A Level Playing Field Between Homeowners and Landlords

A Level Playing Field Between Homeowners and Landlords

10:19 AM, 29th August 2015, About 6 years ago 94

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This is my third Open Letter to Mr George Freeman MP – Conservative, Mid Norfolk Level Playing Field Between Homeowners Landlords

A Level Playing Field Between Homeowners and Landlords

Dear Mr Freeman

A response was received this week to the petition to Government regarding the restrictions of finance cost relief to individual landlords. The key message seems to be that Government wishes to “level the field” for homeowners and landlords. I have given that a lot of thought, and on reflection I think I may have been wrong all along. I now agree the playing field should be levelled. I have listed how this might be achieved below:-

1) Homeowners do not receive tax relief of their mortgages at all. However, when they take a lodger into their home the first £7,500 of rent received is tax free. This should be extended to all rental properties, i.e. the first £7,500 from each unit upon which Council Tax is paid should receive the same £7,500 per annum tax free allowance.

2) When a homeowner sells their home the capital appreciation is not taxed. This should also be applied to each of their rental properties.

3) A homeowner is allowed £1million of IHT relief against the value of their home. This should be extended to equity in rental portfolios.

4) A homeowner is given the choice as to whether they should obtain a CP12 annual gas safety certificate. This should also be applied to tenants, not imposed upon landlords.

5) A homeowner is free to evict a lodger subject to providing “reasonable” notice, without having to refer to the Courts. This is very fair and prevents the Court systems from clogging. This should be extended to private landlords.

6) A homeowner is not required to protect a lodgers rent deposit in an approved government scheme. This should also be extended to private landlords.

7) Homeowners may choose to have as many people as they wish living in their home without the requirement to purchase a licence. If that home is considered to be overcrowded then Councils have the means to deal with that issue. The same rules should be applied to tenanted properties. Whilst the UK is subject to a Housing Crisis it is important to remember that every person needs a roof over their head. The finances of those people in need of accommodation dictates where they can afford to live. The solution to preventing over crowding and leaving people with no choice, other than to suffer in poor quality housing, is a simple one; provide them with affordable choices. The only reasons that people live in poor conditions is lack of choice and affordability. The cause of the problems associated with overcrowding, sub-standard and unsafe accommodation are quite obviously due to lack of choice. The solution to the problem is to increase supply of property, i.e. BUILD MORE!

8) Homeowners are not required to verify the legal rights to live in the UK of guests invited into their homes. Quite rightly, they leave this to the border agencies. The same should apply to landlords.

Every year that passes whereby Government allow new property development figures to fall behind the need for new housing should be considered a failure on the part of the Government. The blame for such failures should most certainly not be pointed back at society, or any section of it. Constant vilification of landlords is not addressing the true cause of the Housing problem, which is quite clearly the responsibility of Government . The only real power to control immigration and population growth rests with government, as does the development of additional housing.

I do not blame the current Government for the state of the Housing Market, only time will tell whether it is successful in solving the problem. The reason I voted for you, and the Conservative Party, is that I believe you provide the best hope of being able to solve the issues associated with the Housing Crisis and the economy. I have not judged you on the failures of all governments in the last three decades, I expect better of you.

Given that successive Governments have become so reliant on the Private Rented Sector I think the suggestions I have made above are fair. I sincerely hope you will agree and that you will also consider the following:-

1) It has become a lifestyle choice for several people not to own their own property, they prefer the flexibility associated with renting

2) Many people are reliant upon the PRS for work mobility reasons

3) A significant section of society are unable to obtain mortgage finance required to purchase their own home. This is due to being on low wages, in need of benefits so as not to be living below the poverty line or having a poor credit rating.

4) Government have stated they wish to reward hard working people by helping them to make provisions for their own future. Buy to let can be an effective strategy if it is not taxed and regulated into oblivion.

5) Government clearly acknowledge the UK has a ‘Housing Crisis’

My conclusion is that if Government are to be true to their word they must consider a root and branch overhaul of UK Housing and associated legislation and taxation policies.

Yours sincerely

 

Mark Alexander

Related Open Letters >>> http://www.property118.com/category/open-letter-to-mp/



Comments

by Dr Rosalind Beck

9:38 AM, 10th September 2015, About 6 years ago

Reply to the comment left by "Graham Chilvers" at "10/09/2015 - 08:47":

Ah, Graham. Of course Barry does not agree with this. We know that the effect of the legislation is retrospective as it affects properties already bought - sometimes owned for several decades, and mortgages already taken out that people may be tied into in some cases for the next 10 years. They took out these fixed mortgages in the safe knowledge that their finance costs would then be fixed. No-one could have dreamt a crazy, ill-thought-out, uncosted (in terms of its many impacts) Green Party policy would be adopted by a Conservative Government. As Richard Dyson said, you could only imagine such an egregious policy in a tin-pot dictatorship - where black is white.
Everyone who is still repeating the nonsense about it being the removal of a 'generous tax break' etc., whilst knowing what its true effects will be, should be ashamed of themselves. Those who are doing this because they are somehow not intelligent to see it for what it is or are in denial, can apologise later when they realise they have been repeating nonsense, which is very damaging to landlords, tenants and other groups and individuals.

by Colin McNulty

10:11 AM, 10th September 2015, About 6 years ago

I've just booked in to see my local MP at one of his weekly surgeries, so I'll be taking this up with him face to face. Seems better than a letter which he may only be read by one of his staff.

