New Landlord Tax Could Affect 4.6 million Tenants

by Gareth Wilson

9:43 AM, 5th February 2016
About 3 years ago

New Landlord Tax Could Affect 4.6 million Tenants

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New Landlord Tax Could Affect 4.6 million Tenants

Research conducted by Property118 members has revealed how up to 4.6 million tenants could be affected by George Osborne’s tax attacks on buy-to-let landlords. New Landlord Tax Could Affect 7.2 million Tenants

In spite of ever-mounting criticism of the Clause 24 tax-grab from various quarters of the United Kingdom’s private rental sector, constituency MPs persist in replying with the following two points, duplicated courtesy of the Treasury.

These arguments, designed to justify and excuse Clause 24 are that:

  • The measure ensures the landlords with the largest incomes will no longer benefit from higher rates of tax relief.
  • Less than 1 in 5 of individual landlords are expected to pay more tax as a result of this measure.
  • Source – https://petition.parliament.uk/petitions/104880

The first of the Treasury’s arguments is completely incorrect. Clause 24 will not affect the country’s richest landlords: these of course being corporate rental providers – some with property portfolios reaching into the thousands – and wealthy cash-buyers. The second argument seeks to down-play the effect by giving a misleading impression.

Now, I would like to correct that impression. My aim here is to estimate how many tenants are likely to be affected by Clause 24. HMRC’S impact statement did not give any indication of this, or even mention the word “tenant”.

This article is going to explain how the Treasury’s declared targets – those 1 in 5 of individual landlords “with the largest incomes” – have been calculated to be housing around 4.6 million of the Nation’s tenants. Such a statistic may sound remarkable, but its basis is rooted in the size of the largest, individual landlords’ portfolios.

Among his responses to irate landlords, disseminated to fellow MPs, the Treasury Minister David Gauke explains “The Government appreciates that this will cause some landlords to take difficult decisions regarding their rental properties, which is why the restriction will be phased in over 4 years from April 2017”. The difficult decisions, to which Mr Gauke refers, are of course whether the affected landlords should significantly raise their rents or evict their tenants and sell with vacant possession.

Unfortunately, Mr Gauke and a great many of his Government colleagues have failed to account for the multiplier effect of the aforementioned 1 in 5 of landlords, namely the significantly greater number of tenants on the receiving end of such rent rises and evictions. These landlords each own multiple rental properties.

Let us take as our starting point, the total number of private individual landlords in the United Kingdom. In response to an FOI request, the Treasury stated “When producing the impact report on the proposal to restrict finance cost relief for individual landlords HMRC assumed there were 2.1 million individual landlords in the UK who declared that they rent out 3.7 million properties in total.”

The next stage is to discover how many properties the 1 in 5 own.

For such a data set we must turn to page 11 of the Department for Communities and Local Government’s Private Landlords Survey 2010. This is the latest government study that is available. Here it was reported that 81% of landlords owned just one rental property. Applying this percentage to the 2.1 million individual landlords as per the FOI request gives 1.7 million owning, by definition, the same number of properties, leaving the other 400,000 individual landlords (19%) with the remaining two million properties.

Though evictions and property sales triggered by Clause 24 would almost certainly be concentrated on directly-impacted mortgaged properties, rent rises designed to mitigate these extremes would likely be applied by buy-to-let landlords across their entire portfolio, irrespective of which property is mortgaged or mortgage-free. The simple logic of such a strategy would be to minimise the financial burden upon individual tenants. This would mean that even tenants living in mortgage-free homes would be paying higher rents as a result of Clause 24.

Having obtained a figure for the affected number of properties, the next step is to determine the number of tenants at risk. According to the ONS, the average rental property in England and Wales is occupied by 2.3 tenants. If we multiply the two million properties calculated above by the average number of tenants per rental property in England and Wales (2.3), the sum total of tenants at risk of rent increases or eviction due to Clause 24 is 4.6 million!

Those tenants unable to afford rent increases will be evicted, as will those whose landlords are forced to sell up. With poorer renters increasingly priced out of the private rental sector, the supply of rental properties available to those on benefits will fall, resulting in people having to move into temporary, unsuitable bed and breakfast accommodation at considerable expense to the public purse. The demand for social housing will increase at a time when there are already very large waiting lists for social housing.

In summary, around 400,000 individual landlords (1 in 5), housing 4.6 million tenants, are to be put under financial pressure to increase rents as a result of Clause 24.

Even if only 1 in 5 individual landlords are adversely affected by George Osborne’s buy-to-let tax grab, the number of people impacted throughout Britain will be significantly greater than this quoted grouping suggests. After accounting for the much greater number of their tenants, we can say with confidence that the negative consequences of Clause 24 – of rising rents, evictions, expanded council housing waiting lists, and contracting rental supply – will be massive, widespread and far in excess of official Treasury expectations.

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Related articles – LINK

http://www.property118.com/category/budget-2015-campaign/



Comments

Luke P

10:22 AM, 5th February 2016
About 3 years ago

I think we need to start referring to this a George's "tenant tax" in much the same way as the "bedroom tax" was promoted. It has been discussed in various threads on this site, but we should all now make the conscious effort to stop with the Clause 24 moniker. We know what it means but so many do not and George's "tenant tax" is more impactive.

Dr Rosalind Beck

10:34 AM, 5th February 2016
About 3 years ago

An excellent and important article from Gareth Wilson. This has to be publicised now. It should be on the front page of the newspapers.

Mike W

10:39 AM, 5th February 2016
About 3 years ago

I agree with Luke a tenant tax is far more powerful.

Dear X, I regret to advise you that due to the Tenant Tax created by despicable George, I must increase your rent by y% in order to pay this discriminatory tax.

