Landlords – Don’t complain!

by Dr Rosalind Beck

17:25 PM, 22nd July 2020
About 9 months ago

Landlords – Don’t complain!

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Landlords – Don’t complain!

Landlords: don’t complain when you pay more tax than everyone else; you are, in fact, receiving a gift from Government.

There has been some controversy since the announcement of a Stamp Duty Land Tax (SDLT) ‘holiday’ a fortnight ago. In England and Northern Ireland, the house price point above which stamp duty is charged has been raised to £500,000 until the end of March 2021. The only people who will still pay stamp duty on property under £500,000 are landlords and second home buyers who still have to pay a 3% levy. This is a reduction from 5-8% applicable since 2016. In many parts of the country, because of low house prices this will equate to a saving of a few hundred pounds for purchases; in London up to £15,000 could be saved.

It is this latter point which has caused the controversy – initiated by Labour MP Thangham Debbonaire who called this a ‘huge bung to second homeowners and landlords’  and it was debated by the Prime Minister and Keir Starmer in the House of Commons.

It has now been picked up by journalist Melissa York in a Times article where she declares first time buyers – many of whom are currently private tenants – are ‘furious’ as they are now being outbid by ‘opportunists.’  No evidence is provided of such competition or outbidding; in fact, landlords pay 1% less on average than first-time buyers, presumably because we are experienced at negotiating prices down.

This kind of biased, emotive language is no longer rare in the Times or other newspapers, but the anti-landlord stance in the Times has been unexpected in recent years. It was less surprising from the Guardian; something I have critiqued in the past.

As Frank Lawton has pointed out, in such cases of a presumed advocacy role some ‘risk attributing to sections of society far more radical views than they may in fact hold.’ This is true of some who presume to advocate for private tenants. They paint tenants as trod-upon victims, when the most recent English Housing Survey found 84% of private tenants are satisfied with their home; more than in the social sector.

In the Times article, in addition to using opinions expressed in tweets as supporting evidence York provides an anecdote from her friend and colleague at the paper –  ‘a financial whizz’ – who believes her plans have been scuppered by landlords now only having to pay a 3% levy on the value of fought-over property. However, the evidence in the article points to lender requirements for the deposit and suitable secure employment being the main obstacle for first-time buyers.

The fact is that, as we know, many landlords would not consider purchasing another buy-to-let under the post-2016 regime. We object on principle to paying what can amount to £15,000 more in upfront purchase costs; this would mean risking a double hit if property prices drop as seems likely.

So Debbonaire, York and the latter’s angry sources on Twitter expose a twisted logic if they think taxing landlords less but still more than everyone else is a spur to action.

As we all know, an earlier example of this was the invidious ‘Alice in Wonderland’ tax called ‘Section 24’.  which disallowed landlords’ finance costs (usually the biggest expense in the business).  Because the Government misleadingly called it a ‘tax relief’ their withdrawal of it was made easier – as though they were no longer giving a relief rather than disallowing a legitimate cost.  The language of ‘giving’ rather than ‘taking’ led to calls from MPs as disparate as the Conservative MP Neil O’Brien  and the Labour MP, Siobhain McDonagh,  for landlords to receive even less of this ‘relief’ (that is, to disallow more legitimate expenses). Whether this is based on ignorance or deliberate sophistry is unclear.

The allegation in the Times of a bidding war taking place between landlords and first-time buyers also takes no account of the fact that If first time buyers bought now and house prices fell by perhaps 10 or 15% they would quickly lose all the deposit they had acquired/saved up for, possibly going into negative equity. If they are patient it may be less risky in a year or two. In any case, if landlords won the so-called bidding war, with a subsequent drop in values and having paid a large amount in stamp duty, it could take many years to break even; not exactly an incentive to buy.

What people like Debbonaire also don’t grasp when they assume landlords are going to be feverishly purchasing property is the wider picture. Private landlords have been hammered for years by the Conservative Government. In addition to the Section 24 levy landlords are also suffering the 5-month eviction ban which has been a gift to rogue tenants and cost landlords a potential average £4,000 where tenants are not paying.  Once the eviction ban is over on the 24th of August further restrictions on being able to get property back are planned,  with new time-wasting administrative measures to give tenants more time in houses where they may not be paying the rent.  This will be followed by a permanent effective ban on many evictions, which the planned abolition of Section 21 constitutes.

