decent Council housing and stop Right to Buy, and treat landlords like any other business.

Kathy Evans

17:28 PM, 25th March 2019, About 3 years ago

Reply to the comment left by Tim Jones at 02/03/2019 - 08:41
But sole traders and partners in an LLP (ie self-employed rather than LTD Co directors/shareholders) can claim finance costs for their businesses, so why can't sole trader landlords?

Mark Alexander - Founder of Property118 View Profile

17:29 PM, 25th March 2019, About 3 years ago

Reply to the comment left by Frederick Morrow-Ahmed at 25/03/2019 - 17:01
OK, so let's take this a stage further.

A taxi driver can offset the finance costs on his cab. He can also offset his insurance, fuel etc. Why? Because he is running a business. General motorists cannot do this.

A publican can offset his finance costs on his pub too. Why? Because he is running a business, which is a public house. His customers cannot offset the beer they buy but the publican can. Is that wrong too?

A printer can offset the finance costs of his printers. These are an investment, because they produce income and sometimes even appreciate in value, just like property. If a business has something printed they can offset the cost of the printing against their turnover, but the public cannot. Is that wrong?

Shops and supermarkets can also offset their finance costs against income, just as they do with the food they sell. Now food is just as essential to all human beings as shelter, but the public cannot offset the cost of their food against their income. Are you saying that is wrong?

So, the public cannot offset the costs of their fuel, insurance, finance costs, beer or food. Is that fair? I say is is fair, because that's not the business they are in. For the same logical reason, landlords are in the business of providing accommodation, so it should be only right and proper that they offset their costs of business, including finance costs, in exactly the same way as any other business can offset finance costs against the income producing assets of their business. That is logical.

Mark Alexander - Founder of Property118 View Profile

17:37 PM, 25th March 2019, About 3 years ago

Reply to the comment left by Kathy Evans at 25/03/2019 - 17:28
Members of LLP's cannot offset finance costs either. Only Limited Companies can do that.

Mick Roberts

17:40 PM, 25th March 2019, About 3 years ago

Reply to the comment left by Mark Alexander at 25/03/2019 - 17:29
Brilliant Mark, I have some answers also below from me phone calendar, which u may tidy up, but basically the new clause 24 tax rules put some Landlords at a loss, so they sell up, don't buy any more etc.
Description:Clause 24 the biggest problem Landlords have ever faced.

Landlords paying more tax than they have made in profit.
Tory Govt not allowing those with mortgages to deduct their interest.

So you have £5000 rent in a year & £4000 mortgage.
It has always been you've made £1000 profit & paid 40% tax £400, leaves u with £600 profit for yourself.

Tax man not interested in your mortgage any more & wants 40% tax on £5000 rent.
You tell him 'Well, I've paid out £4000 mortgage, so I've only made £1000-HMRC says 'Not interested what mortgage you've had, we're taxing u on the whole full rent, not on what you've really made'
So u pay £2000 tax & £4000 mortgage, you've lost £1000 from renting your house out.

As an example, a private landlord with a rental income of £5,000 per month and mortgage interest costs of £4,000 per month would be left with an after-tax profit of £600 according to the old tax rules, assuming the landlord pays 40 per cent income tax on the net profit of £1,000.
But once the changes are fully implemented in 2020, the same landlord would make a loss of £200 per month as the tax bill would rise from £400 to £1,200,

The biggest problem by far is “Section 24” of The Finance Act (No. 2) 2015. This is not actually a tax change. It is an amendment to GAAP (Generally Accepted Accounting Principles). It changes the way that profit is calculated on rents received and then introduces “tax relief”. What it means to us in practice is that we cannot use our mortgage interest payments as an expense when working out the profit made by our portfolio. It is being phased in over 4 years and will be fully in force for the 2020/21 tax year. In figures it looks like this;
Rental turnover £170,000
Repairs, maintenance etc. £70,000
Finance costs (mortgage interest) £62,000 actual profit = £38,000 – tax payable at basic rate of 20% (£7600)
The new rules mean we cannot count the £62,000 of mortgage interest payments as an expense so the supposed profit is now £100,000! We have still only made an actual profit of £38,000 but we will be taxed on £100,000. To make matters even worse, this put us up a tax bracket and means we now pay tax at 40% instead of 20% (£40,000).
We now lose £2000 every year from renting these houses out. How do we & tenants live?

Mark Alexander - Founder of Property118 View Profile

17:53 PM, 25th March 2019, About 3 years ago

Reply to the comment left by Mick Roberts at 25/03/2019 - 17:40
Hi Mick

The principles are right but your numbers are wrong.

In your first example, the landlord receives £5,000 less £4,000 interest which leaves £1,000 profit. That's after ignoring all other costs. Yes he's taxed on the full £5,000 on that basis and 40% tax on £5,000 is indeed £2,000. However, you've forgotten to deduct the 20% tax credit on the £4,000, which equates to £800.

On that basis, he's only losing £200.

What a great deal hey?

It can be far more complex than that though, because his 'taxable income' could be more than £100,000. In that case, he loses £1 of nil rate band for every £2 of taxable profit, which is an effective 80% tax rate minus a 20% tax credit, thus leaving a 60% net effective tax rate on money he's already paid to a mortgage lender!

Mick Roberts

21:43 PM, 25th March 2019, About 3 years ago

Reply to the comment left by Mark Alexander at 25/03/2019 - 17:53
Yes, I only did rough figures to explain to my tenants the basics of what the Govt has done to us which has then inevitably gave tenants a rent increase and they wondering why they can't get anywhere else with all the other landlords been shafted too.

Kathy Evans

11:41 AM, 26th March 2019, About 3 years ago

Reply to the comment left by Mark Alexander at 25/03/2019 - 17:37In all business other than landlording, they can. An LLP is just multiple sole traders, really, who have to produce multiple (one for each partner) self assessment returns.

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