If anyone has a succinct briefing paper on our position, I'd appreciate a copy please?

by Barry White

10:13 AM, 10th September 2015, About 6 years ago

Ros, by your definition, most, if not all, tax changes are retrospective (that is to say, the same principle is applied to most/all losers in the budget). This makes the retrospective argument a particularly unspecial argument, as any number of groups that have lost out from the budget could equally make it.

by Dr Rosalind Beck

10:33 AM, 10th September 2015, About 6 years ago

Reply to the comment left by "Barry White" at "10/09/2015 - 10:13":

Are these other groups going to be taxed on non-existent profit and in some cases lose their businesses and even homes because of it? Have they been singled out as a group for a reason that doesn't make sense, except for in the context of prejudice and discrimination?
Let me know if you know of any comparable legislation ever having been brought in in the history of Great Britain and also internationally, if you can. At the risk of inflaming the PC brigade again, who like to quote me out of context, the nearest comparable attacks on one group of people, and the confiscation of their assets are to be found in 1930s Germany, 1917 Russia and, as someone pointed out the other day Zimbabwe under Mugabe.

by Barry White

11:26 AM, 10th September 2015, About 6 years ago

i will deal with each of your points in turn using quotes.

a ) "Are these other groups going to be taxed on non-existent profit and in some cases lose their businesses and even homes because of it? "

Not that I am aware, but the retrospective nature applies pretty much equally. Being taxed on potentially non-existent profits is an entirely different point, and frankly the one with most merit, IMO; I would not muddle, confuse or dilute it with talk of the "retrospective" nature, as you have been.

b ) "Have they been singled out as a group for a reason that doesn’t make sense, except for in the context of prejudice and discrimination?"

That depends your definition of "doesn't make sense". It makes perfect sense that btl investors may have a tax advantage over bto at the point of purchase as currently a btl investor can basically pay interest cost gross of income tax, whereas a bto purchaser has to pay interest net of income tax. This is undeniable.

c ) Let me know if you know of any comparable legislation ever having been brought in in the history of Great Britain and also internationally, if you can.

Are you referring to restrictions in tax relief (applies to pension contributions for additional rate earners), the "retrospective" nature (applies to pretty much every budget loser), or potentially being taxed on losses (if you borrow to buy shares and dividend less than interest cost then you're taxed on a loss, but I haven't really thought about the investor vs business angle yet).? I think I know the answer but I am hopefully demonstrating the importance of being succinct and precise when posing questions. Treasury could delay you for weeks by responding in the manner I just did.

d ) "At the risk of inflaming the PC brigade again, who like to quote me out of context, the nearest comparable attacks on one group of people, and the confiscation of their assets are to be found in 1930s Germany, 1917 Russia and, as someone pointed out the other day Zimbabwe under Mugabe."

I don't believe this is asset confiscation thus I don't think your examples are relevant and personally, I think that the mere suggestion of comparing this to Krystalnacht damages credibility greatly.

In this case, there is no asset confiscation as far as I can see; the government is allowing you time to unwind your portfolio (if you so choose to) and to keep your legally entitled equity (minus cgt of course). There may be others, but the nearest comparable actions I see are privatisation, where you are forced to sell but get your equity, if there is any. A fair and honest valuation of equity (such as in Northern Rock) is another matter and is irrelevant to the point.

by Dr Rosalind Beck

13:44 PM, 10th September 2015, About 6 years ago

Reply to the comment left by "Barry White" at "10/09/2015 - 11:26":

1. I'm glad you agree and can't find any other examples of people being taxed on non-income and even on losses. As you say, this is the biggest issue.
2. Also, If BTL landlords are allowed to take out interest free mortgages and this is deemed to be unfair, I would take that up with the building societies. It's not landlords' fault - if 'fault' is the right word.
3. I didn't mention Krystalnacht. I was referring to the years during which the Nazis effectively confiscated the assets of Jewish people in Germany initially and then in the countries under occupation. I am specifically referring to financial policies and not to acts of physical aggression, as of course that is not the case here. A policy by the British Government which taxes landlords' non-income until they have nothing left - which is the natural conclusion of this policy for portfolio landlords if they don't or can't take evasive action leads inexorably to a confiscation of their assets.
The idea that landlords have sufficient time to 'unwind portfolios' is nonsense. As I said, many have fixed their mortgages for many years. This is the kind of thing that the Bank of England wanted landlords to do - so that interest rate rises would not affect them and lead to BTL landlords suddenly having to sell up. George Osborne's moving of the goalposts on taxation goes against the Treasury guidelines and will lead to the exact scenario the Bank of England was seeking to avoid. This is why we have heard nothing from the Bank of England in support of this stupid and ridiculous decision..

by Danny H

13:45 PM, 10th September 2015, About 6 years ago

"It makes perfect sense that btl investors may have a tax advantage over bto at the point of purchase as currently a btl investor can basically pay interest cost gross of income tax, whereas a bto purchaser has to pay interest net of income tax. This is undeniable."

