My correspondence showing complete Ministerial lack of understanding!

by Lyndon Whitehouse

9:32 AM, 24th February 2017
About 4 years ago

My correspondence showing complete Ministerial lack of understanding!

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My correspondence showing complete Ministerial lack of understanding!

Below is the full response from HM Treasury and Housing Minister,Gavin Barwell, to my MP Emmaignorance Reynolds who raised concerns on my behalf concerning Section 24 and the ban on Agents fees:Treasury

 

HM Treasury, 1 Horse Guards Road, London, SW1A 2HQ

Dear Emma,

3 JAN 2017

Thank you for your email of 16 December enclosing correspondence from your constituent about financial  cost  relief for  landlords.

Thank you for highlighting the report that was compiled regarding this measure. The report is extensive, but I will explain the Government ‘s position on some of the key aspects of it. The Government introduced this change in order to level the playing field between landlords and homeowners. Income tax relief for finance costs is not available to ordinary homebuyers. Therefore, by restricting finance cost relief to the basic rate of income tax, we are reducing the advantage landlords may have in the property market.

Income tax relief for finance costs is also not available to those investing in other assets, such as shares, therefore we are reducing the distortion between property investment  and investment in other assets.

Currently, landlords get relief on their finance costs at their marginal rate of income tax.  By restricting finance cost relief to the basic rate of income tax, all individual landlords   will receive the same rate of income tax relief on their finance   costs.

The report  brings into question the assessment that  only  1 in 5 landlords will  be affected.  I appreciate that this might not be the same conclusion  reached  by other commentators  on the measure. However, this was calculated by HM Revenue and Customs using actual self-assessment  data.

We appreciate that some of the landlords who will pay more tax as a result may have to make important decisions regarding their properties. In order to give landlords time to plan ahead of the changes, we are phasing the changes in over 4 years from April 2017.

The report also highlights case studies  of  how landlords may be affected.  It is important to note that these are rare cases and do not reflect the circumstances of the majority of landlords. As explained above, we expect that only around 1 in 5 landlords will pay more  tax as a result of the changes.

Given the small overall proportion of the housing market affected, we do not expect the changes to have a large impact on rent levels or house prices. The Office for Budget Responsibility also expect the impact on the housing market will be  small.

The report claims that income tax changes made by the Irish Government in 1998 had an impact on rents. However, these changes are not comparable with those being    introduced in the UK. Originally,  the Irish Government abolished tax relief for finance   costs altogether. The Irish Government since reintroduced the relief but placed a flat 75% cap on the amount of finance costs that attract tax relief. By comparison, in the UK the Government have retained tax relief for finance costs at the basic rate of income tax and  all individual landlords will receive tax relief at the same rate, regardless of their level of income. This is to meet our  policy objective of levelling the playing  field.

Whilst most letting and managing agents provide a reputable service a minority of agents offer a poor service and engage in unacceptable practices. The Government is keen to see all tenants receiving a good service from their  landlord and letting agent. That is why,  since 1 October 2014, it has been a legal requirement for letting and managing agents in England to belong to one of the three Government approved redress schemes and that is also why we announced in the Autumn  Statement  a ban on up front  letting agent fees paid by tenants in England. This will support better competition in the market and bring down overall costs. This will mean that tenants will be better able to search around for properties that suit their budget and there will be no hidden costs. This is preferable to tenants  being hit with  upfront charges that  can  be difficult for  them  to afford.

The Government will consult in due course on the detail of how best to implement a ban and will consider the views of  property agencies, landlords, tenants and other  stakeholders before introducing legislation. I would encourage your constituent to participate.

I hope this has helped explain the Government’s position on this policy. The Government will keep it under review, as it does with all tax policy, and it is certainly helpful to have seen the arguments and issues that have been raised.

Please pass on my thanks to Lyndon for taking the trouble to make us aware of these concerns.

JANE  ELLISON

 

Letter to Emma Reynolds MP House of Commons London from Gavin Barwell Minister of State for Housing Planning Department for Communities and Local Government

Email:gavin.barwell@communities.gsi.gov.uk www.gov .uk/dclg

1 6 JAN 2017

Thank you for your email of 16 December on behalf of your constituent Lyndon about implications of Clause 24 and the banning of Letting Agent Fees.

I have noted Lyndon’s concerns. The Government recognises the important role that buy-to-let landlords play in the in the UK housing market and economy. At Summer Budget 2015, the Government set out a package of measures to reduce the budget deficit, rebalance the economy and make the tax system fairer .