I also liked Barry's analogy of duty on petrol and that petrol stations do not 'absorb it'. They have to pass it on.

Another thought is that it is analogous to a tax on the corner shop owner but not the big supermarkets.

Anthony Endsor

10:47 AM, 5th February 2016
About 3 years ago

Well I'll tell you what I've seen so far.
I'm a 'small' landlord in that I own 5 properties. I am (for now anyway) a 20% tax payer, but whether or not this will push me into the 40% bracket remains to be seen.
I live on a street where a number of houses are tenanted.
Earlier this week, the tenant of one of those properties knocked on my door in tears. She and her husband had just been given notice by her landlord because he wants to sell the property. Due to the new tax rules it is now unsustainable for him to keep the property. He would be perfectly happy to sell to the tenants, but they can't get a mortgage big enough to buy the property, despite the fact they are both working and bringing in decent incomes.
The tenant asked me if I had any properties to let at this time. I had to tell her no because I don't. The next day her husband came round and asked if I would be able to buy the property from the landlord and rent it to them. I said I doubt it as this would put me in the same situation.
The fact is, these tenants are desperate to stay in their homes and the government are now forcing them out with this measure. They have been there 8 years and don't want to move. The landlord has also said he doesn't want to sell but now has to.
So this leaves a couple and 3 children homeless. The landlord will most likely use the money to invest abroad at a rough guess.
Can you spot a winner here? Tenants, landlords?
Oh yes, there is one - George Osborne! And what has he succeeded in doing? Making people homeless! Well done to him.
To add insult to injury, this thing about the government wanting to create more owner occupiers, well as I said this couple are both on decent incomes and can't get a suitable mortgage. This would be thanks to the tightening up on residential mortgages last year.
What a wonderful country we live in!

Simon Griffith

10:53 AM, 5th February 2016
About 3 years ago

Great article Gareth. Quite incredible how the Treasury has not worked this out or maybe it has and doesn't care. The article confirms all the anecdotal evidence that sensible business people were already aware of.

I completely agree we should all use the term 'Tenant Tax'. I use this in all my emails to MP's and importantly in all my rent increase letters.

It needs to become a common phrase much the same as 'bedroom tax'.

PS I have just got a report from Savills - front page summary.....'the rental market will still expand by more than one million households over the next five years despite measures to turn 'generation rent into generation buy'. Demand up, supply down, rents up - even Gauke should get that basic economics.

Man on Stilts

11:14 AM, 5th February 2016
About 3 years ago

Agreed that 'Tenant Tax' has more of an impact than clause 24. Clause 24 won't grab, or mean anything to most people; it will be dismissed by the tenant reader. Tenants need to become aware how much they will be affected by this monumental and ludicrous change in taxation.
Whatever actions each individual landlord takes with their property portfolio, it may be worth them writing to their tenants anyway to explain the Tenant Tax. This may help circulate the word on the street.

Luke P

11:19 AM, 5th February 2016
About 3 years ago

"...the average rental property in England and Wales is occupied by 2.3 tenants."

In this calculation, are children considered tenants among that number? If not, the true figure of people potentially facing homelessness is greater still!

Chris Byways

11:28 AM, 5th February 2016
About 3 years ago

Fair comments.

You say "These landlords each own multiple rental properties."

This might be disingenuous, as the TENANT TAX affects ONLY those tenants where the landlord is NOT uber wealthy, so has a mortgage, ergo does not OWN several properties.

Suggest it should read "These landlords underwrite the financing risk of multiple rental properties"

But I doubt it will only affect those tenants of mortgaged landlords, but the returns, after all the legislative changes, are often marginal, and so will affect most tenants. After all, they still have to finance one way or another, forego interest/dividends, they do not stand to make (or lose) from the leveraged gains - if any.

Chris Byways

11:57 AM, 5th February 2016
About 3 years ago

And another thing on this Tenant Tax, how many have been given notice, or have the uncertainty of "WHAT WILL HAPPEN WHEN ITS SOLD."

Look at these 3 properties, 35 bedrooms of flats in just one small mid Wales town.

http://www.rightmove.co.uk/property-for-sale/property-50809898.html

http://www.rightmove.co.uk/property-for-sale/property-54324437.html

........ could be an attractive venture for investors with a potential yield of 11% available based on the guide price of £320,000 and rental incomes of £260.00 pcm (£60 pw) for a one bedroom apartment and £303.33 pcm (£70 pw) for a two bed, but as previously mentioned this beautiful building could also be transformed into an impressing, large family home and as a result appeal to a variety of potential buyers.

Read more at http://www.zoopla.co.uk/for-sale/details/37713851#J7Md5u8kc6wRZDyi.99
http://www.zoopla.co.uk/for-sale/details/37713851?utm_source=homesco&utm_medium=feeds#YE4tr140mqMoQgGO.97

That is perhaps 50 people could end up being evicted if they were converted, as it says, into large homes for just 3 affluent families.

These are all decent flats, they are all being affected by the Tenant Tax.

Why would someone ( a snivelling parasite) buy one of these, when they could invest in this?
http://www.rightmove.co.uk/commercial-property-for-sale/property-52906507.html

No extra SDLT. More profit, less hassle.

Gareth Wilson

13:16 PM, 5th February 2016
About 3 years ago

Reply to the comment left by "Anthony Endsor" at "05/02/2016 - 10:47":

Hi Anthony,

I think that the next time you see that poor couple, you should recommend they speak to your local MP and e-mail Mr Osborne and Mr Gauke.

There are also a growing number of journalists at the Telegraph, Mail and Express who I'm sure would be fascinated to hear their story.

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