Landlords – Don’t complain!

Landlords – Don’t complain!

17:25 PM, 22nd July 2020, About 2 years ago 28

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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.


by Mark W

22:47 PM, 13th August 2020, About 2 years 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 and probably is only reasonable for Landlords with more than Five properties.

by Old Mrs Landlord

11:23 AM, 14th August 2020, About 2 years ago

Reply to the comment left by Mark W at 13/08/2020 - 22:47I was replying to your question on behalf of all mortgaged landlords, so please do not assume that we did not research all the alternatives at the time and that our situation now is as it was when George Osborne first mooted his discriminatory changes to the tax regime, changes described at the time by accountants' representative bodies as being in contravention of all established standard accounting practices. You wanted to know why individual private landlords felt aggrieved at the retroactive legislation and I gave you the reasons, illustrated by personal perspective and experience. Rather than address the points raised by the various responses you have received, you have merely churned out an identikit 'one size fits all' solution which you yourself admit is not universally suitable. I'm sure the others who took the time to reply to your queries are no more impressed than I. Do not expect any further response from me, I have better uses for my time.

by Steven

11:28 AM, 14th August 2020, About 2 years ago

Well said Old Mrs Landlord; he's rather self satisfied at being wise after the event isn't he

by Old Mrs Landlord

10:58 AM, 15th August 2020, About 2 years ago

Reply to the comment left by Steven at 14/08/2020 - 11:28I also found his implication that all landlords who have decided incorporation is not the best course of action in their individual circumstances, having carefully researched all its requirements and effects, are simply too lazy, greedy or impoverished to deal with the costs and admin. involved. A quite breathtaking assumption on his part which I feel tells us more about his character than about those he is insulting. Furthermore, I don't need telling twice, I am old but not deaf. (I would have simply given a thumbs up to your comment about him but your opening words would have meant I was congratulating myself.)

by Mark W

15:03 PM, 15th August 2020, About 2 years ago

Reply to the comment left by Old Mrs Landlord at 14/08/2020 - 11:23
Old Mrs Landlord (OML) I did not assume that you: "did not research all the alternatives at the time and that our situation now is as it was when George Osborne first mooted his discriminatory changes to the tax regime".
However OML you forgot that in politics nothing is fixed forever. HMG can change Tax Rules very easily, even with the same Political Party in charge. The Tory Party made the rule changes this time, if Labour come into power they will change again, no doubt.
The advantage of an LTD or LLP legal structure for Landlords with 5 or more properties is simply that Companies and Partnerships have powerful lobby groups behind them. Small Private Landlords have NO powerful lobby group behind them, hence will remain vulnerable to political whims. That's life, I'm afraid to say.

by Mark W

15:45 PM, 15th August 2020, About 2 years ago

Reply to the comment left by Old Mrs Landlord at 15/08/2020 - 10:58
I have never advocated 'Incorporation' for Small Private Landlords (SPLs) with 5 or fewer properties as the costs & hassle are greater than the benefits involved. Many SPLs have 4 or fewer properties so are unlikely to need a legal company/tax structure. Operating as individual means that SPLs are taxed as private citizens, but with the 'charity' Shelter seeking to end our existence asap.
Personally I am moving towards an LLP solution but this is not inexpensive either.

by Mark W

15:55 PM, 15th August 2020, About 2 years ago

Reply to the comment left by Old Mrs Landlord at 15/08/2020 - 10:58
I apologise if you found my comments insulting as this was not intended. However, we both operate in an ever changing Tax system, with Shelter a powerful lobby seeking to end Small Private Landlords forever. My advice is simple: Beware of Shelter and a Labour PM.

by Mark W

16:01 PM, 15th August 2020, About 2 years ago

Reply to the comment left by Steven at 14/08/2020 - 11:28
I did not form a LTD company, so how am I "rather self satisfied at being wise after the event"? Please explain.

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