by James Fraser
9:45 AM, 6th February 2016, About 6 years ago 8
Over the last few weeks I’ve been growing increasingly nervous about the prospect of sending out the inevitable rent rise letters to my tenants. Additional tax levies are always passed onto the consumer, e.g. when Government announces in the Budget that another few pence of tax will be added to the cost of petrol the price is passed onto the consumer at the pumps. Clause 24 is no different – like all stealth tax, it is always passed onto consumers of products and services.
I’ve never wanted this to happen, you understand, and some of my tenants are either vulnerable, or good working families doing their best, none of whom I would wish to burden with any additional stress. I have therefore been somewhat putting off the day when I had to send them their notices of rent increase, but as I had planned to enact the rise from April, and wanted to give them as much time as possible to absorb the impact, I thought I ought to bite the bullet and get it done without further ado.
All my rent rise letters went out recently and I was expecting a backlash, at least from one or two. I put the rents up from £750 to £850 in an environment where £1000 or more is the new normal. I wrote a long and kindly explanation with each one. So far, I’ve heard from all of those I’d most worried about and all are saying that a) they expected it, b) they thought the rise would be much more, c) they’re amazed at how many years it’s been without a rise, and d) they wish us every success! I even met with one particular tenant yesterday who was so clued-up about Clause 24 we could have invited him to join our campaign team. He was way ahead of me on the twisted unfairness of it all, and had written letters to everyone relevant. I feel greatly relieved now as I genuinely hated sending out those letters and had consistently put it off.
Most of my tenants seem to ‘get it’ very clearly. The tenants are joining us. Drip, drip, drip.
Also, with Osborne recently stating how taxing a business on turnover, or that paying tax on a loss isn’t right, he will hardly be able to extricate himself from that very easily when under pressure from the silks. This legal challenge is set to be very, very interesting indeed.
Here is the letter template I’ve been sending to my tenants:
RE: CLAUSE 24 SUMMER FINANCE BILL 2015 and the impact on your future rents.
This is one of the most difficult letters I have ever had to write to a tenant. Whilst I take no pleasure whatsoever in sending you this, it contains information you need to know and understand. Although addressed to you personally, most of my tenants are receiving identical letters, as are countless other tenants nationwide.
As you may be aware from my previous correspondence to you, or perhaps from the media generally, George Osborne announced some truly ruinous changes for landlords and tenants in his July 2015 budget, known as Clause 24.
What Clause 24 does is cease to treat private residential letting like any other business activity, so that instead of allowing our costs to be considered in the calculation of any taxable profit in the normal fashion, they will now be recalculating finance expenses as if they were income rather than an outgoing cost. This effectively creates a huge additional levy on private renting which is so expensive, that for many landlords the new tax bills will literally be more than they earn in terms of real profit. I know of one landlord who, with his day job, earns £27,700 a year – under the new rules, his tax bill becomes £77,800 a year. The inevitable result of this is that to avoid bankruptcy, landlords will either have to sell and evict their tenants, or at the very least enact some substantial rent rises to try to cover the new bills.
Despite large numbers of landlords, public bodies and economic institutions furiously arguing against these changes for several months, they became law last November, so it would appear, as things stand, that unless something happens in the coming year to prevent this, these changes are proceeding. I am proud to say that I am one of a handful of people nationwide who are so opposed to these changes that we are taking the government to court to try to force this to be overturned. The odds against us being successful are high, but we will not give up until we have done all we can to keep our tenants in relatively secure and relatively affordable homes. We do NOT want this to happen, either to us or to you. It strikes us as purely a government tax-raising exercise designed to target everyone in the private rented sector.
Despite the media image of landlords and tenants always at odds with each other, the truth is that very many professional landlords care very much about what happens to their tenants, and do not enjoy raising rents or evicting the families in their care. I would hope very much that your experience of me, doing whatever I can to keep you in your home and to keep your rents unchanged in many years, demonstrates that I have never been interested in greed or in making you feel anything other than extremely welcome as a long-term tenant. If it were up to me, there would be no changes.
However, reality is moving things along out of my control. From this April, I will have to face some expensive changes to my costs – also thanks to the government – and when Clause 24 hits in April 2017, then I am afraid there will have to be a complete reassessment of where market rents are at that time and what I might need to do to mitigate the disastrous effects that are surely heading our way. I have never wanted to put up your rent, and I had always planned never to do so until outside forces gave me no choice. It would seem that due to these unexpected circumstances, that moment is now fast approaching.
Therefore, from your April payment, your rent will be increasing by £100 pcm. This means it will go up from its present rate of £750 to £850. The enclosed paperwork is the official and correct documentation for this. Whilst I realise and understand just how unwelcome this news is, please believe me when I say I do not want this to be happening and that every single penny of your rise is, either this year or next, going directly into the hands of The Treasury. Also, though I realise £100 may seem like a lot of increase, it is the minimum I can manage to cover my increased government bills and still leaves your rent well below comparable properties at full market value, which would otherwise be around £1000/month. If there was any other way of avoiding or postponing this situation, I would do it as it has never been my intention to cause you anything but good will.
I realize that you will need time to arrange finances or consider your options, which is why I have tried to give you 2-3 months of advance warning. If you wish to give me notice, I quite understand. If you wish to take this letter to the council, please do so and explain to them just how many tenants are likely to be approaching them for assistance, all because of Osborne’s stupidity and disregard for the people who need rented housing to be as affordable as possible.
I hope you can understand the position. If you have any queries or comments please do address them to me or the relevant figures in authority. Otherwise, please make whatever arrangements you need to, to meet the new rent in April.
My sincerest apologies, and best wishes to you always,”
I was truly quite nervous about sending this, but with the right explanations, support, and care, the tenants seem to understand the inevitability of the situation. Being forewarned about April next year too means that any future rises might be easier to stomach. And luckily for me, the two tenants I wanted to hurt the least both – coincidentally – gave me notice the week before I sent it, which means they will not suffer the rise and I’ll be able to start over with new tenants at nearer market value. It’s about as happy an outcome as it could have been.
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