By restricting finance cost relief to the basic rate of income tax, all finance costs incurred by individual landlords will be treated the same by the tax system and will reduce the distortion between property investment and investment in other assets. It will also reduce the   advantage landlords may have (for example over first time buyers) in the property market. Landlords will continue to be able to claim income tax relief at their marginal rate on the day­ to-day costs incurred in letting out a property, such as letting agent fees and replacing   furniture. Using actual self-assessment data, HMRC estimate that only 1 in 5 landlords will  pay more tax as a result of this measure. Furthermore, this change is being introduced gradually from April 2017 over 4 years, ensuring  landlords will have time to adjust and plan  for this  change.

I have also noted concerns about the Government’s announcement in the Autumn Statement to ban letting agent fees to tenants. Whilst most letting and managing agents provide a good service, a minority of agents offer a poor service and engage in unacceptable practices. Banning fees to tenants will support better competition in the market and bring down overall costs. The Department will consult ahead of bringing forward legislation.

I hope this helps to explain the actions Government is taking to bring balance and fairness to the house market.

GAVIN BARWELL MP

 

My Response to Gavin Barwell MP:

Dear Mr Barwell,

Thank you for your letter to my Constituency MP, Emma Reynolds, who recently raised some concerns, on my behalf, in relation to clause 24 Finance Act 2015 and the proposed ban on letting agent fees to tenants.

I am now in receipt of your reply to her and would like you to understand and consider the following points;

Let me begin by telling you about me and my family. I do this because I am probably very representative of many other buy to let landlords ( ‘landlords’ being the appropriate description, as opposed to ‘investors’!!), who feel absolutely let down and had their whole life plans potentially destroyed by a Conservative government!

I am from a very working class background in The Black Country, attending a local comprehensive school and being bought up by extremely hard working parents, who, against the difficulties of that time worked hard on the shop floor of factories and installed in their children, the values of hard work and non-reliance on the state.

I went on to enter the West Midlands Police Service and complete 30 years public service in that difficult job.

I have lived my life, working hard and looking after my wife and three children and planning for the future. I own my own house and 15 years ago I decided to take serious risks with the capital that I had saved up.

With much trepidation I entered the property industry, as a buy to let landlord. I risked the ‘family jewels’ with deposits and borrowed heavily (1.8 million. In total), in an effort to create a business that would support my family, both now and in retirement! I now own a portfolio of property locally and then went on to become a letting agent.

My children have all gone on to university and we as a family are no burden whatsoever on the state. We are all self-dependant and although this is changing, we are a typical CONSERVATIVE VOTING FAMILY!! I have voted Conservative at every election since 1979.

I am at this moment in time a member of the Conservative party, however, this is likely to change, as this party is about to be responsible for completely decimating my plans and security for my future.

Most BTL landlords that I encounter, who have used their own, hard worked for deposits and then borrowed to buy property, are natural Conservative voters. There are thousands of these disgruntled people across the country, who are turning their backs on your party in droves. They feel, as I do, that their plans and hard worked for aspirations are about to be ruined!

I have consistently provided good affordable housing for disadvantaged people and also a section of society, who would historically have lived in ‘council accommodation’. I have recently been recognised by my local council, Wolverhampton City Council, by being awarded their first ever 5 star grade, as both landlord and agent. This represents the highest standards in relation to their new and innovative accreditation scheme.

So I think I have now set the scene. Regardless of all the TV and negative media publicity, this is how the vast majority we landlords and agents operate.

All my life I have ‘done the right thing’ and now the rug is being pulled from beneath me by a CONSERVATIVE GOVERNMENT!!!

Now let me address the comments in your letter;

SECTION 24 FINNCE ACT 2015

  1. How does this level the playing field with first time buyers?

I’ve been a first time buyer, we all have! I bought the house to live in and if after a

period of time I sell it and make a profit, I’m exempt from CGT.

Not so when I buy a BTL property and I’m fine with that.

  1. How can investing in a BTL property be compared to investing in shares? With a share you buy a part of a company and it either goes up or down. I do not consider myself to be an investor, I am running a business, which has associated running costs, one of these being mortgage interest. To run this business I rent the property to a human being and then manage everything that comes with that.
  1. How HMRC have come up with the figure of only 1 in 5, is beyond me. As you are aware landlords will now be pushed into the higher rate tax band by the fact that their turnover will contribute the calculation as opposed to profit. They will now be paying tax on a fictitious profit! This will inevitably force many to sell as no one is going run a loss making business.
  1. A business is what we are running. A difficult business, which involves the skills of managing what can often be challenging human beings. What other business is not allowed to offset their running costs, IN TOTAL, against tax? It is the equivalent of a taxi driver not being able to offset the finance costs of their vehicle and fuel! Ridiculous. We are left paying tax on a fictitious profit.
  1. Who is this change in tax policy going to hit?

Or who is it NOT going to hit?

  1. The Rich – they remain unaffected. They own their property outright and this has no impact.
  2. Property companies – the directors hold their property in limited companies and can continue to offset all their finance costs, but an individual landlord cannot. How bizarre to create a situation like that?