This argument is driving me nuts, as it's completely nonsensical to compare the two.

There are two distinct areas here, one is a person's residential home, and the other is a person's business activity. So let's review the comparison between BTL investors and home owners in these two distinct areas.

1. Residential home:
* Homeowners do not get any tax relief from paying mortgage interest on a house used purely for residential purposes.
* BTL investors do not get any tax relief from paying mortgage interest on a house used purely for residential purposes.

All square so far.

2. Business activity:
* A homeowner that uses their home for a business activity (as a home office etc), can deduct a proportion of those housing costs against their income to arrive at a taxable profit. THAT'S RIGHT, a homeowner gets tax relief (up to 45%) on their residential mortgage interest, if they are partly using their home for a business activity.

* Similarly BTL investors currently get tax relief for mortgage interest on houses used for a business activity also (usually 100% business use in the BTL case), which they deduct against their BTL profit to arrive at their taxable income.

So hopefully that shows that there is currently no unfairness in the tax system. Business related costs (whether residential or BTL mortgage interest) can be deducted fully against business related income. The average homeowner doesn't get mortgage interest tax relief, because they have no business related income to net it against! However, any plumber, electrician etc who keeps an office at home to deal with the business admin, or entrepreneur building things in his garage, is given full tax relief for a proportion of their residential mortgage interest.

"Levelling the playing field" is purely political rhetoric to gain support from the layman.

by Dr Rosalind Beck

14:25 PM, 10th September 2015, About 6 years ago

Reply to the comment left by "Danny H" at "10/09/2015 - 13:45":

Nicely put, Danny. I haven't heard it explained like that before. I think we can use your succinct explanation in our campaign. Thanks a lot.

by Trendo

14:51 PM, 10th September 2015, About 6 years ago

Nope ...it is goes further than that , because a homeowner is now to be given 100% relief on the first £7600 of rental income under the increased rent a room allowance as proposed in the budget.

That equates to an average 2 bed flat annual rent in my bit of the country (£633pcm). Part of the field levelling exercise needs to be giving this "tax relief perk" to all , not just home owners.

by Barry White

15:42 PM, 10th September 2015, About 6 years ago

Reply to the comment left by "Ros ." at "10/09/2015 - 13:44":

Ros,

1) Empty commercial and industrial buildings (subject to grace periods) are effectively taxed on non-income by business rates. Admittedly, these are not losers from the last budget, but it does happen.

2) "If BTL landlords are allowed to take out interest free mortgages and this is deemed to be unfair, I would take that up with the building societies. It’s not landlords’ fault – if ‘fault’ is the right word."

That's right, it's the building societies' fault. By the same logic, if it is deemed to be unfair that btl can outbid bto due to a perceived tax advantage *at the point of purchase* (this I believe is the important point), then that also not btl fault, it is the fault of treasury and the tax system (I can hear Osborne now "and we are pleased to announce that today we are doing something about it!").

3) "I didn’t mention Krystalnacht. I was referring to the years during which the Nazis effectively confiscated the assets of Jewish people in Germany initially and then in the countries under occupation. I am specifically referring to financial policies and not to acts of physical aggression, as of course that is not the case here. A policy by the British Government which taxes landlords’ non-income until they have nothing left – which is the natural conclusion of this policy for portfolio landlords if they don’t or can’t take evasive action leads inexorably to a confiscation of their assets."

That's the problem with not being precise; I could have offered as an example any of the actions that happened in the 1930s Germany. Again, I reiterate that evasive action can be taken, so "confiscation" of assets is not correct. As pointed out in 1) above, this same kind of thing happens with business rates and empty properties.

4) "The idea that landlords have sufficient time to ‘unwind portfolios’ is nonsense. As I said, many have fixed their mortgages for many years. This is the kind of thing that the Bank of England wanted landlords to do – so that interest rate rises would not affect them and lead to BTL landlords suddenly having to sell up. George Osborne’s moving of the goalposts on taxation goes against the Treasury guidelines and will lead to the exact scenario the Bank of England was seeking to avoid. This is why we have heard nothing from the Bank of England in support of this stupid and ridiculous decision.."

You still have time though, it will just cost you more in early redemption charges. Which Treasury guidelines are you referring to and which exact scenario is the Bank of England seeking to avoid? Further, the BoE is supposed to be independent (and apolitical), thus their silence on the issue (regardless of whether they support it or are dismayed by it) is to be expected.


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