Given this context of a hostile tax and regulatory environment, anyone who thinks the ‘stamp duty holiday’ will persuade people to get into or extend their rental business is ill-informed.

To make matters worse, we might be dealt a further blow with a higher Capital Gains Tax; the Chancellor has asked the Office of Tax Simplification to conduct a review of CGT. Already, landlords are not only stung when buying but also when selling, as the only category to pay 28% CGT, with other investors paying 18%. This acts as a huge disincentive to sell.

If the Government decides to increase it to 40% or 45% as the Institute of Fiscal Studies wants, it will be a long time before much of that tax filters through, apart from a possible burst of activity if notice is given of its implementation. If CGT is increased for landlords, many will hold on to properties hoping in 10 years or so, rates will revert. Philip Booth at the Institute of Economic Affairs has said the best outcome would be to scrap the tax altogether.  Abolish capital gains tax and start all over again, think tank urges

This is unlikely, but hopefully, the OTS will recommend a true simplification of the tax and more equitable treatment – one idea would be to introduce an ‘across the board’ rate of perhaps 10%.  In an ideal world, this would include all property sellers as that is the only fair system. The Government would be terrified of the political fallout of such a move, however.

A more acceptable option would be to bring back ‘taper relief,’ abolished by Alistair Darling in 2008. This type of relief is still available in countries such as Germany and it means that for each year a property is owned and let out, there is a reduction in CGT, until after about 10 years there is no CGT to pay. The idea behind it is that this discourages people from ‘flipping’ and trying to turn a fast buck and instead encourages them to let out homes for longer periods. Implicit in this is the idea that renting out homes to those who need them should be incentivised; instead of the more recent UK Government’s approach of scapegoating landlords as though providing homes is the Devil’s work.

Given a wider remit, following on from the CGT review, the OTS could also recommend going back to the long-standing rate of 1% stamp duty for all.  Coupled with lower CGT rates this would stimulate transactions and bring in much-needed cash, whilst not being too onerous for anyone.


Mark W

15:28 PM, 28th July 2020
About 9 months ago

Taking the contrarian view:
Capital Gains Tax - Landlords should be treated as every other investor who purchases an asset. If you make a gain on stocks & shares you pay CGT, why not on property except your primary residence???
UK's dire financial situation demands a level playing field. How could rational people accept special pleading for landlords at this crisis time???


15:43 PM, 28th July 2020
About 9 months ago

Reply to the comment left by Mark W at 28/07/2020 - 15:28
I'm sorry, I may have missed the point here.

We do pay CGT on property (except our PPR) unless we put it into a company in which case we pay CT. The difference is that we cannot now deduct all of our expenses (interest on borrowings).

Mark W

17:14 PM, 28th July 2020
About 9 months ago

Reply to the comment left by Beaver at 28/07/2020 - 15:43If you borrow money to in order to buy shares nobody receives tax relief on the borrowing for your investment choice. When a first time buyer buys buys a flat s/he does not receive tax relief, so why are B2L landlords a special case in your view?
When a B2L landlord buys a property s/he is making an investment decision.
One must choose if they are buying as a company or a private individual. This choice should reflect the tax you pay. Landlords on P118 seem to want tax relief available only to a company but without fulfilling the rules imposed by HMRC on a company.
Private citizens do not gain tax relief on on the cost of making any investment, be this in shares or their home. Why do P118 landlords expect tax relief on their B2L investments outside of a company?? A company is not permitted to claim tax relief on every investment so why do B2L landlords? Private citizens lost tax relief in home mortgages in 1980s. B2L landlords must choose if the wish to be taxed as a private citizen or a company then make investment decisions accordingly. Personally I invest spare earnings in property because I think it is a good long term investment. However, borrowing money to invest in shares appears to me to me to be too risky, even with interest rates so very low. I await a P118 landlord explaining to me why B2L landlords should receive tax reliefs which are not given by HRMC to private citizens.


17:19 PM, 28th July 2020
About 9 months ago

Reply to the comment left by Mark W at 28/07/2020 - 17:14
The 'borrowing' or other costs in the case of limited companies of which you are a member if you hold shares are taken care of by the company's own accounts; if the company makes a profit it may declare a dividend and when it calculates it's profit it is allowed to deduct interest costs. That's why companies often go for higher rates of leverage to increase the ROSF (return on shareholder's funds) ration when interest rates are low.