You point out that the changes are being phased in over 4 years to allow for adjustment. The only room for adjustment is to either exit the market, creating homelessness, put rents up to unaffordable levels, or incorporate with all the added financial costs that that brings!

You are actually creating a situation whereby many higher rate tax payers, who have paid their income tax on the rental profit at 40%, year in year out, like me, are going to form limited companies and pay less tax. Why oh why would a CONSERVATIVE GOVERNMENT be doing that. Why are you going to force landlords to incorporate? That is the only logical adjustment, as you refer to, that can happen.

I’ve tried to remove myself from my landlord’s role and see the logic in what is happening and I cannot actually believe that a Government, that truly understands the implications would continue with it!!! It’s unbelievable!

Given all these points, and I acknowledge that others have set these out to the government in far more depth and with more eloquence than me, you are still set on course to continue with it. Perhaps you should at the very least, make some allowance for people whose plans are in place and not apply it retrospectively! Put it into place for new BTL purchases only.

Lastly, let me address the second issue raised;

PROPOSED BAN ON TENANT LETTING AGENT FEES.

I absolutely acknowledge that there are many rogue agents who in areas of extremely high demand for property, charge extortionate fees. My two daughters both rent in London and believe me I know! However, the moderate fees that most agents charge are realistic and are necessary to enable the agent to provide a good 24 hour service.

We are an agency, managing 300 properties. We offer 24 hour cover to the tenant and will assist in dealing with benefit claims etc. etc. All my staff are qualified in understanding the benefit system. They have been accredited locally by the Local Authority. These services will need to be cut if this ban is brought in.

There are many time wasters, who insist that they want a property and then back out at the last minute. Without the provision of some fees this will get worse.

I have calculated that the loss to our company will be in the region of £24k, which is someone’s job. These fees cannot realistically be passed onto the landlord, the competition is already high and this encourages lower charging agents to flourish. But these agents cannot provide the levels of service that a tenant deserves.

My feelings are that a blanket ban is the equivalent of using a broad brush to tackle a problem that is specific the certain areas and certain agents. Maybe, if you need to legislate, cap the fees?

Mr Barwell, I do hope that you will take my thoughts into consideration and I look forward to your considered response.

Yours sincerely

Lyndon

Landlord and Letting Agent


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Comments

Dr Rosalind Beck

14:11 PM, 24th February 2017
About 4 years ago

Reply to the comment left by "Appalled Landlord" at "24/02/2017 - 14:02":

Yes, excellent point, AL. I think it would be very good to write single-issue emails to her - so one could just completely focus on her 'mistakes' regarding Ireland and try to get her to admit she is wrong.

terry sullivan

14:15 PM, 24th February 2017
About 4 years ago

i did comment before that barwell is lobby fodder--his response above supports my statement

Appalled Landlord

14:47 PM, 24th February 2017
About 4 years ago

Reply to the comment left by "Dr Rosalind Beck" at "24/02/2017 - 14:11":

Hi Ros

I have sent emails to her in the past but, of course, never got a reply.

The only way she can be forced to reply - and admit she is wrong - is if the MP writes back to her, following a letter or email from Lyndon. It would be good for her to realise that she cannot rely on the minion in the Treasury who drafted the letter.

money manager

20:03 PM, 24th February 2017
About 4 years ago

The "level playingfield" was achieved with the abolition of MIRAS after the much earlier discontinuance of income tax on imputed rent. Barwell clearly does not understsnd history nor that HMRC describes residential letting as a business and not an investment despite areas of inconsistency..

Simon Hall

21:02 PM, 24th February 2017
About 4 years ago

Reply to the comment left by "Paul Green" at "24/02/2017 - 13:22":

George Osborne Lying Little C***.

Gary Dully

3:45 AM, 26th February 2017
About 4 years ago

Well done trying, but these MP's are just mouthy arseholes who are either stupid, don't care or in it because they can only sponge or fiddle an expense.

So let's keep it simple.

I house 53 tenants, 8 are on benefits.

I borrowed £1.6m million to do it, over 12 years.

You numpty brains are now going to tax me for the privilege of paying interest to my bank, from rents received.

At an interest rate of 4%, I will, all of a sudden, be deemed to be earning an extra £64,000, before even getting out of bed on the 6th April, 2017.

Assuming that you don't want a striver to suffer or a JAM to pay any extra overhead, where shall I tell my 8 benefit tenants and the other 45 to apply for a new house from?

Can you or the council house them all for £1.6m?

It's only £30,189 per tenant! (Bargain!)

And as you know the average house price in the U.K. Is £216,750, which is £11.487750m is all you will need, to replicate what has been built up in the last 12 years, just by little old me.

As for the lucky tenants......

