A Landlords Open Letter to The Rt Honorable Michael Fallon  MP

A Landlords Open Letter to The Rt Honorable Michael Fallon MP

16:52 PM, 26th January 2016, About 8 years ago 32

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Dear Mr Fallon, A Landlords Open Letter to The Rt Honorable Michael Fallon MP

Thank you so much for your time at your Swanley surgery on Saturday.

Following our meeting I would like to take the opportunity to summarise some of the key areas of disagreement between us on the effects of Clause 24 of the Finance Act (2) 2015.

Firstly I would like to start by saying that David and I believe that there are still key effects of this policy, which along with many other people, you appear to have not fully understood.

From the start the Treasury has sought to present these changes as “creating a fairer taxation system“, when the reality of the impact of this policy could not be further from the truth. The policy has been presented as reducing tax relief for the wealthiest landlords from 40% to 20%, which on the face of it may seem reasonable.  However this is a gross misrepresentation of the facts and is probably why more landlords have not expressed their concerns to you.

I have explained that prior to the tax change landlords did not receive any specific tax relief for mortgage interest payments. Those payments were, and still are, a legitimate cost of doing business.  Until now they have been deductible in full, along with certain other costs of doing business, before arriving at a profit upon which we are then taxed at the marginal rate.  Post clause 24, mortgage interest payments will no longer be considered a legitimate cost of doing business.

Under Clause 24, finance costs (including mortgage interest) will cease to be deducted from rent received when tax is calculated.  Thus individual landlords who have mortgages will be taxed on an amount of fictitious profit.  A “relief” of 20% of the finance costs will then be deducted from the tax calculated in order to arrive at the tax payable.  The result will be an increase in income tax, compared to the position today (except where the sum of total income plus finance costs does not exceed the higher rate threshold of £43,000).  The increase will amount to a levy on finance costs of up to 25%, depending on the tax band that the landlord is put into by the fictitious profit.  The levy will be payable even if the business really makes a loss.  This will force many of them to raise rents or evict their tenants and sell-up.

This change in income tax legislation will not affect incorporated landlords, no matter how small their businesses are, or property rental companies. They will all remain able to deduct 100% of mortgage costs in calculating their tax liabilities, and thus will be able to operate at a distinct advantage over their unincorporated rivals in the market place.

It is interesting that you did not consider this increase in income tax a breach of David Cameron’s pre-election pledge not to increase income tax  full stop , but rather saw it as a wider policy of deliberate withdrawal of reliefs. This is not a case of withdrawal of relief; it is disallowing costs of doing business as a way to artificially inflate profits upon which we will then be taxed.  By artificially inflating our profits and moving people from lower rate tax to higher rate tax, it is most definitely increasing our tax burden.  Mr Cameron’s promise is therefore most definitely being broken.  To say anything otherwise is distorting facts.

Also if this is considered fair, why are you applying the principle only to mortgage finance costs on property lettings businesses carried on by individuals?  How can it be fair that a residential letting business carried on by individuals is the only business to have profit redefined in this way?  Many incorporated landlords have portfolios much smaller than I do so why allow them to continue to deduct finance costs and not apply the same rules to my business just because I happen not to be incorporated ?  How is that fair ?

Your answer to this was that the Bank of England sees BTL borrowing by individuals, as distinct from corporations, as a threat to the stability of the housing market, and that it is individual investors that are causing overheating in the market.  If the government believes this is the case, would it not be fairer to address this by limiting future borrowings, rather than drive those who have worked hard to establish residential lettings businesses (and for the most part provide decent accommodation for a wide variety of  tenants) to bankruptcy ?

I asked you why if “overheating” is the concern corporations are not being targeted in this way, and will still be able to deduct mortgage finance costs in full.

The idea was expressed by you that corporations, particularly large corporations somehow present a less risky lending opportunity than individuals as a reason for exempting corporations from Clause 24.

Leaving aside the well rehearsed reasons for the recent financial crisis and the damage done to the economy caused by the collapse of large corporations, assessment of risk should be a matter for lenders.  Indeed it is clear that they see there is greater risk in lending to corporations and therefore require higher interest rates than they do from individuals.