Old Mrs Landlord

7:59 AM, 29th July 2020
About 9 months ago

Reply to the comment left by Mark W at 28/07/2020 - 17:14You ask "Why do P118 landlords expect tax relief on their B2L investments outside of a company?" Well, in our personal case it is because those were the terms on which we went into the business and, since mortgage interest was classed as a legitimate expense of that business, that was a reasonable and justified view. A firm which hires out cars or machinery for instance which are bought on finance can legimately claim the interest cost as a business expense and there has been no explanation as to why those who are hiring out accommodation should be treated any differently. The sense of grievance at being singled out in this way is because the government moved the goalposts when private individuals had already invested on the terms then pertaining, without any warning and no exemption from the retroactive consequences of the change. This grievance is further intensified by the fact that incorporated bodies such as the Build to Rent comoanies who donate to Conservative Party coffers were excluded from those strictures. Regarding the relief on mortgage interest no longer being available to those buying their own home, this relief was never on the basis of a business expense but a hangover from the time many years ago when homeowners were taxed on the putative rental value of their home as it was considered as a benefit that they did not have to pay rent. (No, I don't really understand that weird concept either, but I do understand that the relief was a legacy benefit which was removed because the basis for it had long since disappeared.}

Art Dobson

11:28 AM, 29th July 2020
About 9 months ago

Reply to the comment left by Question Everything at 24/07/2020 - 12:52
I am looking at sellng up and ,oving my money and putting it in a mid risk stock investment, I did some maths and if I'd done it 3 years ago when I saw the market tighten on landlords i'd be up considerably.
Selling up before we see more landlord hostile CGT reforms is the only safe option to protect my wealth.
Don't expect anyone in GOV to fight for landlord rights, tenant rights and destruction of the PRS are vote winners. Everyone wants to buy a house and happy to destroy us landlords in the process.


11:48 AM, 29th July 2020
About 9 months ago

Reply to the comment left by at 29/07/2020 - 11:28
My wife sent me a meme from social media today that said something like "can we all agree that everybody who was asked the question in 2015 'where do you see yourself in five years time?' got the answer wrong".

The best advice anybody can ever give you in terms of long-term investing is to spread your risk. Many pension fund managers don't manage to beat the market. Typically passive funds outperform 'active' funds because investment fund managers just use their 'activity' as an excuse to churn the investments and charge excessive fees. I saw a quote online from a famous stockbroker who apparently said something like, "...the job of a stockbroker is to transfer a client's wealth to himself".

The majority of landlords are small, they have 1-2 properties. Some are accidental landlords...someone died...they had to move temporarily for work etc..... many were just trying to spread their risk by investing in property rather than pensions having seen their wealth plundered by the financial services industry over the decades.

What was interesting about the change that made interest rates only deductible if you were paying tax at the lower rate is that it penalised the little guys...the middle-income earners that traditionally would always have been attacked by Labour politicians trying to raise tax revenues (taxing the rich doesn't work as the rich don't pay much tax). Anybody big had the option to incorporate continue to deduct their investment costs and pay CT instead.

The world has been turned on its head...before we could always rely on Labour politicians to overspend and Conservative politicians to clean up. Now I'm not so sure because this government has just spent massively...they've just shot their bolt, and in my opinion, missed. I don't really blame them, I think they were given bad advice.

So, I don't know where a future government is going to go in order to try and pay for what's happened. I would like to think though that they are not going to penalise the little guys....the people who were just trying to provide for their retirement and financial security for their dependents.

I have often wondered who advised George Osborne's government to penalise the little guys. I often wondered whether it was the financial services industry...the people who were being abandoned as middle-income people turned to bricks and mortar because bricks and mortar were far more reliable than "independent financial advisers" and the financial services industry that they were still not very independent of.

I don't think the accidental landlord is going away and I think that BTL will still exist in some form.

Mark W

22:30 PM, 13th August 2020
About 8 months ago

Reply to the comment left by Beaver at 28/07/2020 - 17:19
So form a company and do the admin OR operate a a private citizen. Your choice.

Mark W

22:41 PM, 13th August 2020
About 8 months ago

Reply to the comment left by Beaver at 28/07/2020 - 17:19
So form a company and do the admin OR operate a a private citizen. Your choice Beaver.

Mark W

22:45 PM, 13th August 2020
About 8 months ago

Reply to the comment left by Old Mrs Landlord at 29/07/2020 - 07:59
So form a company and do the admin OR operate a a private citizen. Your choice Old Mrs Landlord. Company Formation & Admin is expensive.

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