None of them can afford a 5% deposit of £10,838 for an average new build and none can afford the standard £54,188 deposit of 25%.for a second hand property at the current average house price.

As I am one of the 1 in 5 landlords who will be affected, any tax bill I will be due for in the future, my tenants will be paying.

That is because they pay for EVERYTHING that you stupid, backstabbing, lying, cretins dream up against landlords, PLUS, allowable business expenses, PLUS capital repaid, PLUS licensing fees, PLUS my current tax bills, PLUS council tax, PLUS EVERYTHING down to my toilet paper.

It's worth repeating so it sinks in, for any Tory MP without a brain, that can't add up past 100, without needing smelling salts or a free holiday.

The poorest people in the housing market will pay for Section 24 and when the interest rates go up, so will the rents, at a HYPERINFLATION rate never, ever, seen before in this country.

My tax bill (rent increase), will be increased by £800 for every 1/4% rise in interest rates + £4000 of extra interest, payable to the bank, without having to make a profit!.

That's a rent rise of £90.60 per tenant a year, for every 1/4% interest rise.

Now let's pick an average house in Wolverhampton North East, which is £146,897 for a semi and compare a similar 1 in 5 landlord.

X 53 households that rent = £7.785541m at a capital vs borrowing of just 50% = £3.892771m @ 4% = £155,711 interest, will suddenly become taxable income from April 6th, 2017.

The landlord is in a super tax bracket without having to earn a single penny in profit

What sort of rent rise do you think is going to come screaming at the constituents from their landlords in that constituency?

Now increase the bank interest rate by just 1/4% and see what happens.

The increase is £9732 interest + the section 24 tax of 25% ( £2433) , which is £12,165 or £230 per household.

Go into the shire counties of Tory Blue and bang in a calculation for Theresa May's constituents of Maidenhead.

Average Semi £464,703 x 53 households £24.629259m
At a Capital vs Loan Rate of only 50% = £12.314630m borrowed.
At an interest rate of 4% that's a taxable income of £492,585.

For every 1/4% of interest rate increase that's a taxable income increase of £30,787 and Section 24 tax of £7,697
Or a rent increase of £726 per household, just to pay HMRC and the banks.

Now put David Gauke out to pasture and the Tory Government.

They think business rates are troubling, they ain't seen nothing yet!

I forecast riots in the streets!

If you want to pass this on, feel free.

Gromit

8:14 AM, 26th February 2017
About 4 years ago

Reply to the comment left by "Gary Dully" at "26/02/2017 - 03:45":

Great post but there is an error in it at to what happens if interest rates go up. If your interest increases by £9,734 the s.24 tax "relief" increases by £2,433 so the net cost to the Landlord is £7,301 not £12,165. Furthermore the deemed income of the LL remains unchanged (as interest is excluded from the calculation) for tax purposes.

This underlines just how confusing this tax is.

Gromit

8:30 AM, 26th February 2017
About 4 years ago

George Osborne, the Treasury and HMRC know full well how devastating the tax will be to Landlords.

I don't have any special insight, but it obvious if the tax was only fairly minor (let's say increasing the tax you'll actually pay by 10%) then it would have been implemented in one go and probably at the beginning of the next tax year.

But what they actually have done, because it is so ruinous, they delayed its introduction for nearly 2 years and then phased it in over 4 years.

THEY KNOW HOW BAD IT IS GOING TO BE!

Of course, 6 year introduction gives their BTR donors time to get their acts together. And collect 28% CGT from LLs who exit the PRS and SDLT from the buyers of those properties. Why do you think LLs were excluded from the CGT reduction?

BECAUSE THEY KNOW MANY LLs WILL BE FORCED TO SELL UP.!

Tobias Nightingale

12:38 PM, 26th February 2017
About 4 years ago

Reply to the comment left by "Barry Fitzpatrick" at "26/02/2017 - 08:30":

I am not totally disagreeing with your analysis but regarding cgt, I would imagine if that was the case, they would have increased cgt to income tax rates and then to appease oldtimer LL reinstated indexation allowance accompanied by some drivel about the desire to promote long termism rather than the short term property buying profit making.

I do think the top ministers know exactly what they are doing, but the other MP's generally lacking a certain grey matter and others also know but don't want to rock the best in case it jeopardizes their 'career'. Others try and lobby behind the scenes (at least on this matter because LL are hard to stick up for)

Gromit

14:21 PM, 26th February 2017
About 4 years ago

Reply to the comment left by "Tobias Nightingale" at "26/02/2017 - 12:38":

I don't think they wanted any bigger barriers to LLs selling, having twisted their arms up their backs and twice their necks, to make way for the Tories BTR donors.

I tend to agree with you re grey matter but include Ministers as well, it's the civil servants that pull the strings.

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