If Government wants to involve itself in discouraging leveraged investment by businesses, why single out leveraged property lettings businesses?  Why not disallow the finance costs of other leveraged businesses?  To suggest intervention in risk management of private enterprise is a reason for this policy is for the government to unfairly discriminate against private landlords, whilst at the same time offering other categories of borrowers help-to-buy incentives.

Treating payments to Lenders as  though they were profit, rather than the expense which they actually  are, increases the likelihood of private landlords defaulting  by  effectively increasing our cost base.  How can that be fair?  Clause 24 actually pushes us toward defaulting on our loans.  No business can survive a rate of taxation higher than actual profit.  Clause 24 has the potential to inflict an infinite rate of income tax on private landlords.  This will occur when landlords pay the tax/levy on finance costs even though they have really made zero profit, or even a loss. To find the effective rate of tax we divide it by the profit; when we divide anything by nothing the result is infinity.  No Government can reasonably state that this is a fair tax!

I have always sought to weigh my level of borrowing prudently across my residential property portfolio , carefully balancing liabilities against equity, income, interest rates, etc, and at an average of 50% gearing across the portfolio. I cannot reasonably be judged to have over extended myself or be at risk of defaulting, at least not until Government introduced C24.

You also stated that a higher rate tax payer is by definition one of the wealthiest tax payers.  May I respectfully point out that clause 24 will in many cases push basic rate tax payers into the higher rate of tax, reclassifying them overnight as “wealthiest “ by your definition but without one single additional penny of income.  How is that fair?  How is that targeting the wealthiest landlords?  The truly wealthy do not buy with mortgage finance.

We  disagreed that the  number of landlords likely to be affected by Clause 24 is “only “ 1 in 5 and you insisted that the OBR had researched this  thoroughly. Even if you are correct, why is it considered acceptable that 20% of landlords suffer as a consequence of this policy?  What benefit is it to the Government and the economy as a whole?   You may be interested to know that when a FOI request was submitted on this very point, HMRC admitted that it could not produce data to support the statistic.  Our own research shows that there are 1.7 million BTL mortgages in existence at the present time.  Taking my own portfolio as an example, if each mortgaged property houses an average family of three, that would be 5.1 million tenants at risk.  Or to put it another way, around 10% of the population facing eviction or substantial rent increases as a direct result of this draconian policy.

The reality is that Clause 24 was introduced with no prior warning or consultation whatsoever and whatever you say about this not being retrospective, it will apply to existing finance and business models.  It will cause some businesses to suffer an infinite rate of taxation and bankruptcy, but will also lead to rent increases and evictions.

As the tax is phased in some tenants will be phased out and ‘upgraded’ to those that can afford higher rents.  Councils will face enormous demands on their housing teams and we know that many are already waking up to this fact.  They are extremely concerned for the impact on C24 and the increased pressure on their temporary housing budgets.  May I respectfully suggest that you talk to a few Council Private Sector Housing Officers?  If you won’t take it from me that there will be dire consequences then ask them for their opinions.

Landlords will be no better off from  the rent increases – they will just be collecting the levy to pass on to HMRC, like VAT  – but tenants will be worse off. Their disposable incomes will be reduced. Those tenants who want to buy their first property will be less able to save for a deposit . This levy on finance costs will work through to become a levy on tenants .

Clause 24 has not been thoroughly researched.  There is no joined up consistent thinking or logic to it and would probably never have progressed had there been the normal consultation with the industry bodies who would have advised on the consequences.   This policy ignores common sense and long-term welfare issues, in favour of short-term tax grab and appeal to Generation Rent.  However as the impact is already being felt with rent rises and evictions, the glory of “landlord-bashing” will be short-lived.  The public is already beginning to see through the veneer of “helping people on to the property ladder” and realising the hard truth that it will do just the opposite.

The corporations that donate large funds to the Conservative Party coffers will of course like to see C24 progress to completion but the voters will see it for what it is Mr Fallon.

Isn’t it interesting that Mr Osborne has adopted a Green Party policy that was clearly flawed?  Is this the best that the Conservatives can do to solve a housing crisis?

Yours Sincerely


Charmaine Royce and David Price

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Dr Rosalind Beck

17:00 PM, 26th January 2016, About 8 years ago

An excellent letter Charmaine and David. If the Government wants to be respected by the populace they are going to have to stop talking gibberish - we can all see through it - and reverse this Alice in Wonderland tax on fictitious profit. If they don't, in addition to causing damage to the housing sector and economy at large, they are going to be the laughing stock of the world, for introducing such an idiotic and outrageous tax regime.

NW Landlord

17:28 PM, 26th January 2016, About 8 years ago

Hit the nail on the head with a brilliant letter covering the ludicrously of this Ill out thought policy

The longer this goes on the note they will realise they are taking on the wrong industry as we are hard working intelligent people who will not take this lying down

Rachel Hodge

18:37 PM, 26th January 2016, About 8 years ago

Absolutely brilliant letter. Any politician would struggle to counter any of your points, but the frustrating thing is I doubt they'd even try.

My MP has still not responded to my email so I'm minded to book an appointment with him and take along your letter with me too if I may. My email dealt with the sideline pension investment, yours deals with the scandalous treatment of property lettings as a business generating a profit.

Mark Alexander - Founder of Property118

21:06 PM, 26th January 2016, About 8 years ago

This post is getting shared a LOT on Facebook. It deserves to go viral so come on everybody, share, share, share!

Gareth Wilson

21:31 PM, 26th January 2016, About 8 years ago

This article is a rip-roaring, rallying cry for landlords everywhere to get on to their MPs and inspire others.

Hutzpah! We need and like it!

Sunita Rickman

3:16 AM, 27th January 2016, About 8 years ago

Thank you Charmaine & David

I am so glad that you have highlighted the fact that Clause 24, is 'NOT A REDUCTION IN TAX RELIEF' but is in Fact as you say:-

"This is not a case of withdrawal of relief; it is disallowing costs of doing business as a way to artificially inflate profits "

I have calculated that if the post 2020 rules had been applied to my YE 2015 tax calculations - Where-as in reality I made only £2390 from property // £2599 from a small annuity // £1010 from other income and £974.40 from child benefit // a total of £6974.

I would have been taxed on a fictitious income of £45,741.91 and this would mean a total Tax bill of £7700 (plus the child benefit would have been re-claimed as I would now be classed as a higher rated tax earner.

SO AFTER HAVING WORKED ALL YEAR & after Investing huge amounts of my own money (from savings and early draw-downs on my Pension and spending the last 15 years on creating, what was a very viable and long term business , THE TAX OFFICE WILL TAKE ALL OF MY INCOME (INCLUDING MY PENSION & SMALL AMOUNT OF INTEREST RECEIVED - LEAVING ME WITH A MINUS INCOME OF £1701 .00 STILL OWED TO THE TAX OFFICE ?????

Please see below a letter written by Michael Fickling in opposition to the finance Bill


C24 will have a devastating effect on portfolio, finances and Pension.

So It looks like I shall be going to prison for Non payment of my Tax Bill. ???

Chris Byways

9:11 AM, 27th January 2016, About 8 years ago

Write a short letter to your MP, not to make the points already made, but asking what "action you should be taking NOW to avoid prison, and your children being put into care?" by 2020.

IF they reply, you then post it here and point out the devasting effects on tenants when they trot out the crass, "oh well sell up then".

Mark Alexander - Founder of Property118

9:37 AM, 27th January 2016, About 8 years ago

Reply to the comment left by "Sunita Rickman" at "27/01/2016 - 03:16":

Hi Sunita

In your circumstances I don't think it is as bad as you first thought (it's still bad though).

What you have forgotten to do is deduct the 20% tax relief off your tax bill.

You still lose the child benefit though!

Chris Ellis

11:54 AM, 27th January 2016, About 8 years ago

True, and child benefit is reclaimed on a sliding scale, however if your "income" including rental revenue is over (about) £60k you will have all the CB reclaimed through tax.

Mark Lynham

11:55 AM, 27th January 2016, About 8 years ago

Great letter!
As a side on this i run a small letting agency and most of my landlords are long term portfolio landlords and they are now increasing rents when before they have been happy to leave them reasonable or try for the better rents when a current tenant leaves.
I have never done so many rent increase letters before and its a shame the government havent thought this through as it will be the tenants that are also affected. Im sure some will have no option but to leave and go into room rentals.
I've also had a few selling as they feel they are just being targeted by the government and do not like what the future may hold for being a landlord.

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